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Several Thoughts Regarding The Donald Trump Influence To Best Buy

|Includes: Best Buy Co. (BBY)

1. Interest Rate

After Trump got elected, he had been insisting on increasing Fed rate that if interest rate increased, it will make it more expensive to borrow money to buy electronic products, which will hurt the revenue of the company.

2. Inflation

Trump asserted that he would encourage the development of infrastructure and bringing manufacturing back to America, which will boost inflation. Electronic products might be able to increase prices at the same time, however, the elasticity of demand for normal electronic products is high that if one company increase their prices, people might stop buying that company's products and buy the other company's products (like android phones), as the competition in that sector is high. Only products with a low elasticity of demand that even the company increase the prices, it will not influence consumers' demand, as they are the only provider of a certain services or products (like Apple products, the only provider for IOS system).

All in all, in a higher inflation environment, companies like android phones producers with high elasticity of demand will not be able to increase their prices, which will help best buy to sell the same amount or more products because a higher inflation imply a higher compensation for the labor market. With higher salaries, consumers might buy more electronic products if there is no price change during an inflationary environment. Companies like Apple, will increase the prices a little bit and it will not hurt the demand of their products as the low elasticity of demand. So it will help Best Buy to achieve a higher revenue as well.

Overall, an inflationary environment will help Best Buy with their revenues. But inflation also imply a higher real interest rate which will hurt the buying power of consumers, as I had discussed on point 1.

3. International Trade

For international business, basically Trump wants to bring manufacturing back to America and review the clauses of the existing trade agreement. If Trump insists on urging American companies to bring manufacturing back to America, these American companies might have to bring the factories to their homeland. Then, they have to increase the prices of the products to make sure that they can afford the higher cost of labor. And if Trump increases the tariff for foreign electronic products, the selling prices have to be increased.

As we discussed in point 2, the salaries for American people will increase after Trump become president, the overall consumer demand for electronic products may not decrease if the prices increase maintain in an acceptable level. Let's assume the level of price increase for foreign products will be the same or lower than the American competitors, then the demand for foreign products at least will not decrease and a higher selling price will be maintained. As most American electronic products are more competitive with a low elasticity of demand (like Apple, Microsoft), a higher price will not hurt the demand as well. A higher selling price means a higher mark up for retailers, so Best Buy might benefit from the compelled increase in the cost of these electronic products manufactures.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.