Trump: turning out to be not so bad a thing after all

I spotted this going around the social media channels: a transcript of The Economist’s interview with Trump.

And I also spotted a copy of the economist in the office today which was far from flattering to the president. 
It also attempts to explain why Trumponomics won’t make America great again.


Oh really now?

The Economist is wrong.

Now to be completely honest, the day Trump won the election I thought we’d be in a lot of trouble, especially following on the heels of Brexit. The subsequent “Trump rally” I also (wrongly) believed to be a head fake.

It’s still going. And because Trump has little reason to mince his words (and equally little concern for political correctness), I’m entirely confident he goes through with his plans.

And the rally will continue. For years to come.

So think about it for a second: looking through the transcript, I take away 3 conclusions:

  1. US domestic growth is going to be ballistic, fuelled by pump priming, starting with the tax cuts.
  2. The accumulation of human capital and intellectual property in the US is also likely to accelerate, with more companies sufficiently incentivised to relocate.
  3. Trump is neither Republican nor Democrat – he’s a pragmatist and that’s not a bad thing, certainly better than being an ideologue short on achievements.

I haven’t heard this being used yet, but perhaps it might be a succinct one-liner for Trumponomics: Rebuilding the case for the American Dream.

And now we make a stock call: what’s the first company that comes to mind which ticks all the boxes on Trump’s ideal American company list?

  1. Makes in America.
  2. Invents in America.
  3. Supports American jobs and growth.
  4. Sells to the world, flying the Star-Spangled Banner.

Tesla.

Hubris and Humiliation?

Spotted this from Merrill Lynch research:


Does put things into perspective, although to be fair to these mega caps, their overall global addressable markets are bigger in USD value than those of the listed companies in these individual countries.

Wouldn’t call this “Hubris and Humilitation” though. 

More like opportunity to me. Any (or all) of those countries will be the next big thing.

Vive La France? On se croise les doigts.

As the French head to the polls for round 2, the consensus expectation is that it’ll be a Macron win and everything will be fine.

For the moment, perhaps. 

The financial press has been somewhat ambivalent about their forecasts about how the story pans out from here, although with a bit of basic Game Theory the outcomes are pretty grim.

Then came the epiphany: the fate of France was sealed the moment it came to a Macron vs. Le Pen showdown. Sealed like that of Marie Antoinette heading to the guillotine.

Allow me to explain, for this will truly infuriate the europhiles and general optimists: Bloomberg Businessweek put it best when they called to “Give this man a party“, ostensibly because despite being the front runner in the presidential race, his party can scarcely fill up the seats required to govern.

So we get to two possible outcomes by the end of today:

1. A Le Pen win – unlikely, but not impossible with abstentions, which will sound the death knoll for the European project, with the silver lining being a quick and relatively less painful implosion. Also makes the Brexiteers look like geniuses.

2. A Macron win – more probable, not a given, but seen as hope for a rejuvenated Europe.

Really?

Heading into government with not just one party filibustering every policy change, but TWO? There’s little reason for either the PS or the UMP to support Macron policies, even under the political guise of “stopping the far right.” If they help Macron and make a success of it, it ensures voters vote “En Marche!” the next time round, basically losing incumbent UMP/PS deputies their jobs, short of a party defection. If they help him and things flop, the blame of supporting a neophyte politician, lacking in experience, falls in them – political suicide.

The optimal strategy here: do nothing; The natural outcome: Stagnation.

And hidden in Macron’s manifesto is the trigger: the EU must reform or die.

At this point, the outlook seems much more likely to lead to the latter rather than the former on the Macron ultimatum.

I spoke with a retired professor this morning who just spent a couple of days in Northwest France where he has a holiday home, and he came back with one glaring observation: France is bankrupt.

His neighbour who runs a B&B with about 20 rooms, who moved there 17 years ago from London, is convinced they won’t be in business next year. Not because of demand – it’s a small establishment after all; but because the tax regime was recently changed in 2015-16, moving from a fixed tariff for small businesses (aka Micro-entreprises) with turnover below €80k/yr to an effective 24% tax on sales. SALES.

For the more francophone among us, details of the rules for les micro-entrepreneurs are here. All in French, for better or for worse. After all, European Commission President Mr. Juncker did assert that English was losing its importance in the Europe.

The aim? To catch out the zero-expense small businesses like online traders or landlords with long-depreciated property that are escaping taxes. Bah oui, of course they’re fiddling with the books! What kind of small business can be THAT unprofitable as to pay that little tax??

Which just makes all this talk of making France competitive, snatching finance business from London, quite a joke.

The Eurostoxx has been on a tear in hopes of European reflation – I think it’s just that: hope. Wouldn’t touch it with a barge pole.

France basically faces either 1. Death by decapitation; or 2. Death by starvation. Not sure which is worse, but in a way, perhaps the former will be, with hindsight, a coup de grace.

And we haven’t even looked at Italy.

La prochaine fois, peut-être.

Bon courage, La France.

Buying straw hats in winter

When I first started my career 6 years ago in equities sales, I was very quickly taught by my then-boss (and still a spring of wisdom today) of the importance of looking through the noise of the crowd.

One simple rule for making money: buy low, sell high. And to find the lows is like shopping for straw hats in winter.

Harder than it sounds. But not impossible. Going long Southeast Asia in 2015, buying Mining equities in early 2016 and positioning for an Indian bull market post demonetisation were some of the right calls guided by that principle.

Of course, sometimes it goes very wrong – like the dividend yield trade. But with hindsight that was in not keeping with the rules. Shopping for yield in 2016 was a mistake born from not recognising the fundamental change in the world.

The US market is recovering, Trump notwithstanding. And the Fed’s stability mandate suggests rates are by no means lower for longer in the face of growth.

More importantly, the Fed (and all other central banks) have shrinking relevance in today’s world. They stopped being relevant when the BoJ went for the NIRP bomb (great NY Times article on the Negative Interest Rate Policy here), and the world realised central banks had no more bullets left in the monetary policy gun.

Unfortunately for yield investors, growth is back in the US. It’s not back in a big way (yet) but the gradual advances of the Trump administration (tax cut – funded by… a border adjustment tax??) make it clear that Fed or otherwise, the long end of the UST curve is heading up.

Lest we forget that central banks’ monetary transmission mechanism is a mechanism, not an end-result in itself. 

But what of the broader market? The S&P trades at almost 18x forward earnings, and while US data seems to indicate better growth, the mood on the ground is skeptical.

How can the market still be heading up and rallying so hard after all that has happened? Trump’s bound to trigger a recession at some point!

Perhaps… or perhaps not. The S&P is at all-time highs, and showing signs of exhaustion. For sure it needs a break; the question is how long this break will be.

Consensus says it’ll be quite a long break – the tail risk is that the sell-off is shorter and shallower than we expect.

Update: spotted this in Barron’s last night, an interesting argument for why S&P multiples can keep expanding.