Investors are having problems coming to grips with Donald Trump. There are so many possible effects from his impending presidency – the US economy, international uncertainties, currencies – that it’s easy to decide it’s all too hard. It may not get any easier.
That’s because investors are using conventional analysis, but Trump isn’t conventional. Investors should, instead, think of him as the Flim-Flam man. He’s the fast-talking snake oil salesman who comes into town and proceeds to fleece people by telling them one thing while doing another. (Look up the 1967 film on YouTube starring George C. Scott for an entertaining illustration of the genre).
Investors first need to remember the perceptive observation by US journalist Salena Zito seven weeks ago: “The press takes him literally, but not seriously; his supporters take him seriously, but not literally.”
Even before officially taking office, it’s clear that Trump is prepared to drop or change campaign “promises”. He’s going to spend a lot of time back-pedalling. His line in effect is: “Surely you didn’t expect me to do all that? I was just making sure I had your attention.”
So, there’s going to be more than usual uncertainty about will he or won’t he disrupt immigration, global trade agreements, tariffs, defence pacts or tax policies. Investors will need patience over the next four years on such questions and not panic and make big changes to their portfolios.
In truth, they should have already adapted to uncertainties over the last decade and their portfolios should already reflect the new realities about currencies, monetary policies and individual markets and stocks.
By now, it’s time to pause and look at the bigger picture. While we may not know all the detail, it does look like a Trump presidency is going to increase spending on US infrastructure, adding to the budget deficit over the next few years. Ditto the fiscal impact from cutting taxes, which will further underwrite rising deficits. The Flim-Flam man certainly doesn’t look like a financial conservative.
Overlay that on the pre-existing signs that long-term bond interest rates have bottomed and you’re likely to get slowly rising inflation in the US, though this may not necessarily be as bullish for shares in the long-term as investors currently believe.
That could add up to a higher US dollar, even if uncertainty about Trump’s policies worries some foreign investors. In turn, that could favour Australian listed companies operating in the US and reporting in US dollars. It also could encourage interest in gold.
It doesn’t mean investors should flee local shares, but it might mean there are limits on how high the local index can move. There is, however, no case for selling local blue chips, especially resource leaders, especially if the climate supports higher commodity prices.
But it does mean investors should close their ears to a lot of the near-term market chatter. It’s time to remember the long-term big picture. The end of more than two decades of falling interest rates will be a hard tide to swim against, no matter all the talk about short-term central bank fiddles with short-term rates.
So, before we know even the general outline of Trump’s big picture, it will be a case of making sure long-term asset allocations are suitable before concentrating on individual stocks.
Remember we are dealing with the Flim-Flam man. No one can be sure what’s bluff and what’s not. It may be better not to listen to the patter of Trump or his acolytes, or even to try and see how his hands are manipulating the cards.
Investing has always been about being sceptical and aware of the risks. For now, the bond market’s rising yields and the stock market’s US peaks and uncertainty probably deserve more attention than the Flim-Flam man’s erratic behaviour and a past tendency to shoot from the lip.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
