beyond a bank
As everyone even slightly acquainted with the game of Bridge knows, three No Trump is a ‘game’ call
– and is often easier to make than other game calls as it only requires nine tricks as opposed to ten
in Spades or Hearts and 11 in Diamonds and Clubs. It does, however, depend on having ‘stoppers’ in
each suit and the required number of high card points.
What is important for us as investors is that the next President of the United States is Donald
Trump. That essentially makes him the Chief Executive of the most powerful nation in the world
and Commander in Chief of the US armed forces. He cannot, however, go to war without the
permission of Congress – something that the previous Republican President George W Bush sought
and obtained before the invasion of Iraq.
Donald Trump’s War and what it means for us
Donald Trump has effectively declared war on the ‘Off-shoring’ of
jobs. This will have a major impact on the policies of the Trump
administration. Already, through the power of tweeting, he has
made it clear that he will target automobile manufacturers using
cheaper labour in Mexico – let alone building a wall between the
US and Mexico. Added to this, the threat of a special tax on cars
from Mexico flies in the face of both the World Trade Organisation
(WTO) and the North American Free Trade Agreement (NAFTA).
No doubt the professional bureaucrats in Washington will appraise
him of this, but it would seem that many companies are only too
willing to accept that they have to stay on good terms with the US.
Aside from this, and apart from automobiles, Mexico provides the US with a large proportion of their
daily oil usage. A question to ask is whether the Mexicans will retaliate, given that the threats of
Trump do hold up?
Then there is China: already there are tensions, related to an ‘undervalued currency’ and cheaper
labour. A change in policy could win enemies, not friends.
How about Russia? Vladimir Putin seems keen to be friends with Donald Trump – and that could be
a good thing. The only problem is that it would appear that Putin had a hand in the hacking of some
e-mails during the election. Some say that assisted Trump, and very recently, some 96 diplomats
were expelled from the Russian Embassy. That is not a good basis for friendship.
What is an investor to do?
The important points are related to the basic fundamentals: inflation, interest rates and company
earnings.
On all of the evidence so far, including a rising oil price, full employment in the US and infrastructure
spending programmes, both inflation and interest rates seem set to rise. How far and how soon are
debatable issues, but these do not affect the direction.
Corporate earnings are set to rise in the US – more so from rebounds in depressed sectors such as
basic materials and financials – but who is worried? Unemployment is not a concern, inflation may
rise but central banks are still operating on a low interest rate policy basis.
Count your tricks: nine looks easy but always check on what (unlikely) scenarios could prevent that
and play accordingly.