Nancy Bush

NAB Research, LLC, is a Georgia-based consulting firm specializing in providing strategic advice and market intelligence to financial industry participants. NAB is not a registered investment advisor and is not affiliated with any brokerage firm or hedge fund.
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What now?

Well, having survived yet another New Year’s Eve fraught with boredom, it’s time to go through that annual exercise in self-flagellation known as “predicting the future.” (Why can’t we just predict the past? So much easier...) It’s a time-honored tradition on Wall Street to spend hours pontificating on the social, political and economic issues of the year to come, and after listening to Bloomberg Surveillance for the last few days, I am pretty sure that I can pontificate at least as well as Nouriel Roubini and Larry Summers—both of whom, BTW, make WAY more money than I do— and say it all in way fewer words.

It should come as no surprise to any sentient human being that 2017 is going to be (note that I did not say “likely to be”) a year fraught with potholes. The newly-elected Republican majority in Congress has already shown that it is perfectly capable of returning to its default position as a circular firing squad, as the effort to eliminate the independence of the Office of Congressional Ethics quickly devolved into a fiasco that even Donald Trump could not countenance. That the Republicans could so quickly forget the lessons of past years does not bode well for their ability to smooth out the rough edges of the Trump presidency, and it’s now hard to see them providing the requisite adult supervision for a President who tends to machine-gun first and then ask questions later.

It’s also hard to see this year as one that will bring peace and tranquility to the American populace after 2016, a year that was jarring in the extreme to the American psyche and to any remaining illusions that we might have had that we are a united people. The early-year fight over the crown jewel of Barack Obama’s legacy—the Affordable Care Act—will provide the background for the first of many battles between conservatives and liberals in the Congress and in the media, and bruising battles over tax reform and immigration will likely follow soon after.

My hope is that the markets continue to do what they have been doing in the interim since the election—i.e., ignoring the noise and concentrating instead on the very real prospects for faster economic growth—and that as an investor I am wise enough to do the same. Indeed, if the Fed follows through with their projected two-to-three rate increases this year (and I believe that the markets may force them to do more), then older investors (like me) are likely to rediscover an asset class—cash—that they have neglected for years. A renewed interest in cash will have profound implications both for stocks and for bonds—and for banks—and a reordering of the investment universe seems to me to be a very real possibility in 2017.

It was interesting to me that there was so much unease expressed in conversations with friends over the holidays, both those who were opposed to the election of Donald Trump (and sincerely believe that he is a danger to American democracy) and those who have been his supporters but are nevertheless concerned about where his Presidency may take the country. Mr. Trump was, after all, the ultimate “wild card” candidate, and his actions and demeanor in the period of transition have put paid to the hopes of those who hoped for a kinder, gentler Donald. But I continue to take comfort that his Cabinet picks are men and women of experience in their fields and in the fact that real-world business experience will have a place in this administration to a much greater degree than it did in the last.

Managing one’s life—financial and otherwise—during the Trump presidency may prove to be challenging indeed. My view remains that the best defense against generalized chaos is a life (both internal and external) that is well-ordered and predictable, from the condition of one’s home to the ability to organize one’s day and the regular practice of some kind of meditation (religious in nature or not.) In short, I expect that Type A and OCD personalities (like me) will finally have our day of redemption, although there will be the inevitable realities that intrude upon the best -laid plans of even us hyper-organized neat freaks. (Like a trade war with China and a real war with North Korea, among other possible unpleasantries...)

And for those of us who follow the banking industry, the next few years are likely to be chaotic indeed. We have just spent the years since the Financial Crisis adjusting to a whole new set of rules and behaviors for the banking industry—thanks to the much-reviled Dodd-Frank Act—and it looks like we will spend the next few learning which of those rules no longer apply and which banking behaviors are acceptable once again. And of course none of these modifications to Dodd-Frank (or its outright repeal) will happen without a pitched partisan battle during which the sins of the banking industry (both real and alleged) will be rehashed for the American public. There will be much vilification on both sides of the political aisle and dire predictions of systemic instability (and yet another imminent financial meltdown) if the regulatory burden on banks is lightened.

Whatever. Like much of Wall Street and the investing public, I have become immune to the political wars and bank managements are largely accustomed to being used as political footballs, and life in the banking industry will go on. As my sources have emphasized, banking regulation does not require an actual change through legislation to be “lightened” by the enforcement agencies—that can be brought about simply by the change in political reality—and it is realistic to expect that draconian enforcement actions have left us for a while. In the meantime, banks will have to continue their emphasis on cyber-security and on fending off the efforts of those criminal and terrorist elements that constantly try to use the American financial system to their own ends.

Finally, not even The Donald can change the biggest reality impacting the American banking industry right now, and that is the massive shift in American demographics that is ongoing and is gathering momentum. The passing of the baton from the Baby Boomers to The Millennials (and the generations beyond that) will continue to mandate a change in the way that banks distribute their products and will make ongoing (for as far as the eye can see) the migration from branches to digital platforms. Block-chain, the cloud, etc., will go from being arcane computer jargon to mechanisms of financial transfers, and the banking industry will continue the inexorable shrinkage of its physical footprint—and of its employee base—as these trends progress in coming years. We are not going back to some nostalgic day of passbooks and toasters in the banking industry, and those of us who are older must embrace these new realities and learn new things.

My final thought on the new American reality is this. We—all of us, left and right—have characterized America as a participatory democracy, although the truth is that few actually bother to participate. It is clearly time for that dreadful condition of passivity to change. I suggest that we all put the phone numbers of our Congressional delegation on speed dial, that we write down their addresses, and that we make our voices known early and often through a variety of points of contact. If we don’t do that, then—in the memorable words of the comic strip “Pogo”— then we really have met the enemy, and he is us, and we have only ourselves to blame.