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588: Trump - global economic directions moving into 2017

12-18-2016 team

Changes: Donald Trump’s election will significantly change the world economic and foreign policy for the USA and all countries in the world. There is likely to be major ramifications from these changes in the next few years.

Protest Vote Against Socio-Liberal Elite: The ruling Obama liberal elite – along with the Clinton clan are being kicked out by the US electorate. Regardless of your political views, one thing for sure is that under the Obama and Clinton watch, we had wholesale destruction in Syria, Iraq, Libya, Egypt for a while, and Yemen. There has been the rise of Russia as a military threat – with the annexisation of Crimea and the ongoing Ukraine war – off the back of the threat that Ukraine would join NATO and EU interference. We cannot think of one foreign policy success under Clinton’s tenure – just a degradation of situations around the world resulting in the rise of ISIS.

War – Disasters: Other notable disasters have been the capitulation to Iran over their nuclear ambitions, sanctions on Russia that seem to have emboldened Putin, and China building militarized islands in the South China Sea – all whilst Obama and Clinton watched on, with Perry being ineffective against the Russians and the USA, Europe and NATO looking increasingly foolish.

Bigger Disaster? We now have a sea-change in strategy and administration – and it’s quite possible Trump will be an even bigger disaster – but we will have to wait and see. It’s worth noting a few trends in the US Administration that might affect property investors in the medium and long-term – both those based in the USA and those in the UK.

China – there will be huge tensions between the USA and China over the militarization of the South China Sea Islands. Donald Trump will be wielding his weight on this issue – and it could lead to war or at least China and USA shooting at each other for a period of time, gin-boats ramming each other. Trump might even demand China move off the islands – this would certainly raise the spectra of war. Trump may threaten to put import tariffs on Chinese goods if they don’t move off the islands. There looks likely to be at least a trade war. Trump is a property developer. China are building islands from submerged sand-banks - getting into the Trump psyche - he will want those islands for himself. He will feel very envious of this Chinese development and want to put a stop to it, especially as it threatens what he considers to be a US shipping corridor. We have been warning for years about the threat escalating from China's insistence on developing these islands and claiming the whole area for themselves - and we see this as a big flash-point now that Trump is about to come into power. 

Business – beyond any doubt, Trump is pro-business. He surrounds himself with business associates. He does want to get the American people back to work – not just low paid part time jobs in Starbucks, but real jobs in manufacturing. He will do this by:

·         Boosting oil and gas related jobs – more fraccing and oil leasing - more oil rigs operating

·         Getting coal miners back in business after Obama destroyed them with environmental legislation and lack of pollical support

·         Boosting manufacturing jobs by providing very low cost energy – electricity and gas power – through the expanded oil/gas industry in Texas, Oklahoma and North Dakota etc.

·         Pulling out of climate change agreements and reducing regulation

Hi-tech: Trump will also be wanting to keep the hi-tech businesses in California growing – he will encourage these though will be tampering with their power – he will want to control and use social media to improve his ratings and will put pressure on hi-tech companies to back him and not the liberal elite and democrats. This interference will be un-democratic – and lead to a more autocratic US society. It will be a marriage of convenience – Trump does not really like hi-tech nerdy types and "hipsters", but he knows how important these people are for tax revenues, jobs and keeping the US competitively “ahead of the pack”. He won’t want to attack them too much. Indeed, he spends most of his early mornings on Twitter – creating the next news threads!

Russia: Trump will cosy up to Putin for a while anyway, but both men have huge egos – and we think eventually there will be a trigger that makes them lose friendship. Putin wants to use Trump for his vested interests – and Trump will want to use Putin – but we think after a few years they will fall out over something and the outcome could regrettably be war. Its certainly a high-risk relationship. Both men want to use business and oil to make money and grow their oligarchies – initially there is likely to be more US investment in the Russian oil business – but it is likely to end in tears when these assets are seized (again) by Putin – like he did with Yukos, Sakhalin and BPs huge TKN assets. Its going to be ugly.

Building: Trump will want to get the US building again, sky-scrapers, roads, rail, pipelines, infra-structure, airports – the level of public debt will likely rise as he encourages private-public partnerships to boost jobs and building. Lets face it – Trump is a property developer – and he will like nothing more than visiting huge building sites and feeling important. He wants to make American great again – and building is part of this masterplan and ethos. Expect big changes in NE USA in particularly – New York and the Rust Belt. All those unemployed people scraping by in the Rust Belt states are the ones who voted Trump in – in these swing states – and he won’t want to let them down.

Private Business and Public Sector: There will be a big blurring of private and public sectors during Trump's tenure. It will look to many like a merger. Of cause when the business and government merge – by definition - this is facism. We are not saying the US will become a facist state – its more the case that there will be a big shift from the general trend of:

Regulation and Interference: Liberal politicians beating up business and making it awkward for them to invest with regulations and oversight – to a more free ranging growth in business as the government generally takes more of a hands-off approach – as long as these business are seen to support Trump. If they are seen to undermine Trump and his policies – he will then attack these companies – a bit like a bully. Rather similar to Putin’s attack on Yukos after their CEO did not agree with his politics and openly criticized Putin (he ended up in jail).

