Age of the outlier

Well. That just happened. Donald Trump is the next president of the United States.

I’m not here to talk about party politics. And to be honest, opinion on who might be the best president is pointless now. Trump has won and now we get to see what he actually does and what actually happens.

You have to invest for the world as it is and not for as you may want it to be. I have notes from our in-house experts Eoin Treacy, Tim Price and Charlie Morris on what’s happened and what that means for your money coming up, in just a second.

But first, what does a Trump win tell us about the way the world is? Whether you’re a Trump fan or not, it’s clear he’s a political outsider and outlier. He’s anti-establishment. What makes people look outside the political mainstream in such a way?

Ironically, I think perhaps it was Bill Clinton who got it right. Yesterday I saw a leak of a speech he gave last year in which he talked about the UK political scene, particularly Labour. Here’s what he said, with added emphasis from me:

And they moved to the left and put his brother in as leader because the British labour movement wanted it. When David Cameron thumped him in the election, they reached the interesting conclusion that they lost because they hadn’t moved far left enough, and so they went out and practically got a guy off the street to be the leader of the British Labour Party, who I saw in the press today said that he was really a British citizen and had real British (inaudible). (Laughter.) 

But what that is reflective of – the same thing happened in the Greek election – when people feel they’ve been shafted and they don’t expect anything to happen anyway, they just want the maddest person in the room to represent them.

That’s not exactly how I’d put it. But it’s certainly true that when people feel “shafted” they’ll do things they may not normally do. (And things they may not talk publically about, meaning they don’t show up in the polls until the day of an election.)

Why do people feel shafted? A full answer to that question is probably outside the remit of this letter. But my suggestion is that it comes back to a fundamentally unsound monetary system that allows the state to create money out of thin air and inflate asset prices. Incomes stagnate and assets inflate. That creates division. Division leads to discontent. Discontent leads to unusual, outlier events.

I may be wrong. But that’s my best guess. Send me your theories to [email protected].

We will analyse the world Donald Trump is going to inherit tomorrow. But right now: what’s happening and what does that mean for your money?

First let’s talk to Eoin Treacy. Eoin lives out in California so has had a little more time to digest the results, rather than waking up at 5am and trying to figure everything out like me. Here’s what he had to say:

2016 is truly a year in which anything can happen.

The British vote for leaving the EU, the Chicago Cubs win the World Series for the first time in 108 years, the Irish beat the All Blacks for the first time ever and Donald Trump knocks the self-proclaimed intelligentsia for six and trounces Hillary Clinton in the US presidential election. 

The S&P 500 was limit down following the Florida result but has since bounced. The Chinese, Indian and Australian markets are well off their lows. The pound, gold and the euro are further examples of a knee-jerk response.

We can expect things to be relatively quiet until the US opens. Then we’ll see how many forced sellers are in the market. The most important factor is this move is bad for sentiment. If the market closes at the lows, we will have a failed upside break which would open the market up for another 10% pullback. 

Take a step though and this is far from the disaster many are predicting. Giving a voice to the disenfranchised is a good thing and is what democracy is designed to do. The Republicans might have control of all three branches of government so if they want to vote through a spending plan, to lower corporate taxes or reform the tax system generally, they will have little opposition. That is all market positive and could lead to substantially higher levels over the coming years, so even if we have a short-term pullback it could set us up for an attractive entry opportunity. 

Exciting times. 

That’s what good investors and traders do. They play what’s in front of them and seek opportunity. Speaking of which, I spoke to Charlie Morris too. Here’s what he’s looking at:

Panic reaction to Trump victory unjustified. For example gold rose 3%. Should have fallen 1% as bond yields fell along with inflation expectations. Opening this morning sees panic in equities overdone. Major currencies have eased back so this is nothing like Brexit. 

New winners and losers. Russia probably a buy. Mexico perhaps, but wait for that one. His bark will be worse than his bite.

I expect to see Putin and Trump – shirts off – bear hunting next summer.

WW3 now less likely. Sell defence stocks?

Bitcoin up 4%. Totally justified!

I also spoke to Tim Price. Tim’s response was similar, though tempered with a need to protect capital as much as grow it. You’d expect that. Tim’s a more defensive minded investor, whereas Eoin and Charlie are relentless in seeking opportunity. Here’s what Tim said:

Brexit started it and Donald Trump would appear to have finished it.

A disaffected and hitherto silent majority has lashed out against the establishment and overturned all conventional political wisdom in the process.

It’s too late to try and profit from this extraordinary event in the short term: if you’re going to panic, panic early. And the immediate knee-jerk response by markets – stocks down, dollar down, gold up – may yet get reversed in the fullness of time.

But we are living through an unprecedented period of uncertainty, and having safe haven, deep value, defensive investments in your portfolio makes as much sense now as it has ever done. A Trump victory has some particularly awkward implications for the US bond market over the medium term given his supposed spending plans. The rout in interest rates and a sea change in the bond market may only just have begun.

We’ll know more about what this means for the bond market, stockmarket, currency and rest of the world when the markets open properly in the US later.

I’ll be back in touch as soon as we know more.

Until tomorrow,

Nick O’Connor
Associate Publisher, Capital & Conflict

Category: Geopolitics