So a weekend has passed, President-Elect Trump has given more interviews, and news is being digested. We now know that he’s OK if the Mexican wall is a ‘fence‘ in places; that the new Supreme Court “judges will be pro-life“; but also that closest advisers will come from the more shock jock right-wing element of the party. We also know that he can ditch Chris Christie because his son-in-law doesn’t like him.
What does it all mean? Who knows – and anyone who thinks the markets have the future panned out risks yet more accusations of hubris. But Blondemoney’s brother offered a surprisingly useful insight upon hearing of Trump’s success, noting that of course you’d demand the Baltic states paid more into NATO “because he’s a businessman, he’s doing a deal, he’s using his leverage to negotiate”. Now you might argue that he’s not necessarily been a great businessman (The Donald that is, not BM’s bro), but that doesn’t matter because he thinks he is. That means that of course he can jettison some of the more extreme populist elements of his campaign now that he’s got into power. But it also means that he can jettison any moderate position in the future, if he wants to get a deal done. He won’t be punished for flip-flopping, because he’s in power for four years with a Congress that owe their jobs to riding on his coat-tails. So trying to extrapolate anything from his comments this weekend is pointless. Just as, 6 months from now, it will also be pointless, because it will depend on what deal he thinks he needs to get done. Maybe he eases off the pro-life stance when he needs to cut a deal with his Republican friends over the budget. Who knows – but we need to be aware that the businessman’s approach to politics is not the same as a politician’s.
Blondemoney was reminded of this by the Sunday Times interview with hoover-usurper James Dyson. Where once he signed a statement in 1998 that the UK should join the Euro, he now became a prominent Brexiteer. Politicians get buried for that kind of u-turn; businessmen don’t. Why should they? They don’t get voted in or out; they don’t even have their hands on the levers of power (no matter what the smash-the-establishment types might think). They might get their way on one small piece of legislation that matters to them. But then they’re done, gone, offski. It’s all about the bottom line. Sure, some might pursue a particular ethical brand; but “Don’t Be Evil” hasn’t necessarily extended to Google’s interest in paying taxes.
With this in mind, take The Donald with a pinch of salt.
When it comes to markets, he just provided the spark for the fundamental reassessment that was already taking place. Focus instead on these points: Monetary policy is over. Inflation is back. But vol of vol remains high, and although this fixed income sell off should continue, it will be arrested from time to time. Either by an overdue vomit in equities, or asset-liability matchers coming in to hoover up (or should that be Dyson up??) higher yields. For those merrily selling Euros into all this, keep an eye on how Bund yields keep going higher. In fact for anyone buying USDs on the yield differential story, be ready to flip if the yield rally is arrested; or if the world wakes up again to the fact that the BOJ and ECB are no longer QE-infinity funders.