In the past year, there has been a lot of debate whether Trump’s tax plan will make the poor poorer and the rich richer. Well, we now have one glaring example of the latter, and to a degree never seen before, if in a different format than most envisioned: according to Bloomberg, Jeffrey Talpins’s Element Capital Management made more than $3 billion in the last five months, mostly as a result of a trade that President Donald Trump’s tax bill would pass successfully, driving stocks and yields on U.S. Treasuries higher.
Talpins – whom we first profiled back in 2015 when he quietly emerged as a massive buyer of Treasurys – put on the “Trump trade” one year ago when investors still had doubts that a tax bill, or frankly anything proposed by Trump, would succeed. The manager’s vision – which was 100% correct – was that Trump and fellow Republicans, having failed to pass major legislation, including an overhaul of Obamacare, would unite to push through a large tax cut for individuals and corporations.
That’s exactly what happened, and it’s not over yet: the hedge fund macro manager still thinks the trade has some room to run.
“We expect the U.S. equity market to fully recover the peak to trough decline and hit new highs over the next few months,” he said in a mid-February letter to investors seen by Bloomberg. “As the market gradually recovers its February losses, we also expect that volatility will subside commensurately.’’
Talpins first made his tax call in an April 2017 letter to investors, saying a lack of cohesiveness within the Republican Party and the dim prospect of legislative support from Democrats would drive Republicans to “take the path of least resistance” in the form of a large tax cut for companies and lower marginal rates for individuals.
A month later, he told them he had increased his exposure to stocks on the view that a tax package, deregulation, an accommodative Federal Reserve and healthy earnings “all support equity prices moving higher.” In the May letter, he also said that he expects the Fed will raise rates by 25 basis points a quarter this year, and continue to remove accommodation, which has so far been accurate.