Fear and Loathing in D.C.
After consultations with several clients of Anselme Capital it is clear that many investors are in a state of heightened anxiety. Political uncertainty is clearly the root. I thought I should pitch in and give you my view.
Mr Trump became president 15 days ago and he has signed 14 executive orders. It can take one day to draft an executive order. It is a short document, clearly not always well thought out, sometimes creating chaos, sometimes aggressive, purposely so. It is the fastest application of power there is. With proper staging and communication in our social media age, an executive order can have enormous emotional impact.
The political impact has been large as well. The congressional majority is frustrated by the rather poor legislative guidance coming from the White House. Power struggles have already started between the cabinet and advisers. CEO’s have become weary of being singled out, caught between the administration’s wrath and their constituents. The judicial system already kicked in to stop one executive order. Other nations are scratching their heads in disbelief. Domestic grassroot opposition has been whipped into a frenzy. Some even fear the disintegration of our institutions. I understand these fears, and I share some of them. But keep in mind the following:
- Executive power is limited by legislative and judicial power and the dynamic of these two is much slower, they are also a lot less dramatic and completely unmoved by virulent tweets. Judges have already stopped one executive order and that battle will take months. Congress will likely vote on the budget in April or so.
- The foundation on which American businesses run is the legal system, the set of regulations, laws, and trade agreements. Executive orders only affect that foundation at the margin. For example the temporary travel ban from seven countries upsets Silicon Valley emotionally, but in practice what matters are the F1 visas, and that is decided by Congress, not Steve Bannon.
- Congressmen are on a short electoral leash. In November 2018, 33 senate seats, 435 House seats will go to a vote. We haven’t felt the moderating effect of that feedback loop yet.
- So far, this election has been won by capital. The wealth of the cabinet speaks for itself. What benefits this capital is de-regulation, less tax, infrastructure spending, and free trade. President Trump may be able to disrupt these fields through executive orders, but he cannot fundamentally change them.
- Donald Trump ran on a platform of bringing jobs back where they have been lost and convincing the victims of this job shift that it was due to trading agreements that made it too easy for ugly foreigners to win that economic fight…
This economic/ethnocentric claim is as old as the industrial world. In 1929 Mr Coolidge became president on a very similar platform, tariffs were put in place in 1930 with an employment then at 8%. The retaliation by all trading partners was immediate. International trade collapsed throughout the world. By 1933 unemployment hit 25%. The correlation between international trade and jobs is strong, and I assure you that everyone in Congress, at the Fed, and certainly among the members of this very affluent cabinet knows this. It is one thing to channel racist nationalistic feelings to get elected, but it is quite another to turn a trade disruption into more jobs!! Disrupt trade and unemployment hits you at the very next election. It is much much safer to create jobs with an infrastructure build-up, which is sorely needed anyway. For this reason I don’t expect this Congress to disrupt trade in impactful ways. I do expect a significant infrastructure Keynesian pump.
I have no doubt that President Trump will continue to amaze us with his “unpresidented” actions, but we have to force our perspective outwards and onwards, remember that we are at our worst when guided by our fears. In finance, it’s always good to be prudent, but never to be afraid. Remember also that markets are efficient, meaning that the fear over how the next four years will play out has already been considered, analysed and priced into the markets. Fear creates value. There is uncertainty for sure but our fears, at this point, must be controlled.
