Positioning for a 1980s /1990s-style global economic boom from upcoming financial markets deregulation

Financial markets regulation has increased dramatically since the 2008 crisis. This increase in regulation has been particularly strong in the US and Europe.

Higher regulation has been made up of regulation on banks (higher capital and liquidity requirements, pay restrictions to reduce employee incentives, etc.), investors (limits on investors from asset managers to pension funds to insurance companies), traders (including limits on short selling), companies (rules on borrowing like risk retention rules for securitization issuers), and individuals (like new rules on individual borrowing limits).

Some of these rules have reduced some risks - but many of them have also prevented productive economy activity. Some of these rules have also created unexpected second-order effects like the development of a large private credit industry which have other risks.

The Trump administration has made it clear that it plans to deregulate banking. The US government has spoken about reducing bank regulatory capital, reducing bank liquidity requirements, and making bank stress tests less difficult to pass.

All this could unlock hundreds of billions of dollars of regulatory capital - which could turn into trillions of dollars of new debt in the US. This new money could flow into investments by companies, M&A, government, financial assets, and consumer spending.

Given current geopolitics, and the socially stressed situations of many countries around the world (developed and developing) - we expect that US deregulation will be quickly followed by deregulation in other western markets. We also expect that geopolitics might also extend this quick deregulation to other markets including China.

For companies, the upshot is to position yourself for the major economic boom that could come about if this scenario comes about. In this case, companies who have the production and distribution capacity in place (including capital, technology and people) will be years ahead of competitors. There are cases that could mean this does not happen - but there seems to be enough of a probability of this now that it is now worth taking actions to be positioned for this state of the world.