Too much of something can be wonderful – Mae West
The United States of America has held its presidential election and the winner, against most hopes and expectations, was Donald Trump.
As the duly elected president of a great nation, Mr. Trump must be treated with the respect that a holder of this office merits. It therefore behooves us at least to attempt a reconnaissance through the smoke of the political battlefield and the exaggerated rhetoric, to see where the new president Trump and his putative team might be likely to act and how such actions will affect the rest of the world. The campaign slogan, ‘Make America Great Again’ has done the country a great disservice. America always has been great and presently risks being dragged down by political incompetence.
First of all, in all election campaigns there is a surfeit of hyperbole. Mr. Trump himself has traditionally had more interest in the chase and the capture (whether of women or in business) than in management. There is however a major difference between campaign platitudes and rhetoric and the reality of government. His interest is likely to be much lessened now that reality bites. There is for instance unlikely to be a wall separating the USA and Mexico. There is already a fence along the entire distance. It is equally unlikely that many or most Mexicans, legal or illegal will be sent back to Mexico; who would then harvest the fruit and vegetables in California and Florida? The landowners are mainly republicans anyway as George W. Bush discovered when he voiced similar attention grabbing ideas. There will also probably be no major renegotiation of the NAFTA and other trade agreements. It is possible there might be some tweaking to save face, but the threatened peremptory withdrawal from NAFTA would severely hurt U.S. companies with operations in Mexico such as Ford and Wal-Mart.
Trade with China was also a favorite target during the election campaign; remember however that U.S. companies such as Apple have very larges sales to Chinese consumers. Any sanctions would probably hurt the U.S. A. more than China, which has already begun to extend its interests globally away from the U.S.A. There is a suggestion that instead, the new U.S. Government will wish to impose sanctions on Chinese Steel, where overproduction resulting from the Chinese economy’s switch from industrialized growth to consumer spending has caused the Chinese to dump low quality steel on the world markets.
The forthcoming President Trump will face more problems at home, but here again the exaggerated rhetoric and untruths will probably not be reflected in the watered-down reality. The promised return to employment in the US rustbelt is unlikely to occur in the form that the voters had hoped. There could well be support for more technological activities, though it is unlikely that the miners and metal bashers without training or modern skills will benefit. There are probably less expensive options for technological manufacturing outside the U.S.A than within it.
Mr. Trump will find himself continuing his war with the major American corporations whose chief executives have never seen him as coming from amongst their own ranks and although the hedge fund managers criticized him at every turn prior to the election, they are likely to kowtow in front of the Trump tower in the hope of currying favour. Mr. Trump has promised tax breaks to industry and substantial infrastructure spending. This should, on the face of things, greatly support U.S. Industry.
The BBC reports that there is a funereal mood amongst the 4,000 or so staff members in Washington. All are likely to lose their present jobs and must stand for re-selection. The corollary is that many of the skills accumulated by these staff members over decades could be lost and it will take some time to rebuild a functioning administrative system. The Trump promises of ‘draining the swamp’ in Washington could well lead to an ungoverned country.
Mr. Trump’s oft reported lack of interest in detail (other perhaps than in his private jet) will mean he will have to delegate many decisions. At present the situation looks somewhat incoherent, but if a competent team is appointed this may change.
Foreign policy is, again despite the campaign rhetoric, likely to take a much less important role in the future administration. Many of the election promises, such as revising the defence agreements with Japan and South Korea simply cannot be met. They sounded good at the time. Israel hopes that the new government will support a stronger Jewish state. Political reality however will probably mean this dream will not be fulfilled and the Jewish voters within the United States will be disappointed. No matter, Mr. Trump has been elected and the next election is seemingly a long way away.
How does all this leave investors? U.S. industry, especially the many modern technological and pharmaceutical companies are very likely to prosper. They will probably not be allowed to be sold to Chinese investors, but their business will happily thrive none-the-less.
Interest rates were going to rise irrespective of the election results, the bond markets are likely to reflect a move toward higher inflation with higher yields and new issues will probably be less aggressively priced that in the past months.
Now is the time to look very carefully at U.S. equities, corporations will be able to thrive for the foreseeable future and there are some very good companies for disciplined analysts to consider.
A carefully constructed mixed portfolio of U.S. assets will have the potential for combining yield but without the downside volatility of pure Equities. Now that the uncertainty has passed, investors should, at the very least, consider diversifying their portfolios away from only European Equities and look seriously at the American equity markets, especially large and medium cap orientated funds to augment the diversity of their portfolios.
John Townsend advises clients on their investment portfolios for Matz-Townsend Finanzplanung.
He is a Fellow of the Chartered Institute for Securities and Investment in London.