DAVOS, SWITZERLAND — The Trump effect has taken over all the dinner party chats at the World Economic Forum in Davos this year — on and off the record.
"What can go wrong?" one President Trump insider said somewhat sarcastically to us after a panel on technology.
Loosely defined two days into his second presidency, the Trump effect could be summed up as unbridled levels of excitement by executives on the future of US business and the brushing aside of possible downsides.
Tariffs fears? No problem! They will be offset by explosive US growth. A trade war with Europe? No problem! More stuff will be made in the US at a cheaper price. Deficits, a surging 10-year yield, and tariff-driven inflation?
No problem! The stock market is at record highs, making people feel wealthier and encouraging them to spend — even if not everyone is invested in the market.
Trump unleashed a historic wave of executive orders and actions on Monday that included many areas of interest to investors and businesses. They include the invocation of a national energy emergency designed to spur domestic energy production, a withdrawal from the Paris Climate Accords, and a regulatory freeze.
Bank executives were exuberant. JPMorgan head of asset and wealth management Mary Callahan Erdoes said his policies are creating a “very pro-business environment,” noting that “animal spirits” are alive and they are hopeful for a lighter regulatory touch that will boost lending and fuel economic growth.
"They have been up all night and are working on it," Erdoes responded Tuesday morning on how JPMorgan views the impact of Trump's policies on the economy.
Bank of America (BAC) CEO Brian Moynihan also joined in on the Trump effect optimism, striking an upbeat tone in a Yahoo Finance interview (video above) on financial regulation and crypto — a mood shift for Moynihan from the last time we talked at Davos 2022.
Crypto, as much as anything, has played a front-and-center role so far at Davos as business leaders look to take advantage of whatever policies the most crypto-friendly president ever will enact.
Ian Bremmer of Eurasia Group, right, speaks with Yahoo Finance senior reporter Jennifer Schonberger and executive editor Brian Sozzi, left and second from left, at the World Economic Forum in Davos, Switzerland. ·Yahoo Finance
"He really wants to be the first bitcoin president," said Coinbase (COIN) CEO Brian Armstrong, who's attending Davos for the first time — which says a lot about the current crypto moment. Armstrong met with Trump before and after the election to advocate for the crypto industry, including a strategic reserve.
So far, Trump has appointed crypto advocate Paul Atkins to lead the SEC and venture capitalist and former PayPal (PYPL) executive David Sacks as an artificial intelligence and crypto czar — good signs, the industry thinks.
Not everyone is sanguine Trump will usher in a booming economy, however.
“I don't think we're going to see the boom that we saw in the first time,” Harvard economist Ken Rogoff told Yahoo Finance.
During the first term, interest rates were near zero, and the economy — recovering from COVID — had momentum and the ability to borrow for practically nothing. Rogoff said many of Trump’s policies are geared toward extending a currently strong economy. While he doesn't envision a recession, Rogoff suggests growth will remain strong during the first half of Trump's term and then slow in the second half.
When it comes to tariffs, Rogoff is less worried about an inflationary impact and more so on the chaos that could ensue, as it "hurts these animal spirits" and "leads to slower growth." But Rogoff still sees inflation continuing enough to prevent the two-odd rate cuts the market anticipates from happening.
“I think the odds of a hike are the same as the odds of a cut,” he said.
Meanwhile, on the trade front, both Europe and China have issued conciliatory messages. European Commission president Ursula von der Leyen said when it comes to global trade, “a lot is at stake for both sides" and that Europe’s first priority will be to engage early, discuss common interests, and be ready to negotiate.
“We will be pragmatic, but we will always stand by our principles. We will protect our interests,” von der Leyen said. This includes standing by Ukraine "for as long as it takes," US or not.
Meanwhile, China’s vice premier issued a hope that the “sun will break through clouds” amid a forecast of imminent trade wars and anti-globalization. He noted it’s time to cooperate to provide stability and that “protectionism leads nowhere, trade wars have no winners.”
A conciliatory note for a country that, according to LSE economist Jin Keyu — an expert in China — may see muted reactions to tariffs given the state of China’s economy.
