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Wednesday, 19 June 2019

Bye-bye Miss American Pie…

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  • Anthony Peters columnist format

For a second time this year the unthinkable has happened. Brexit, schmexit, forget it…Donald Trump has taken the election.

Markets are going to hate this outcome – as will large swathes of America and pretty much the entire rest of the world. But, as with Brexit, like it or not, we are going to have to live with it.

Overnight, Dow futures tanked by the best part of 750 points as Hillary’s planned anointment as the first woman in the Oval Office faded. The dollar took it on the nose with the yen shooting up to ¥101.1, the euro to US$1.1299 and even the pound recovered to US$1.2547.

So we wake up this morning in a world very few of us expected to see.

I exchanged notes with a senior market observer yesterday morning and I think both of us had a sneaking suspicion that this might just occur. Since June 23 political certainties no longer exist and Trump has delivered his predicted “Brexit times ten”.

Bernie Sanders and Jeremy Corbyn aren’t supposed to have achieved what they achieved, but to see the Donald come screaming through the pack and capture the White House is a shock at an entirely different level.

At the time of writing it looks as though the Democrat assault on the Senate will also fail and, nominally at least, we have a united Republican White House and Capitol Hill.

Trump the independent

That is, of course, nonsense – for Trump is not a Republican but an independent who has used the Republican platform as a vehicle which has propelled him to power.

If there is one thing which Trump is not, then that is a fiscal conservative. His spending plans really make him look, in many areas, more like a Democrat than a Republican. There are many, many battles ahead as he tries to push through his election promises. I have heard projections of the debt under a Trump presidency rising to US$30trn. Do we believe that? Is it feasible that Democrats and Republicans on the Hill will unite to block the White House?

Many months back I raised the question of whether a Trump presidency might just lead to a revival of consensus parliamentary democracy over presidential dictatorship. Don’t forget the campaign promise to clean up Washington and to banish the corrupt political class. They won’t go without a fight.

Congress will, however, be hard pressed – as is the British parliament over Brexit – to deny the people their choice.

The terms “left” and “right” date back to the way in which the original post-revolutionary French National Assembly sat but to most of us it means progressive versus conservative. Last night this division was, temporarily at least, confined to history in an American context.

Volatile times

We are in for some very volatile times and normally I would be confident that the big sell-off would soon reverse. Politics can never, so the received wisdom says, hijack markets for long; economic realities will always prevail. This time, however, we don’t know what the economic realities will be.

Can Trump really nix the many trade agreements? Forget TPP and TTIP – what about Nafta? Does a President Trump really have the means and the power to reverse that? Barely, but expect a call for renegotiation.

As sunlight moved from East to West and the new day dawned, we are facing a world which we, the markets, didn’t expect to wake up to. My guess is that either very few of us at best but most probably none of us at all really know what to make of and how to price this outcome.

Perhaps my suggestion yesterday to hedge everything and to go home was not the worst call I’ve ever made. Can I see any asset class which will benefit from the Trump win? Emerging markets will feel as sick as a parrot, led of course by the Mexican peso which has dumped 14% to around Ps20.77 to the dollar, an all-time low.

The analysis of how and why Trump romped home will take time. But as was the case in the British referendum, it appears to have been members of the older generation which determined the outcome with their hankering for some of the pre-globalisation certainties.

European equity markets have started with a trip to the basement. Bonds have of course rallied but if you’ve not got the position it’s possibly too late to jump on the bandwagon.

What do I recommend now? Keep those hedges and watch patiently.

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