My colleague Roeloff Horne recently returned from an investment conference in London, where he had the privilege of listening to well-known Author and Economist David McWilliams, who discussed the global economy, as well as touching upon President Trump’s upcoming benchmark of 100 days in office. David also shared his recent YouTube video which humourously highlights the many ways in which the world regards Trump. (It is only seven minutes long and I highly recommend watching it.)
(https://www.youtube.com/watch?v=bpzE3JcGKzM)
Whilst the video clip ultimately leaves more questions than supplying answers, it does illustrate that the markets have no idea whether to take Trump seriously or not and is the real Donald Trump ever going to stand up? If he does, will it be the Trump that protects the rights of the car manufacturers, or the one that writes half lucid tweets at 3am in the morning, or will it be the Trump that seriously thinks building a wall can save American jobs, and do not let me get started on his views on immigration and refugees? But, the point remains that Trump is a maverick and unlike anything the world has seen before.
Since Trump won the US Presidential election, most stocks markets around the world have enjoyed healthy gains, especially those sectors of the markets classified as value shares, but one does get the feeling that the market’s ‘love affair’ with Trump might be pausing, if just to catch their breath.
Trump’s ‘America First’ policies have a real risk of bringing back 1930’s type protectionism and, as we know only too well, that did not bode well for the markets back in the 1930’s. Ray Dalio of Bridgewater Associates LP, recently warned that Trump’s rhetoric on tariffs and threats of penalising businesses that don’t bring jobs back to the US has made him less optimistic than he was when Trump first arrived.
However, on the plus side, his proposed review of financial regulation, allowing banks to operate more easily and have fewer capital constraints on their balance sheets, should bode well for increased consumer and business lending, potentially helping to fuel stronger growth going forward. One needs to remember that previous monetary policy has not unleased substantial growth, all it has done so far is benefit Wall Street, while ‘Main Street’ has not enjoyed the spoils – largely because the money multiplier has been dormant. Could this possibly change under Trump’s watch? It is still early days, but US banking shares have massively rallied since Trump’s election victory, so clearly many investors out there believe the banking sector can finally become more profitable again if red tape is cut and lending is made easier.
As for the dollar in all of this, our house view is that the dollar should be strong this year, on the back of improving US fundamentals and a more restrictive US Federal Reserve. Although, somewhat worryingly, Trump allegedly seems a little confused on this subject. it is reported that he contacted his National Security Advisor at 3 am in the morning, to ask if a strong dollar was good or bad! This is going to be an interesting year indeed, but if Trump does half the things he has promised, then stock markets should go higher from here (short term pullbacks aside) and provided we do not have an all-out trade war.
Would the Real Donald Trump Please Stand Up?
