So, Donald Trump is now President of America. Wah! The wild flurry of activity in the run-up to his inauguration and his amazingly fantastic inaugural address confirms that he is hugely engaged with the job and—smart as he is—he knows exactly what to do and how to do it. In fact, it’s just like running a business, which, as decades of history will attest, he knows exactly how to do: drive everything like hell and if you hit a pothole—or worse, a wall—well, there’s always bankruptcy protection.
That he sees things this way slipped out in the early days of Trump’s campaign, when he hinted that the US may ask its creditors to take a haircut on its debt obligations. While wiser counsel prevailed at the time, creditors never forget. So, when things start running wild—and judging from his style and plans, this could be quite soon—I would expect the US’ creditors, which include China, India and most other large countries, will start to mark down the country’s debt, increasing the yield on its bonds. US yields will rise faster and higher than generally expected.
It would appear that the market knows this, which may be why the hot rally right after Trump’s victory—where US equities, bond yields and the dollar surged—appears to have petered out.
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Of course, the game is just beginning and, showman that he is, Trump has doubtless noticed that the Dow Jones average almost blew through the huge, psychological barrier of 20,000 shortly after the election. It is hard to believe he wouldn’t twitter it up with some unofficial policy guff quite quickly after the inauguration and then preen and gloat at the photo-op.
More power to him.
But, as the game settles down and the hard work of designing and implementing policy becomes de rigueur, and as the uncertainty of on-the-ground impact begins to play out, it is certainly possible that Trump will not bored or impatient, and start chopping and changing his policies long before any approach could have reasonably yielded results.
In parallel, the millions who loathe him will not let up. Indeed, if every American who dislikes Trump were to simply tweet what they thought of him every day, it could be the most effective way of unsettling his fragile ego, which could lead to any kind of drama, including, particularly if he’s not getting anywhere with his policies, his walking out in a huff.
To be fair, though, his rhetoric of ensuring that every decision he and his cabinet take is based on the best interests of Americans is reasonable and sound—indeed, it is what every leader of every democratic country is elected to do. The problem is his simplistic belief that he knows exactly what needs to be done, when the reality is that in a globalised world—and, whatever he thinks of it, the world is very tightly interconnected today—it is no simple matter to determine what maximises the value to Americans.
Take, for instance, the asinine idea of building a wall along the Mexican border. While it would doubtless keep (probably) tens of thousands of illegal migrants out, it would decimate US agriculture, which, in many states, depends on cheap, illegal migrant labour. While this may increase the number of low-paying jobs for Americans, it would certainly increase food costs, which would negatively impact all Americans.
The grand flourish is obviously great for campaigning, but, as Trump will find out very soon, governing is going to be a whole different ball game, more so since he almost appears at pains to continue to alienate anyone who is from the “other side”.
In other words, as Trump gets into stride, the smallest bumps are going to get magnified into barriers and the smallest barriers will turn into hurdles which he will be hard-pressed to get his bulky frame (and attitude) over. While the Republicans control both Houses of Congress, it is hard to believe there are many Republican lawmakers who are genuinely enamoured of Trump. Certainly, the ones who will be up for re-election in 2018, will be quite nervous about getting too close to him since he is clearly someone who could implode (or explode) at any time.
The fundamental conflicts of interest that Trump refuses to address—with his sons continuing to control his business empire—could turn into a rallying point for disaffected lawmakers, particularly if, as is certain, the world and tens of millions of Americans refuse to roll over, play dead and applaud as Trump struts his “greatest-ness” on the stage.
US rates will continue to rise as inflation will exceed expectations; in response, equities worldwide will soften and the dollar will slide. Volatility will rule 2017.
The author is CEO, Mecklai Financial