With every market-moving tweet, promise, provocation and policy proposal, President Trump has changed the investing and trading landscape. Finance Twitter is but a petri dish of sentiment representing what’s happening beyond the stream. And clearly it is lit up with arguments–sometimes loud, angry, fact-maligning rants–for and against the POTUS and his plans.
It is naive to assume politics does not influence investing. Macro events/policies lead price so it is natural to assume Investment decisions follow.
So how can we try and ‘anticipate’ Macro events and policies when Politics, for many, has become very personal of late. Notably this expression has morphed into a wave of discord that pits Trump believers against Trump non-believers. I have tried to restrain not only from voicing my discontent with the man and his policies, but I have tried to restrain from allowing that bias into my trading and trade mentoring. I know I am doing a better job of the latter than the former. And for that I can thank my grandpa.
My grandfather, despite growing up and living his entire life in the rural North (Adirondacks of NY), surrounded by tradition (very large, mostly-Irish, strongly-Catholic family), in a very small, conservative mining and milling town (yes, think poor, invisible), where many men sported gun-racks in their trucks (and my grandpa had his prominently displayed in the hallway), Carroll John LaDuc declared himself, albeit quietly, an Independent on the voter roll. As a young girl, that struck me as courageous and enlightened, that he did not follow a Party, or Person, like so many, but carefully watched their Policy and the impact it would have on Community. He was a God-loving, Family-focused Patriot without need to attack or belittle any side or any one. One of his many gifts was to instill in me, through his example most of all, not to follow what a politician/person said but what they really do.
Grandpa was beautifully “old school”: On the quality of a person: “Say what you mean, mean what you say”. In times of abundance or scarcity: “Take what you eat, eat what you take”. In all things: “Service above self”.
Clearly, we have our work cut out for us in these times of growing FakeNews, Central Bank intervention and civil lawlessness that breeds distrust. Clearly, we must work harder than ever to see past the obscurification and calculated gamesmanship that is taking place on an international stage. Clearly, we need more men like Grandpa.
Macro Leads Price
My contention that Macro events and policies lead price is not relegated to our stock market, sector or stocks. It applies to the economy, incomes and wealth. It seems to me that Populism–the surge in outspoken inequality from the growing divide between rich and poor–has reached a tipping point.
Post Global Financial Crisis, 2010-2015 in U.S. (BCG data):
Number Of Billionaire’s: +26%
$100m to $1B: +61%
$20m to $100m: +64%
Middle Class Incomes: -1.5%
Yes, we live in the best of times, but clearly the ‘best’ is not getting passed down to the most. #Populism. Separate but equal is not equal. And the fact women make less than men and own less than men combined with the current administration’s effort to conceal the income and wealth gap moving forward… all of this fuels the disgust and distrust many of us feel. And this move of Populism–this income and wealth inequality that fuels our nation’s civil unrest, distrust in politicians and each other–is not new and it is not going away any time soon.
The “New” Order
Both the Republican and Democratic parties are in disarray currently, and that creates opportunity for new political strategy. Will the Republicans in the upcoming 2018 Congressional election ride the tide of populism and in tsunami-fashion drown out the Democratic vote and voice? There is evidence they will:
Lawrence McDonald @convertbond: Trump won 30 of 50 states, 2623 of 3112 counties, with a pre-election favorability rating of just 39%. No one is asking the question – if Trump can deliver this kind of beating with just 39% approval, what happens at 45-48%?
Or will the Democrats galvanize their base in an up-swelling of resistance and retake control of the agenda? There is talk and movement toward a 2020 Presidential Campaign that will not be centrist: Elizabeth Warren and Bernie Sanders? No idea. I am a short-term, stock-market–timing prognosticator. Regardless, the move to move democrats out of the middle and firmly to the liberal side has begun.
At moments like these, I try and set aside my knowledge and interpretations of US economic data, global growth figures, geopolitical risks, currency land….and focus just on Politics as an Investment Theme. If I were a betting woman, so to speak, where would I put my money: on the Republicans or Democrats? And how might that color my investment decisions? Hope is not a good strategy after all. But neither is complacency. Gridlock is traditionally ‘good’ for the markets but surely economic isolation, war-mongering and currency devaluation is not.
At the beginning of the year I published: 2017 Guideposts. Here are some excerpts that still resonate for me:
Color me skeptical, but I imagine at some point this year, the market will start to doubt Trump and his promises. Or a by-product of his bully posturing (think China) will appear suddenly (like that China devaluation back in Aug ’15 which caused a market swoon). Point is, the market prices in the truth only after reacting (overreacting) to the best case scenario when it’s ‘happy’ and the worst case when it’s not. Human Nature meets Law of Natural Consequences. …
Oh, and if Trump wasn’t enough of a wild-card, we need the dollar and oil to be stable in order to achieve better economic and corporate growth under the new administration’s plans. And since both are intricately linked with Rest of World, it would create more confidence in business and investment planning, if our President was less of a hot-head. Supporters and Detractors alike usually agree, Trump’s retaliatory nature can spur, well, big retaliations! And it is in this arena of Foreign Trade where the markets can be repriced—for better or worse. He would engender more trust if he had a plan for prosperity without provocation. …
With the market Priced to Perfection, there is no room for FUD (Fear Uncertainty Doubt) let alone policy missteps. And yet, big shocks from policy uncertainty can occur and the amount of policy uncertainty can foreshadow big shocks. …
Equities rallying after the election in anticipation that Trumpeconomics will fuel inflation and growth are based on potential not reality. Potential vs. reality jokes aside, potentially we are sitting on “tremendous” tax cuts, infrastructure spending and regulatory reform. The reality is we are sitting on $20T in government debt, and that more debt is deflationary (see Japan) and represses growth (see Japan and US). From a trading perspective, I am bullish but if these policies of lower taxes/fewer regulations and more jobs/ infrastructure don’t materialize, the rally will reverse itself, and quickly. And given the unpredictability that is Trump, unintended consequences from trade and currency wars, and out-sized volatility compression that leads to expansion, it would be good to keep in perspective that the point of maximum risk is the point when everyone believes there is no risk. …
With the US dollar as the world’s reserve currency, we have very few foreign trade constraints. We already get to force other countries to accept payment in dollars. If we lose that…because Trump wants to do away with a trade deficit that kinda-sorta helps create world-wide economic stability, then he will single-handedly destabilize our nation’s economy and currency. That’s not good for the markets. In fact, global recessions are made of this stuff. Credit implodes. Rest of World loses confidence in the US dollar as a store of value. And this quickly results in exactly what we all fear the most: exploding US interest rates and an economic crash. There is simply no other force that is more destructive to our nation and growth prospects than lack of confidence in our markets, our rule of law but most of all our currency.
How I would to love to get Grandpa’s read on the current political scene. Despite not graduating from high school, as he left early to join his older brother and enlist in the Navy during WWII (somehow surviving as Bosun Mate driving the landing crafts on D-Day), he is the smartest man I’ve ever met. And although I didn’t fight and bleed for this country like my grandfather, I value and safeguard life’s blessings as he did. And maybe that’s the lesson–both in how to intellectually overcome the political and investment uncertainty as well as position for it.
Faith Trumps Fear. And without it, we are at greater risk than anything political leaders, central banks and natural disasters can bring upon us.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.