Henry Dubroff

After euphoria comes reality.

The stock market rally that accompanied the election of Donald J. Trump as the nation’s 45th president has flattened out amid the reality that governing is complex and so is the economy.

With Trump’s election, the slow growth predictability of the Obama years has been replaced with something new. But aside from more volatility, it’s hard to define what that will be. Here are a few thoughts:

Inflation expectations are going up amid hope for a faster-growing economy, lower taxes and a big infrastructure spending plan. That’s been a boon to banks, which benefit greatly from higher interest rates, as well as consumer stocks and many industrial companies. Deckers Outdoor, the Goleta-based parent of the Ugg, Teva and Hoka One brands, is one example of a consumer stock that’s ridden the wave.

But rising interest rates already have sent mortgage rates on a sharply upward trajectory and that means housing will get even less affordable, especially in coastal California. Homebuilders will be helped by rising incomes but hurt by rising interest rates; foreign tourists may get spooked by the Trump rhetoric and the sharply rising dollar. And let’s not forget that the trillion-dollar rout in the bond market will take a toll on public pension plans, putting them even farther behind in meeting obligations.

Removal of the federal spending caps known as sequester and a ramp up in defense spending should make winners of two major employers, Naval Base Ventura County and Vandenberg Air Force Base. That’s certainly what happened during the Reagan era defense buildup and in the George W. Bush administration, when the Naval Base opened new research centers and Vandenberg’s missile defense operations were expanded. Meanwhile, shares of Teledyne, based in Thousand Oaks, have been rising. The company makes electronic components for defense and commercial companies.

When it comes to tax reform and repatriation of cash abroad, we have a poster child in our backyard. Amgen, based in Thousand Oaks, has $37.7 million in cash with only about $6.8 billion parked in the U.S., according to an August report from Fitch, a credit rating firm. It is building cash at a $5.7 billion clip annually, after paying interest and dividends, Fitch reports. A repatriation of cash would create a bit of a windfall for the U.S. treasury and allow Amgen to use its actual cash to grow its business. Right now it leaves cash overseas and borrows in the U.S. Fitch cited Amgen’s “growing amount of cash balances overseas” as the biggest concern when it comes to liquidity.

A deal on reducing the corporate income tax will help most large companies. Established public companies will be able to increase earnings per share without having to grow revenue and newly public companies such as AppFolio and MindBody, that have not yet reached profitability, will see future earnings per share increase as they recalculate their tax rates. Changes in individual tax rates, particularly reductions for wealthy people, could have big impacts on philanthropy; a reduction in interest deductions for second homes definitely would impact wealthy communities.

It’s not clear whether a Trump infrastructure package will pass but, if it does, it will be a shame that Ventura and San Luis Obispo County voters turned down transportation tax measures. They might be losing a rare opportunity to compete for federal funds for roads and other transportation projects. That’s especially true if the Trump folks pull the plug on Jerry Brown’s bullet train, although the bullet train money may just be diverted into big and controversial water projects.

A “regulation light” Trump administration probably would give more flexibility to PG&E and its plans to shut the Diablo Canyon Nuclear Plant and open the possibility of storing the plant’s waste in Nevada instead of on site.

I can’t imagine the Trump Administration taking much interest in stopping the proposed merger of Cottage Health and Sansum Clinic – now stalled at the Federal Trade Commission for something like three years. Rebuilding the shut Plains All American pipelines might get fasttrack approval at least at the federal level.

With a bit of tongue in cheek, I’d expect huge gains for one industry that’s essential to the Central Coast. Wine, spirits and craft beer consumption will likely rise sharply. We are three blue counties in a blue state and (until recreational marijuana sales begin in 2018) thousands of shocked voters will have no option but to start drinking heavily.

Finally, a personal thought. Elections do have consequences, but for the Dubroff portfolio, comprised of S&P 500 Index funds, a mid-cap fund and a small-cap index fund, I’m staying the course. I expect to earn between 8 percent and 11 percent on an annualized basis for a long time to come.

• Reach Editor Henry Dubroff at hdubroff@pacbiztimes.com.