A Word to the New President Trump & Valuation Case by DCF (From Yuuki Yanagishita's "Valuation to Understand Companies and Markets")

Hello. Good grief, the Trump shock was quite something, wasn't it.

Of course, I was thinking Clinton as well, so Trump’s victory was an incredible surprise, but the market reaction afterward, as I wrote on Facebook and Twitter, was as expected.

To reiterate, the Lehman Shock was an expansion of the credit system through leverage, where risks that should not have been takeable in securitized products were assumed, and the inflated credit trading suddenly burst. As a countermeasure to prevent a recurrence, President Obama enacted the Dodd-Frank Act in 2010.

In particular, at the core Volcker Rule, the leverage that investment banks had long thrived on was decisively constrained, and the business model that supported rapid expansion collapsed completely. Proprietary trading was prohibited, investments in hedge funds and PE funds, and even being a sponsor of these funds, were prohibited, and disclosure of positions and counterparties became mandatory. Surviving firms like Molsa and Goldman, which remained, became commercial banks under the Fed’s umbrella.

After the election, Trump immediately voiced the abolition of those financial regulations that had been one of his campaign pledges.
He also proposed lowering the corporate tax (corporate income tax) from 35% to 15 and abolishing the inheritance tax. In short, returning to the old Republican policy that favors the wealthy.

Until now, the stock market’s rise under the Obama administration had been driven by a genuine improvement in the real economy—revival of manufacturing, revival of the middle class, etc.—but even that was entering a phase of adjustment with the economic cycle.
Now, the path that was once followed—the expectation that inflated stock prices via leverage would be triggered—took the lead, causing a rise centered on financial stocks.
If universal health coverage is hollowed out, there is no longer any restraint on drug prices, so healthcare stocks rose as well.

Well, this was the market after the 2013 BoJ mega-accommodation, a somewhat artificial rise. From a value investing perspective, there is nothing to commend about this rise, and in the first place it has nothing to do with the fundamental competitive strength of a company; it’s a bubble.

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