A couple of months ago we stressed that Trump’s Presidency implied fatter tails, which meant that extreme scenarios were more likely than usual, at the expense of the status quo. The two extremes were clearly a negative scenario and a very positive scenario, reducing the probability of the center of the distribution. What has happened over the last few weeks reverses that phenomenon, raising the probability that his presidency accomplishes no economic reforms in the end. With only 100 days in, it is obviously very early to say that the 4 years would amount to nothing of substance . But it is now significantly more likely that no serious legislative effort is approved this year, and other extreme initiatives have also given way to a more moderate version of what we had seen in the campaign.

The first indication of this new phenomenon of nothingness was the failure to pass a change to Obamacare. It is true that any serious reform of healthcare is difficult, especially because of how differently the two parties approach the issue, but the legislative failure was mostly the result of serious disagreements inside the Republican Party. In the process it was also possible to observe that the working relationship between the White House and the party in Congress is clearly not at its best possible level in order to tackle reforms. The next serious legislative effort to be expected is Tax Reform, which is also not simple and has many different dimensions. The GOP at the House has a very ambitious plan which would completely change the way the federal government taxes the private sector, especially the emphasis on the BAT (Border Adjustment Tax). That tax changes the emphasis to a consumption tax, with a strong layer favoring exporters at the expense of importers. If the economic reaction to the new system materializes as what proponents forecast, it would be paid to some extent by those who export to the US. But the BAT seems to have low chances of happening due to at least three strong reasons. One is the internal opposition of the expected losers (mostly retailers, and companies that import most of what they sell). The next complication is that it would run into global opposition through the WTO. Finally, Trump appears not to like it, though this one last reason is less permanent than the other two.

Without a serious source of new revenue, the rest of Tax Reform (lower corporate and personal income taxes) is less likely, as it would increase deficits, which requires a different coalition of political support. If anything happens in the short term, it would be a smaller reform, with only one part of the whole, or temporary tax cuts, similar to what George W. Bush had done with its tax cuts sunsetting after 10 years. Trump’s could be broader and of different design.

Putting health care and tax reforms aside, the other elements of Trump’s agenda were trade fairness, immigration, and infrastructure. Not to mention a more self centered foreign policy. On trade, besides pushing Mexico around, not a lot has happened. China was not really mentioned until North Korea became an issue, and even then, there seems to be no appetite to move against China. There seems to be a list of minor violations by other countries that the US government is using to impose sanctions and show that it does something on that area. On immigration, the wall has just been postponed indefinitely (in terms of funding for it), and the travel ban is stuck in the courts with no real support behind it. Infrastructure is always a very slow process, and there is no real fiscal room until there is some reform that would include repatriation of the companies’ offshore balances. On this last point there is some room for an upside surprise, but there is no real plan on the table yet.

Thus, the quick list above shows that what seemed to be likely scenarios 2 months ago are now significantly less likely, reshuffling much of the probability distribution back into the center, with the most likely scenario now being that not much is accomplished. And what is interesting is that such scenario is not necessarily negative. Fundamentals (globally) were already improving at a faster pace before the elections, and this government and congress mean that taxes would not increase, and regulation is most likely being relaxed. Deregulation is the area where the Trump administration does not need congress, much can be accomplished by executive orders and other administrative mechanisms.

The risk here is that bold actions on the foreign affairs arena could become the policy safe place, in terms of lower domestic downside or opposition, with some positive impact on image.

In sum, the fat tails outlook is giving way to a scenario in which not much happens in terms of legislation and reform, with deregulation happening through executive order, and a more active and involved foreign policy. With fundamentals globally showing a better outlook than a year ago, and political risks in Europe fading as elections happen, the outlook improves and markets reflect that. Growth and better earnings are required before significant upside in equities can be forecasted, but the probability of that scenario has increased.