6. Market Update - Brexit
sources: HiddenLevers
Gap 1: Referendum <-----> Parliament Action
Gap 2: EU Markets <-----> US Markets
Gap 3: Press Sensationalism <-----> Actual Impact
Gap 4: Betterment <-----> Human Advisors
8. Election 2016: Markets Like Certainty
sources: Investing.com
Returns usually higher in Nov/Dec than Sep/Oct in election years
9. Election 2016: Markets Don’t Favor One Party
sources: First Trust
Election Year Returns:
• Mean performance = 11%
• No pattern regarding
party winning
• Only 17 elections in
Modern American Era
(post WWII)
• Not enough data to
determine party
significance
10. Election 2016: Most Diverse Electorate Ever
sources: FiveThirtyEight
CLICK
TO TRY
Key Trump Lever: Non-college-educated white vote.
11. Election 2016: Gridlock vs Double Gridlock
sources: HiddenLevers
Trump + GOP Congress
Trump + Dem Congress
Clinton + GOP Congress
Clinton + Split Congress
Clinton + Dem Congress
Trump + Split CongressStatus Quo
Obama
GOP 54/46
GOP 247/188
exec
senate
house
(pipe dream)
(pipe dream)
13. Immigration: Who is Coming to USA?
sources: HiddenLevers, Migration Policy Institute,
College Educated
Myths Busted
upper classes + educated people are having more kids not less
teen pregnancy is at an all time low
China + India top senders, Mexico not in top spot for years
14. Immigration: Who is Making Babies?
sources: UNO, WSJ, Pew Research
USA fell below
replacement fertility
rate in 2008.
Immigration makes
up the difference.
Demographic
Group Fertility
Hispanic 2.15
Black 1.88
White 1.75
Total 1.87
Break Even 2.08
Global Comparison Fertility
Total US (2007) 2.12
Total US (2015) 1.87
Germany 1.44
Japan 1.43
15. Immigration: Skilled Dreamers = GDP Growth
sources: OECD
USA has above average growth
compared to test scores. Will this last?
16. Immigration: Candidate Positions
sources: HiddenLevers
• Stricter HIB Program
• Build a wall at US
Mexico Border and
make Mexico pay
• Ban Muslim Immigration
• Deport all 11m
undocumenteds
• Nationwide e-verify for
employment
• Give “dreamers” a clear
path to citizenship
• Restart Obama’s
executive action to
legalize 6m
undocumenteds
• End family detention
and close immigrant
detention centers
Hillary Clinton Donald Trump
19. GOOD: Skills-Based Boom
source: HiddenLevers, OECD
US govt gets a clue on importing best + brightest
foreign college
grads get green
card with diploma
smart immigrants
create growth
adds 0.5%
to
GDP / year
HIB program
expanded
20. BAD: Gridlock
broken US govt = missed opportunities
source: HiddenLevers
GDP stuck in
low gear
30% of
immigrants
have college
degrees
status quo
1m immigrants
per year
gridlock
getting worse
not better
21. UGLY: Trump Wall
executive
power comes in
level of
enforcement
source: HiddenLevers
deportations + scrapped H1B = economic decline
actual wall
unlikely
GDP hurt by
less production
+ consumption
hard shut down
leads to market
correction
foreign markets
benefit from
skilled workers
22. Scenario: Immigration
Good:
Skills-Based
Boom
Neutral:
Gridlock
Ugly:
Trump Wall
GDP Growth
-0.5
S&P
-25%
GDP Growth
2%
S&P
+5%
GDP Growth
3%
Skills-based immigration
reform could raise GDP
growth to 3%, enabling new
market highs - but this is far
fetched given that neither
party views it as a priority.
The status quo remains the
slow growth witnessed the
last few years. Current
valuation levels imply low
equity upside without a
boost in growth.
An actual wall is unlikely, but
a crash in immigration
caused by new policies
might drag GDP growth
down, causing a correction.
S&P
+16%
23. Immigration – Take Aways
immigration is most important 2016
issue + neither candidate gets it
elections not at all
correlated to market returns
Trump Wall = GDP Killergridlock will not improve,
likely worse post election
let’s take all the credit
