“Trump considers the stock-market to be his measure of his job performance”
This quote stuck with me from the Capital Group webinar on Friday last week. The ‘sugar-rush’ of the markets since the US Election results were confirmed on Wednesday night New Zealand time reflects three things in particular:
1. Delight of the markets that there is certainty about who the Government will be. Many people were anticipating a long drawn out process of legal cases and possibly violence to work out who the Government would be. The certainty from the election results was welcomed.
2. The belief that a Trump Republican Government will be ‘business friendly’ (reducing and maybe cutting regulations and possibly reducing corporate tax)
3. That the stock-markets going up are important to Trump – and could ameliorate some of the actions that he has stated he will take if he realises that it means that the markets will go down.
At the time of writing (Monday 11th November), it is still not certain whether the Republican victory is a clean-sweep (White House + Senate + House). It is certain that two of the three legs (White House + Senate) are Republican and votes are still being counted in the race for the House. The New York Times counter is below.
Will we get Good Trump or Bad Trump – (see the flow chart from UBS via Harbour Asset above)?
The things that Trump can do on day one, base don his campaign documents [and according the Wall Street Journal https://www.wsj.com/politics/elections/what-trump-canand-cantdo-on-day-one-a90a8799?mod=hp_lead_pos3 is already prepped to do with Executive Orders drafted] are:
Immigration
1. Implement the largest deportation programme in American History. This will include ‘flipping the switch’ and putting his old immigration policies back in place – which won’t need an act of Congress.
2. Implement his ‘Remain in Mexico’ policy to reduce the number of undocumented immigrants coming in and
3. Start building the border wall again.
Moneyworks comment
While a number of businesses in the US will find business very difficult without the low wage labour of undocumented immigrants, we don’t believe that this is likely to affect your investment portfolio too much. The companies in your investment portfolio are listed companies, and have a higher level of scrutiny than non-listed companies and are unlikely to use undocumented migrants as their workforce. However, there could be a price rise from suppliers or others along the supply chain having to increase the wages that they pay to workers.
Climate
1. Drill Baby Drill – opening up Oil and Gas fields
2. Withdrawing from Paris Agreement on Climate
3. Reducing regulations on the Environment to make it easier to do business
Moneyworks Comment
These changes are unlikely to have any impact on your portfolio (but will on the climate and the environment, as they are likely to provide ‘permission’ for other countries to feel that they do not need to fulfil their Paris Agreement obligations.
Foreign Policy
1. Ending the conflicts in the Ukraine/Russia and Israel/Middle East
This will be very dependent on all the parties being prepared to come to the negotiating table and the WSJ is not convinced that anyone other than Zelensky in the Ukraine would be interested in doing this. However, there is a possibility that the strength of NATO will deteriorate under the Trump Government.
Tariffs and Interest Rates
We understand that Trump can put tariffs on imports from countries by Executive Order. He has said that he will put tariffs of 60% on Chinese imports (which will of course help Elon Musk’s Tesla who have strong competition from Chinese EV’s) and 10% - 20% on imports from other countries. Trump has stated that the foreign countries will pay the tariffs (which is not correct as the US consumer pays these tariffs when the price of the goods increases).
However, a number of commentators have suggested that these are merely starting points for negotiation and that Trump will be starting on countries that ‘are not friends’ of the USA’. Whether New Zealand falls into the ‘friends’ category is yet to be seen, but we are a very small player.
In comparison, Trump has apparently griped for many years that the EU has higher tariffs on imports of goods from the US (8% - 10%) and that he wants to equal this out.
A major issue of tariffs and any additional tax cuts (the tax cut bill that Trumps Government passed in late 2017 is due to mature in late 2025 and will have to be renegotiated) will not necessarily happen as easily as Trump suggests.
In addition - putting tariffs on - divides Republicans ‘in a very deep way’ and could be an issue for Trump. Particularly if he realises that putting in place tariffs could increase the costs by over $1,000 pa for an American family.
The impact of these on the deficit of the USA and impact on raising inflation, which them flows into the interest rates will play a part. The 10 year US interest rates increased immediately anticipating a higher deficit.
But – on the other hand – Trump is a ‘low interest rate’ guy. He has complained regularly that interest rates are too high (interest rates are used to reign in inflation and slow an economy down). He has talked about replacing J Powell – the Chair of the Federal Reserve (which has been independent of the Government for a long time, like the Reserve Bank of New Zealand). But, Jerome Powells tenure is locked in until 2026 and it may end up not being a high priority on Trumps list.
Other notes
It has been noted that it looks like Trumps advisers/cabinet will have a lot of billionaires and a strong influence from people that are currently part of Wall Street. They will help him keep on track with his goal for the stock market to perform well and for low interest rates.
Elon Musks proposition that he will head up a Government Efficiency Commission that will cut $2 trillion of spending (off a base of $6 trillion pa) – [It is unclear over what time period the $2tr cuts would be – per annum? Or over 4 years] would possibly take too much political capital for this to happen.
While Trump has said (among many other things) that he will wind back the Inflation Reduction Act that has created so many jobs (in mainly Republican States) and provided subsidies for renewable energy investment, the main thing he can do is to take away any unspent funding. Having said that, it may be politically expedient not to do that.
Summary
The general message is that there is no change to your investing from this change to Government. While there are a number of things that Trump stands for and has said that he will do that many people consider to be repugnant, our job as your financial adviser is to make sure that your money is working for you.
We are always monitoring where your money is invested, and if we feel that a fund manager is not going to do a good job for you under a changed environment we will reduce or delete your exposure to them. But, at the moment, we don’t’ have any changes to the strategy we have recommended to you
UPDATED - interesting chart below on investing with only Republican Presidents or only Democratic Presidents or staying invested with either.
