The Hitchhikers Guide to the Galaxy has a galactic president:
The President is very much a figurehead… the qualities he is required to display are not those of leadership but those of finely judged outrage. For this reason the President is always a controversial choice, always an infuriating but fascinating character. His job is not to wield power but to draw attention away from it. On those criteria Zaphod Beeblebrox is one of the most successful Presidents the Galaxy has ever had- he has already spent two of his ten presidential years in prison for fraud.
I’m not sure if I need to point out the parallels to Trump.
Trump loves the spotlight, loves to troll other political figures and loves to get a reaction – particularly from the politically correct. Also, he loves to create distractions – pick any one of a dozen slurs, insults or outright lies that he has tweeted leaving the press in a lather about his insensitivity, while all but ignoring substantive changes in a completely different area.
As an investor, part of your job is to ignore the obvious distractions to work out what is being done in the background. Before we get to that, another feature of The Hitchhikers Guide to the Galaxy is that they have discovered a cloaking technology can render things invisible:
An SEP is something we can’t see, or don’t see, or our brain doesn’t let us see, because we think that it’s somebody else’s problem. That’s what SEP means. Somebody Else’s Problem. The brain just edits it out, it’s like a blind spot. The Somebody Else’s Problem field… relies on people’s natural predisposition not to see anything they don’t want to, weren’t expecting, or can’t explain.
As a human being, I feel the pain and worry about the effects of Trump’s presidency upon a range of important social issues.
But, as an investor, I need to recognize that skewing the playing field toward companies (away from workers) and reducing the regulation for companies is good in for short-term profitability but bad for long-term profitability. And I don’t think that bothers Trump. By the time it comes crashing down it will be SEP.
Imposing tariffs on other countries is probably good for short-term profits and jobs at US companies. By the time the negative effects eventuate it may well be SEP.
Breaking long-standing agreements, disrupting treaties and antagonizing allies is bad for long-term relationships and long-term trade – why will countries cut a deal with the US if you can’t expect them to honour it for longer than an election cycle. But (for the most part) its probably beneficial to Trump in the short term politically and beneficial to America economically. And I don’t think that bothers Trump. Longer term ramifications are SEP.
Running up government debt on tax cuts to the rich and companies has short-term benefits but the bill will eventually need to be paid. And I don’t think that bothers Trump. It is SEP.
Denying climate change and helping coal will attract a few votes from miners in swing states at a huge long-term environmental cost. SEP.
And you know what? Trump is probably right about most of these. He will either be no longer president, impeached or (for climate change) long since passed on by the time many of these become major issues. Its all about living in the now.
So, as a human being, I worry about his effect on a range of different things: governance, political discourse, homophobia, nepotism, sexism, racism and probably a dozen other “isms” that I have forgotten about. They are all issues for society that we need to do what we can to combat – but they are not significantly affecting the investment environment.
The things that I think an investor should be considering:
- Tariffs: Not an issue at the levels discussed. Also, Trump is right that China has been cheating on its obligations, so some positive steps in the right direction might even be a gain for the world economy. The key risk is that both China and the US continue to up the ante.
- Worsening Inequality: This is important, but not in the short term.
- Growing US Debt: Not really. See Japan for a preview. I’ll write more about this in the coming days.
- Infrastructure spending: Trump has been very quiet on this front. My expectation is that if the Democrats do well at the mid-term elections then Trump will look to do a deal on infrastructure. This could extend the US boom.
- Environmental rollbacks: Short term it is a positive for some companies. But I would be very wary of investing in those companies. Political environments are a pendulum, reduced regulation in the short term might seem helpful but odds are that regulation will return and quite possibly at greater levels than before.
- Iran Sanctions: Oil prices are important in a range of ways. Given the US is now largely self-sufficient in oil, high oil prices no longer slow the US economy the way they used to. Given the capital expenditure on new oil well drilling when oil prices are high, some argue that higher oil prices are more helpful to the US than harmful – I don’t buy that argument but there are elements of truth. However, the rest of the world (especially Europe and China) are negatively affected by high oil prices and so higher oil prices will increase the gap between US growth and the rest of the world
- War/Military Spending: Military spending is likely to increase globally. Chances of a war would appear to be higher under Trump than a typical president.
- Emerging Markets Crises: Turkey’s recent problems are illustrative. Like a bushfire, conditions need to be right to have a currency crisis: very dry, lots of dead undergrowth and then a spark. The lesson is that Trump has no compunction about providing a spark. It is likely that the current cycle will finish in some sort of emerging markets crisis as strong US growth drives the USD and US interest rates higher. An emerging markets crisis might be imminent, my expectation is that this is some time away still, but don’t discount the risk.
There is a lot to dislike about Trump.
But don’t let that distract you from the fact that some of the things that he is doing will be helpful. And most of the bad economic effects are still some time away – and we don’t know what will happen before then.