×

This bull market is just getting started

Participants run in front of Fuente Ymbro's bulls during the fourth 'encierro' (bull-run) of the San Fermin Festival in Pamplona, northern Spain, on July 10, 2015.
Miguel Riopa | AFP | Getty Images
Participants run in front of Fuente Ymbro's bulls during the fourth 'encierro' (bull-run) of the San Fermin Festival in Pamplona, northern Spain, on July 10, 2015.

In 2008, in the middle of the banking crisis, it became evident that Senator McCain and the Republicans were in for a big surprise as Barack Obama's poll numbers suggested that he was on his way to the oval office.

This was a time of great concern for the international banking sector as credit began to seize all around the world. There were many contributing factors that led to the crisis, timing, demographics, a real estate bubble etc. Many books have already been written about the structural problems which were the foundation for a near collapse of the global financial system.

But something happened that wasn't expected: Capitalism became the villain. As the entire free world was embracing American style free market capitalism, we here at home were turning our backs on it. The result was a birth of a new economic ideology, the Obama ideology…or what I like to call, 'Liberal Economic Elitism' (LEE).

LEE had taken the old notions of capitalism and turned them on its head. To paraphrase Dr. Milton Friedman's analogy, "There are four ways of spending money, you can spend your money on yourself, you can spend money on someone else, you can use other people's money to spend (Like a T&E account), and other people can spend other people's money." LEE is the ultimate use of 'Other people spending other people's money', or as the Great Nobel Laureate would say, "…the most inefficient way to spend money!"

The experiment in LEE created a government which grew out of control, racking up debt (some of that debt due to the financial crisis and Bush tax cuts that Obama inherited) and experienced very little in the way of growth, leaving the economy in a real predicament. Even with record low interest rates coordinated by global central banks, the economic condition was not fertile enough to create the needed basis for real growth. The economy became over taxed, over regulated and had no real fiscal stimulus; which is essential.

"President-elect Trump has a different style and the market is starting to understand it. Whether it's calling out a CEO or taking a call from Taiwan, everything seems to be more calculated than appears and the end result should be a 'Reagan' type presidency."

In the final analysis, it was a failure with investors and corporations making unproductive investments such as stock buybacks and maintaining cash overseas. The 'productivity miracle' which ex-Fed chairman Alan Greenspan used to mention dropping dramatically and corporate cap-ex ground to a halt in some cases. Capital preservation became the mantra; That is not the way an economy grows. It became very reminiscent of the dark days of Jimmy Carter when, as a college age kid, I was sure that there was another answer…Then came Ronald Reagan.

So now that Liberal Economic Elitism is dead, what next? The equity market went from a 'Sell rallies 'mode, to a 'buy Dips' market overnight. It's not the Trump victory as much as the sweep in congress which creates the foundation for serious, pro-growth legislation. The twin-engine economy (Monetary and fiscal) has been sputtering with only one engine working. As we see the needed tax cuts, the lifting of regulatory burdens and real stimulus to create jobs, look for an economy which surprises everyone in 2017.

So, let's call it a do over. LEE failed, period! For the first time in years we can say that the 'Reaganesque' formula is being prepared to generate 4-5 percent GDP growth in the next few years. Even if you didn't like the messenger, you should love the message: Supply side, less regulation and unleashing the American entrepreneurial spirit! Freeing up much needed seed capital to make the economy grow instead of making nonproductive investments is the key to prosperity. Sounds like the start of a great bull market.

President-elect Trump has a different style and the market is starting to understand it. Whether it's calling out a CEO or taking a call from Taiwan, everything seems to be more calculated than appears and the end result should be a 'Reagan' type presidency. Change will take time. Even under Reagan it wasn't instant gratification.

As a matter of fact, it took a couple of years for tax reform and real stimulus to get passed through the new congress. Cap-ex and growth waited until reform was adopted and by 1982 the economy was soaring. Reagan enjoyed the best second term market performance of the modern era, witnessing the Dow Jones Industrial Average soar 77 percent to 2235 in January 1989. That was second only to the benchmark index's 155 percent surge under President Coolidge through March 1929.

Under performing portfolio managers are currently chasing returns into the new year but eventually, this will give way to selling in January in anticipation of capital gains tax overhaul. The time has come to buy these dips when they come. Where can the market go? 22,000? 25,000? Maybe a 30,000 Dow? Who knows? And remember, this could all be happening without East German and Soviet missiles aimed at us as they were under Reagan. Trump may have ISIS to defeat, but the terrorist group is not a world power with a nuclear arsenal.

Commentary by Jack Bouroudjian, CEO of Index Futures Group LLC, a registered independent broker, and CIO of Index Capital Partners, a registered commodity-pool operator. He was also a three-term director of the Chicago Mercantile Exchange and founder and advisor of UCX (Universal Compute Exchange). Follow him on Twitter @JackBouroudjian.

For the latest commentary on markets in the U.S. and around the world, follow @CNBCopinion on Twitter.