On November 21 this column appeared with the opening lines “Even seasoned Washington watchers are struggling to work out what the Trump administration will look like and what message his choice of lieutenants will send to the rest of the world.”
As it went up in lights in the International Financing Review, the sharp-witted editorial team added the title “Politics is the new economics”. The column went on to suggest “that plenty of water will flow down the Potomac before we have a clear picture but we should not underestimate Trump’s lack of a political background”.
Well, yesterday’ maiden press conference, Trump’s first in six months, did little to either add to or take away from those observations. I shall declare here that I am neither pro nor anti. Personally, I find the man utterly distasteful but on the other hand, the grandees of the political class at whose heels he was snapping and whose rump he has taken a chunk out of have nobody but themselves to blame for this. The election of a billionaire businessman, like it or not, has not only effected a paradigm shift but it has pushed the political establishment to the end of, and maybe beyond, its ability to cope.
Roll with it
Yes, previous presidents have placed their personal interests into blind trusts but to hear the press demand he do the same just reflects how little the fifth estate, especially the political wing, understands business. For a lawyer and professional politicians to pack a few million dollars of stocks and shares into a blind trust is one thing, to expect a privately held family business with a turnover of US$9.5bn to be placed at arm’s length is utterly fatuous. As bankers, and on the back of a decade’s worth of experience of legislators trying to package the real world in neat little laws and regulations, we should know that the outcome can be far from satisfactory.
There is nothing on the US statute books which bans billionaires from becoming president and the fact that this is the first one does not make it wrong. Michael Bloomberg might have succeeded in isolating himself from his business interests while he served as mayor of New York but the nature of the Trump business and its management structure don’t really permit a simple replication. Watch this space.
Back to the press conference. I’m not quite sure what markets had expected. Had they really gone into this hoping for the delivery of a set of coherent fiscal policies and of firm objectives delivered with the concomitant strategies for their execution? If so, then the markets are more naive than I had ever thought possible. What we got was in effect a dose of verbal Twitter.
Don’t believe the truth
Having previously taken swipes at the defence and motor industries, it was the turn of big pharma. The pharmaceutical industry had pathologically feared a Clinton presidency and had celebrated the Trump victory as though it was a get-out-of-jail-free card. Big mistake. Trump might come from the right but he is first and foremost a populist and therefore nothing is sacred and nobody is safe unless they do lots of sucking up. In what was otherwise another strong session for US stocks, the S&P 500’s healthcare sector lost just over 1%. Looking at the list of biggest losers on the day, Bristol-Myers Squibb was down 5.3%, AbbVie was off by 4.57%, Biogen lost 3.59% and so on and so forth.
The Dow jumped to 19,973.42 points ahead of the press conference, if indeed a press conference in the conventional sense it was, then plunged to 19,833.16 during it, then spent a couple of hours trying to work out which side was up before rallying steadily into the close. The extreme volatility in intra-day trading reflects just how little markets have learnt about translating Trumptalk into a political and economic roadmap.
His quietly admitting that maybe Russia had hacked into the election process was then immediately devalued by adding that so had everybody else and his attack on the intelligence services went on. The Trump presidency might not be better than what has gone before, it might equally not be all that much worse. What is absolutely certain is that it will be very different and markets have no template to work from. I guess we just have to jump out of the door and scream “Geronimo!”
All around the world
Meanwhile the dollar has weakened a bit. Yesterday we were looking at a high of ¥116.87 and this morning are marking ¥114.42. The confusion emanating from the muddle of the press conference might have pushed it lower faster but it had already come off from the year’s high of ¥117.74. We should not discount the technical need for consolidation following the rally from just above ¥100 in late September to the recent high of just above ¥118 in mid-December. Most markets, from bonds through equities and currencies to commodities are looking for new equilibrium levels commensurate to the economic reality of broad-based but not spectacular growth across most of the global economy but will be struggling as long as the Trump presidency remains a moving target. The million-dollar question is whether it will ever cease to be just that.
This is what makes reaching medium-term investment decisions so very difficult. There are two choices: either behave as though nothing has happened or do a “rabbit in the headlights”. The UK already has the best part of seven months of experience of whistling in the dark with consumers behaving as though nothing has changed or will change. One of my favourite lines of all times is “When you don’t know where you’re going, you don’t know when you’re lost”. What must really be added to that is that you might just as easily, though unwittingly, not be lost at all. Fact is, no matter how hard you think, you won’t know for a long time to come.
News from France is that François Fillon looks to be pulling away in the presidential stakes and the probability of a Le Pen victory is becoming more remote by the day. That banishes the likelihood of a Gallic in/out referendum but it does not mean that France will be the pushover it has been in the past. Bond markets seem more confident too with the 10-year spread between Bunds and OATs back down to 46bp. With every surge in Le Pen’s popularity, the spread has widened. Over the past year it has averaged 34bp and I would be tempted, given the choice, to buy the spread at these levels. As I noted at the beginning of last week, the key political risk for 2017 was in France and not in Germany but I doubted that the binary outcome in France would see Le Pen win.
Generally I can still see no value in 10-year Bunds at a yield of 30bp but if I had to buy Europe today and given the sensitivity of the political environment, Portugal at 3.93%, 250bp cheap to Spain, looks like not a bad bet. I do admit to being biased though and not because Sol Capital trades out of Portugal but because the moral cost of it going down would now be even higher than that of a Greek default would have been a few years back.
Fade away
Alas, for me it is that time of the week again as I will be out tomorrow so all that remains is for me to wish you and yours a happy and peaceful weekend ahead. According to psychologists, mid-to-late January is, in the northern hemisphere at least, the most depressing and miserable time of the year. What better than to go and binge on canapés and champagne in the Swiss Alps, rub shoulders with the rich, the super-rich and the mega-rich as well as the famous, the infamous and the rent-a-celebrities and discuss the risks created by widening gap between rich and poor. Hypocrisy is such fun when exercised in Davos… and then they wonder how Donald Trump ended up in the White House.