The Trump Effect
Over the weekend investors got a chance to read the fine print on the faustian bargain they had with President Donald Trump. Since Trump’s election night win, markets had jumped significantly. The promise of stimulus spending, tax cuts and a renewed focus on deregulation had given investors a “sugar rush”, and eclipsed the more basic concerns about Trump’s general lack of suitability to be president.
But with the stroke of a pen investors were being reminded about how quickly Trump’s essential character and the presidency he promised could bring chaos and confusion. On Friday Trump signed an executive order to temporarily restrict accepting refugees from seven predominantly muslim countries. The order was vague, poorly thought out, badly executed and quite possibly illegal. Confusion reigned and initially the order was applied to people with legal immigrant status in the United States, including those with green cards.
The weekend was filled with protests at airports, backtracking by members of the administration, and out and out insurrection by members of the government who believed that the order was unconstitutional. Very quickly the official story has descended into the kind of decontextualized factual minutia that has come to characterize attempts to grapple with the truth in the age of the internet. Did Obama do something similar? Is this a Muslim ban or something more restrained? Is it more or less reasonable than it was presented? Accusations or partisan hackery and racism powered the internet and every conversation everyone had over the weekend and well into today.
The answers to these questions are largely immaterial. Trump is a populist and is likely going to do exactly what he said he would do on the campaign trail. That his cabinet is a group of people with little understanding of the nuances of government and that he may in fact be heading up an administration that is kleptocratic on par with a South American government is part of his current appeal. This weekend won’t be the last time controversial and vague (or illegal) orders are issued by this president and it won’t be the last time that they are met with organized resistance.
2016 was a year in which great changes to the status quo were made without many of those changes having an impact. Investors may have come to believe that the rising tide of angry populism won’t have any negative repercussions, or may even be positive. But this weekend brought investors face to face with the reality of unpredictable populist outsiders calling the shots. Volatility is in the cards, and even if (as many believe) that Trump will be good for the economy, his style is not slow and deliberate, but fast and reckless. Investing in the US, which has a strong economy, is unlikely to be smooth even if the trajectory is up.
That’s the problem with Faustian bargains. You get what you want but what you sacrifice has typically been undervalued. The future for the American markets still looks good; but NAFTA talks loom, there are threats of trade wars, and a stable and predictable government seems unlikely. Investors should take note; its day 11 and there are another 4 years ahead. Even if we can’t predict tomorrow, we should acknowledge that tomorrow’s unpredictability may be the thing that investors have to make peace with.