Government: Trump will surround himself with powerful business people that he knows are all his strong loyal supporters. He will not tolerate anyone saying anything negative about him – otherwise they will be out or even worse, end up in jail. We believe he will have a very autocratic style when compared to Obama. Yes – this will get things going in business – but eventually we see trouble – probably in the foreign policy department and the outcomes would most likely be more wars.

Nixonian:   It’s worth noting that one of Trump’s heroes is Richard Nixon. He particularly likes one of Nixon’s trait that he was unpredictable. He likes unpredictability and thinks there should be more unpredictability. Looking at things through Trumps eyes, he probably thinks over the last years – the USA’s Foreign Policy has been so predictable this has made the US less safe because of it – played into the hands of USA’s enemies – be these terrorists or rogue governments. Of course people could easily say the predictability of leaders like Merkel, Obama and Cameron have been good for peace, not bad – certainly if you live in South Korea or Estonia – you need to know you can rely on special relationships.

Kissinger: The other person Trump admires is Henry Kissinger. He wants his State Secretary to be like Kissinger – a man who could almost predict future events and help shape the downfall of the Soviet Union and rise of Israel as a state. So expect his next State Secretary to be are rather Kissenger type figure – good at working with alliances to shape world events, with Trump being the unpredictable person stirring things up.

Mexico: We think Trump will go a bit soft on Mexico since they are close neighbours, with a lot of business between the countries. But he will try and shift many of the Mexican jobs – e.g. automotive – back to the USA.

Venezuela: Though Trump has not really mentioned this country yet, he and his subordinates would probably love to get their mitts on the 220 billion bbls of heavy crude sitting idle in this country – Venezuela have the largest oil reserves in the world. The US oil men could easily boost production in Venezuela using conventional technology and capital – after the 18 years of gross mismanagement under Chavez and his successors – from the current rate of 1.8 million bbls to something like 6 million bbls. As the country descents into anarchy with hyperinflation, as it currently is doing – Trump may seize on this opportunity to “liberate the socialist country” in some form or other. This one is scary, but don’t be surprized if Trump gets involved in Venezuela – even if it’s just oil deals – or blocking oil deals. Note: Venezuela imports US refined products to keep their heavy oil flowing (it's call diluent) since their refineries are almost shut-down. So Trump could threaten to pull the plug on refined oil sales that would therefore crash the Venezuela oil production further and wreck their economy even more.  So don’t be surprized to hear that the US threatening to ban refined production (diluent) sales unless the Venezuelan give oil assets to the States in return. He probably thinks Obama gave them far too much support, and he won’t like it that Venezuela over the years was such a thorn in the US’s side, also working against the USA with other South American countries with their populist socialist anti-US rhetoric.

Republicans: Most Republicans never took Trump seriously, never believed he would gain the Republican nomination, never mind win the Presidency. They were also confused why he stood as a Republican since many of his policies differed in values – and many people thought Trump should be an Independent. Many Republicans also thought Trump hi-jacked the Republican Party in early 2016 – and are now coming along for the ride since he has of course successfully won the US Election. But a word of warning. Waiting in the wings are characters like Pence – who many regard as far more extreme. He is strongly anti-abortion, anti-gay, anti-immigration and a far right winger. Trump seems rather ambivalent to many of these things - he seems more interested in business and ego boosting speeches – but Pence would likely shift the US even further right. If Trump falls on his sword – then Pence is there waiting in the wings with a strong backing from traditional Republicans – very scary.

In summary, as Trump’s policies take effect – we are likely to see massive additional government spending, probably off the back of money printing and increasing government debt – which should send US debt from around 105% of GDP to something like 125% in four years. The brief dollar rally off the back of the early December interest rate rise and Fed promises of further rises in 2017 will soon fade out – and be replaced by a dollar slide as dollar currency printing starts, Trump upsets foreign investors and Trump puts pressure on the Fed to reduce interest rates to boost the economy – as it will rapidly become obvious that the large US banks cannot handle any further interest rate rises. When this outcome kicks-in – by around end March 2017, we think gold prices will shift up from $1130/ounce to more like $1300/ounce and oil prices will rise to $60/bbl – as the dollar declines against the major currencies like the Yen and Euro.

2017 is shaping up to be a very interesting year – we have elections in France, Germany – Trump consolidating power, Putin flexing his muscles and Russia’s interference in the Middle East expanding. Potential trouble spots are:

·         Turkey-Syria

·         South China Sea

·         North Korea

·         Iran - Saudi tensions (proxy war expansion)

For property investors in the UK – despite the uncertainty with Brexit and our special relationships with the USA and Europe under threat – we think property investment in London and some of the major English cities is still worthwhile.

Hipster Hotspots: For London – we would advice “Hipster Hotspots” like Shoreditch, Forest Gate, Borough, Acton, Kennington, Limehouse, Hackney and Soho-Bloomsbury. The cheaper parts of Central London. This is not much different to our advice we have been giving for the last 12 years. These areas will all see prices rise as inflation takes hold, the Bank of England continues to print currency and global investors continue to see London as a safe haven – an offshore haven – in this uncertain world. Although the UK is no longer the military power is was, it is still the third biggest military spender in the world after USA and China.

USA: In the USA - property prices in Trump's home-ground will likely rise - in places like New York, New England and Pitsburg. Texas and North Dakota - key oil industry areas will also prosper off the back of increasing oil drilling and fraccing.  

We hope the Special Report has been helpful in giving insights into the economic and social direction heading onto 2017. If you have any queries, please contact us on  

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