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    Video Blog: Trump This - One Year of the Trump Presidency & Implications for the Future
     

    One year after the inauguration of Donald Trump as President of the United States, CIO Tom Becket pays a visit to the former US Embassy in Grosvenor Square in London. Tom analyses the following key topics on what has been a newsworthy and interesting year for the US:

    1. President Donald Trump: what he has achieved in his first year in power

    2. Interlinkage between politics and financial markets

    3. US and China: the handover of financial and economic power


              Watch the full video here

     

    Video Transcript

    Well, greetings and welcome from a beautiful Grosvenor Square in London. As you can see behind me on this wonderful winter’s day, the old US embassy which has now been made defunct as the US prepares to move into its new embassy just south of the river in Nine Elms in Battersea. Now, of course, this is the embassy which has caused quite a lot of interest in the newspapers recently as President Donald Trump, a self-confessed stable genius, with obviously a keen eye for property, described it as having been sold for peanuts. Now, sadly this isn’t going to be Psigma’s new office but what I am here today to talk about is the first year of Donald Trump’s presidency, the interlinkage between the political uncertainty he’s created in financial markets and finally, a longer-term theme within Psigma’s portfolios; the handover of financial and economic power from the US to China and what that means in the long term for financial markets.


    President Donald Trump: what he has achieved in his first year in power

    So firstly I’m here to talk about Donald Trump. Now obviously we’ve just seen the end of his first of his years of his four-year term as President of the United States, and it’s fair to say it’s been a major talking point. In fact, it’s estimated that last year there were 601.8 million tweets generated to discuss Mr Trump and his first year as President. Indeed that’s a 10-fold increase on what we saw about Barack Obama in the last year of his tenure as US President. Now, let’s just think about what he has achieved and what he hasn’t achieved and I think actually, in terms of his core base in the US they’d have been impressed by what they’ve actually seen. He talked of building walls and we see prototypes of the wall they’re looking at building in the deserts close to the Mexican border; he talked about pulling out of trade agreements and obviously he pulled back straight away on the Trans-Pacific Partnership and talked about pulling out of NAFTA. In addition he talked about cutting taxes and that’s been now achieved – whether or not it’s a good thing for the US economy or not is a different matter, but it has been achieved. He talked about cutting back on Obama Care and scrapping it, now that’s yet to be achieved but something he tried to achieve on behalf of his people who got him elected. And, finally, the other major thing he talked about was stopping the immigration of people from troublesome countries, particular in the Middle East – another thing which he enacted. So, I think to his core base he has achieved what he wanted to achieve. Now, lots of his decisions have undoubtedly been somewhat questionable with a view to what people in the rest of the world think but I think in terms of his first year in office, he will probably be quite pleased with what he has achieved with a view to what can now happen next.

     

    Interlinkage between politics and financial markets

    So, more questionable certainly than the achievements that have been seen so far in his presidency is the interlinkage with financial markets and let’s just think about what people thought a year ago as President Trump was taking power. They  thought that he’d be an equity market negative and uncertainty would rise; they thought he’d be a bond market negative and actually bond yields would rise and reflation started to come back into the US market; thirdly, they thought that he’d be dollar-positive. Now, of course, most financial markets and participants are wrong about things most of the time and interestingly, the one thing that’s obvious is that Mr Trump’s presidency so far, in part because of the tax reform, has been an equity market positive. We are now into rarefied levels for equity market valuations and indeed we’ve seen US equity markets smash new highs on a near-daily basis. Until now predictions of higher bond yields have actually proved unfounded; there was an initial move higher in bond yields and a fall in bond prices after Mr Trump took power but there afterwards there was a steady decline in yields and a steady rise in prices. That’s now been reversed and bond markets are starting to price in we believe higher interest rates from the Federal Reserve and higher rates of inflation that we saw under President Obama. And thirdly, perhaps the most interesting point given the rapid falls we’re seeing in the US dollar is the complete change in focus of the market’s mind-set from Trump being a dollar-positive to Trump being a dollar-negative and right now we’re seeing the dollar-negativity play out in front of our eyes on a daily basis. We believe this is a longer-term theme and we believe that what they’ve been doing in the US is a long-term dollar-negative as the deficit looks set to widen and the US is effectively writing cheques that it can’t cash and will have problems paying back in the future. So on all those various different measures, we think that Trump continues to be an equity market positive in the short term, continues to be a bond-negative factor and continues to be a negative factor also on the US dollar.

     

    US and China: the handover of financial and economic power

    So, whilst undoubtedly views on the short-term outlook for markets are interesting, I think what’s much more interesting and much more interesting from our long-term investment themes is what the Trump Presidency means for the long-term handover of power from the US as the world’s financial and economic hegemon to China, as the world’s new power.  And I think that what we’re seeing under the Trump leadership is the inflection point that starts to make that transition of power much more rapid and it has major implications for financial markets as we move forwards. In particular, I see this as a dollar weakness and I believe that the end game for the US dollar has now started but also it means much more important things for asset allocation and in particular trying to find beneficiaries of that Chinese potency, in particular, things like Chinese consumption, which we believe will be the growth engine of the world as the US slowly but surely fades into less relevance as the Chinese economy moves forward. And, as I said I believe the Trump Presidency almost certainly guarantees that that’s going to take place and speed up in front of our very eyes.

     

    Conclusion

    So, to conclude, to most people around the world, Trump’s presidency so far might have been something be to aghast at but to Trump’s core base, they’re probably quite impressed with what the President has so far put in place. In terms of what it means for financial markets, short-term, as I said, probably equity market-positive but be wary of the second half of the year; bond markets should continue to be negative but we don’t expect bond yield to rise too far and I think the longer-term theme of US dollar weakness and handover of power from the US as the world’s financial and economic leader to China is the important thing to watch for the next decade as we move forward from here.

     

    So, for today, that’s enough from me and I look forward to speaking to you guys again soon.

     

    Tom Becket

    Chief Investment officer


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