584: The Trump Presidential Win Trends
Indeed, we had another Brexit moment when Donald Trump was voted in as President of the USA. We warned our readers of this high possibility a few days before the election and did a thorough analysis of why there was a significant chance it would happen.
Moving forwards, we certainly think its prudent to give property investors our view on what is likely to happen the general trends with Donald Trump as President. And we promised to write a follow-up if Trump was elected in, and here it is.
Monitory Policy: The is likely to be a big increase in building and infra-structure investment and with it more borrowing. This will send up interest rates as foreign investors will need a higher return on something they consider more risky. Bond prices will go down and bond yields will go up. It will be the end of the long bond bull run this could have major ramifications for the bond market in the longer term. Interest rates will go up faster and further than if Clinton had been elected, but the US private sector and government cannot afford very high interest rates so the rise wont be too dramatic.
Dollar: The dollar is likely to strengthen as people will be looking forward to the higher interest rates expecting these to arrive. Furthermore, Trump has promised a big expansion in the oil, gas and coal sectors all developing US reserves - so as the US produces more oil, gas and coal this should underpin the dollar by reducing imports and firming up reserves in the ground to support the dollar. After all oil and gas are reserves something to back-up a currency like gold used to.
Military Spending: This is likely to stay at elevated levels but the US acting as the policeman of the world looks set to be over. Trump might well demand payment for the military protection that NATO affords Europe. One thing is for sure if a country upsets Trump he will use the military to retaliate so the military policy will be more like a bully or using a stick if someone misbehaves, but only getting it out occasionally and interfering less. The Trump-Putin relationship will be a key area of interest its not for sure the US-Russian relations long term will improve, there is likely to be a lot of friction despite the positive posturing and it seems mutual admiration at this time. We think this will evaporate quickly at the first sign of conflict. The focus of military intervention will be on any organisation that has harmed the USA hence extreme terrorists are an example. But there will be far less interest in arming rebel groups in Syria for example this has been a disaster on Clintons watch.
Government: Trump will want to reduce the size of government, reduce regulations, and decrease taxes for businesses and private individuals who have small businesses. He will be known soon for upsetting normal protocol, doing things his own way, cutting through normal processes and shutting down organisations and institutions that he does not like. Government will be smaller and more autocratic than previously. Its likely he will slim down the Pentagon, Congress, committees, agencies etc.
Healthcare: This is an area of complete disaster for the USA, about 23% of GDP is spent on extremely inefficient private healthcare so called ObamaCare. Trump will try to dismantle this reduce the costs and make it more efficient less wastage.
Education: This is extremely expensive and inefficient Trump will likely want to gain efficiencies in further education.
Foreign Policy: Hillary Clinton was Foreign Secretary for many years and on her watch she mounted many absolutely disastrous military incursions whatever the US touched, it went to ruin let us name some: Iraq, Syria, Libya, Egypt (before they sorted themselves out), Yemen, Afghanistan, Tunisia. Giant swathes of the Middle East and North Africa were turned into war zones with no government after the US got involved. Supporting the so called Arab Spring where functioning government were replaced by war zones in the spirit of an aspiration for democracy. Trump is likely to be far less interventionist.
Media: In a way the media helped Trump enormously during the election they never thought he would win, and they thought he was excellent for their ratings and the less seriously they took him the more their ratings seemed to go up all hype. Now its pay-back time and Trump is likely to want to start controlling the media far more than Obama ever did. All the news in the next few years is going to be about what Trump thinks everyone will be hanging on his every word this is a shift to a more autocratic leadership style. Those media moguls will have to be careful how they play their games from now on. Freedom of press? No exactly. It will look far less democratic.
Nationalism: There will be and has been a rise of nationalism with the US having less free trade. They will push to have more manufacturing in the USA, more mining and oil/gas in the USA and want to create manufacturing and building jobs for the average American. There will be less valuing of diversity, a step back for womens rights, and step back for gay rights and some ugly racist incidents are likely to become more common place unfortunately.
Property: Its hard to see Trump manufacturing a real estate crash since he is a real estate man. The only question will be whether the negative impact of higher interest rates will counteract against the positive aspects of more private sector higher paid jobs that should be created. Construction companies should do well out of the Trump presidency as more roads, homes and infra-structure are built also including factories and oil/gas/mining operations.
The outcome of all of these policies is likely to be:
Higher trending GDP growth
Higher interest rates
Lower bond prices
Higher bond yields
Weaker gold and silver prices in the short term unless a crisis breaks out
Lower population growth is immigrations reduces
Reducing public sector jobs and size
Increasing private sector jobs and size
Positive rebalancing of private and public sectors towards private sector
Reducing government size
More efficient healthcare
Increase in coal, oil, gas, mining extraction and exports
Less press freedom - more news about the President
Lower business taxes
Lower social security spending
Outcomes: Most people hope Trump will focus the USA on getting people back into real work regenerating the Rust Belt and improving the efficiency of the public sector and healthcare. The concern will always remain the autocratic style will win no friends overseas, the nationalism will ugly and minority groups will feel threatened and anxious with the heavy-handed rhetoric. The chance of a world war has probably risen. Time will tell. What is positive is at least there is a business person who has worked all his life running the show now rather than a career politician. It could actually lead to a business boom on the upside even across the globe.
Impact on UK: There has definitely been a shift to the right away from the liberal centralist elite. The Clinton dynasty. Also in the UK with Brexit a protest vote against the Neocons. This is likely to continue in mainland Europe with the French Presidential elections and German elections coming up a rising of the far right. By mid-2017 its quite possible that the UK will look less isolated as the European Union starts to break-up too many people are sick and tired of the undemocratically elected ruling political elite the crony behaviours with their huge governments, regulations, organisations, costs that have led to slow growth, high unemployment and zombie states like Greece on life support. Its quite likely that the big banks will stay in London to see what happens everywhere else in this uncertain environment surely they would be foolish to relocation all their bank staff against their wishes to places like Frankfurt (boring) or Paris (terror threats). A Trump presidency is probably more of the treat to the European Union than it is to the UK time will tell.
We hope this Newsletter has been helpful to give you some insights into the economic direction the USA is heading. If you have any queries, please contact us at firstname.lastname@example.org