All week, I’ve been talking about President Donald Trump.
About how he is disrupting markets, changing accepted norms and ramping up tensions around the world.
I’ll admit, my viewpoint is a wee bit on the negative side. Though this viewpoint still threw up some interesting investing ideas.
You can make money in all sorts of markets, after all.
Today, I want to finish up with giving Donald Trump the benefit of the doubt.
Maybe, as his supporters will claim, he knows exactly what he is doing?
Maybe the very stable genius has a plan he will gradually reveal to us lesser folk in due time?
I don’t doubt this is a possibility.
To his credit, Trump has been written off more times than most. And time and time again he has proven everyone wrong.
With that in mind, let’s look over this week’s topics from the viewpoint that Trump really is the master of the art of the deal…
What does he want?
When you’re trying to understand any negotiation, it’s important to understand what the other side wants. Putting aside Trump’s ego, the things he wants from the world are pretty clear.
He wants allies to shoulder more of the defence burden.
He wants cheap oil and low interest rates.
He wants more blue-collar jobs to maintain his strange alliance of conservative Republicans and a significant working-class base.
And he wants the stock market to keep going up…
Isn’t that what every American President wants?
Probably. The difference is in the method.
Trump thinks previous Presidents have failed.
For Trump to succeed, the world has to believe he is capable of anything.
How do I know he thinks like this? He’s told us before!
Two of his rules in his 1987 book The Art of the Deal make this very clear.
‘Maximise your options’ and ‘use your leverage’ are just two of the winning negotiation tactics Trump tells us he employs.
As he puts it:
‘The worst thing you can possibly do in a deal is seem desperate to make it. That makes the other guy smell blood, and then you’re dead.’
Maybe the trade war with China, the threats to Europe, and the cosying up to Russia are all just postures to keep everyone on their toes?
And to be blunt, I wouldn’t be surprised if they start to work.
As I said on Tuesday, Europe would be stupid not to start investing more in their own personal defence. Bluff or not, I’d expect them all to get closer to that 2% of GDP figure as a matter of risk management.
Of course, that’s a tick for Donald Trump.
Oil’s a trickier one.
Politically, Trump wants to keep prices here down. Tariffs potentially increase consumer prices at home but falling energy prices could contain the damage.
They have Saudi Arabia in the bag, but tensions with Iran and Venezuela are troublesome. Particularly if Russia is ‘the enemy of the day.’
And ‘winning’ with Russia is a double-edged sword. It’s part of Trump’s economic plan, but it’s causing him issues politically.
For you, I still think the bigger long-term opportunity lies in looking at strategic shifts in energy markets towards renewables and nuclear and away from oil. Any middle power from Germany to Japan that has no natural source of oil can no longer rely on the USA, and has to start making energy security a top priority.
But in the short term, who knows what will happen to the oil price? There’s cases to be made both ways.
With China, there’s the chance the trade war fears are overblown. Merely an opening gambit made by Trump to get a good deal.
Trump would want people to believe a full trade war is a real possibility.
And there’s no doubt China have been playing the system to a certain extent — especially when it comes to copying technology and ignoring copyright laws.
These are industries where the US has a competitive advantage, yet China are playing dirty in.
The question then becomes this: can the two economic superpowers come to a re-negotiated deal?
China has a lot to lose in a trade war with the USA too. And although they too are talking tough, perhaps mutual interest will win out?
It won’t be the first time Trump solves a crisis of his own making!
And if they do, both Australia and Australian resources companies will be set to soar once again.
Buy in gloom?
You’d have to say the US stock market has more faith in President Trump than commentators and the chattering classes.
The major exchanges have rocketed to record highs over his term and are still on the up. In an atmosphere of fear and uncertainty the stock market in the USA is saying ‘crisis, what crisis?’
My experience says the stock market is a lot better barometer of future prospects than mainstream opinion pieces.
And when I put my optimistic hat on, I can see some compelling opportunities for Australia too.
There’s the growing Indian story playing out. Another 1 billion-plus people hungry for our resources. And if the China situation resolves itself, then you’ve got huge opportunities in food, mining and tourism for Australia to benefit from.
Blockchain technology and cryptocurrencies represent the perfect all-weather investment opportunity too. It’s a relentless technology play that is not going to stop in my opinion. Akin to investing in internet stocks in the early nineties.
In my opinion, cryptocurrencies will benefit from both good times and bad. One for technological reasons, the other for economic.
In the short term, a falling Australian dollar buffers us from some negative effects too. For example, gold miners have been going up in value on the ASX even as gold prices have fallen.
Then there’s the eternal Australian BBQ stopper: property.
You could argue the next 12 months might be a nice little opportunity to snag a property bargain as baby boomer investors, spooked by the economic press, start to offload some surplus investment properties and move to cash.
Motivated sellers might start to discount if the fear ramps up enough.
But twelve months from now if the economy continues to purr away, the banking Royal Commission will be long-forgotten, lending rules will no doubt relax once more and if interest rates stay low then it could be game on again for property, especially in the mining states of WA and Queensland where prices have stagnated for the last decade.
Maybe, just maybe, twelve months from now, the boom times will be back.
And the Trump agenda will be well and truly on track…
Trump puts it best…
Rule number two from The Art of the Deal makes it clear…
Protect the downside and the upside will take care of itself.
Or from the master dealmaker himself:
‘I always go into the deal anticipating the worst. If you plan for the worst — if you can live with the worst — the good will always take care of itself.’
In investing, I think these are words to live by, no matter how you invest.
I’ve spent the last week talking about the Trump effect. Because its changing the game in many ways.
But in a sense, the landscape for investing is always like this. There’s always something to worry about. There’s always big changes or big risks to account for.
In reality, you live in a world of extreme possibilities tempered by probable average outcomes.
In my view, the best way to thrive in a world like this is to look for asymmetric opportunities. The kind of investments that give you a chance to make many multiples if you are right over when you are wrong.
Whether this is on the upside or downside (if you like to short markets and bet on prices going down).
Then, finally, to allocate your portfolio so that you have enough invested in safer assets like cash, and paying down any debt, so you can enjoy the part of your portfolio in the riskier investments without too much stress.
I think Trump would agree…
Contributing Editor, Markets and Money