Immigration + US Election30 June 2016

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Market Update

US Election 2016

US Immigration Snapshot

Scenario: Immigration

Immigration + US Election

NEW

HiddenLevers

MARKET UPDATE

Market Update

sources: HiddenLevers

Upper Middle Class

Housing DelinquenciesPopping

Fed done until 2017

(uncle)

Theranos

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

HiddenLevers

US ELECTION 2016

Election 2016: Markets Like Certainty

sources: Investing.com

Returns usually higher in Nov/Dec than Sep/Oct in election years

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

Election 2016: Most Diverse Electorate Ever

sources: FiveThirtyEight

CLICK TO TRY

Key Trump Lever: Non-college-educated white vote.

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

ObamaGOP 54/46GOP 247/188

execsenatehouse

(pipe dream)

(pipe dream)

HiddenLevers

US IMMIGRATION SNAPSHOT

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

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 FertilityHispanic 2.15Black 1.88White 1.75Total 1.87

Break Even 2.08

Global Comparison FertilityTotal US (2007) 2.12Total US (2015) 1.87Germany 1.44Japan 1.43

Immigration: Skilled Dreamers = GDP Growth

sources: OECD

USA has above average growth compared to test scores. Will this last?

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

HiddenLevers

SCENARIO: IMMIGRATIONNEW

Scenario Update: Demographics Emphasis

Boomer Outflows

Immigration

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

BAD: Gridlockbroken US govt = missed opportunities

source: HiddenLevers

GDP stuck in low gear

30% of immigrants have college

degrees

status quo1m immigrants

per year

gridlock getting worse

not better

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

Scenario: Immigration

Good:Skills-Based

Boom

Neutral:Gridlock

Ugly:Trump Wall

GDP Growth

-0.5S&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%

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