Pittwater Life February 2017 Issue

Business Life: Finance
Business Life
In 2017, prepare for the
concensus view to flip
I
hope you all enjoyed the
Christmas and New Year
break and had sufficient time
to consider your investment
options and outlook for the
upcoming year.
Over the break I used the
time to read some relevant
books in order to prepare
myself as much as possible for
the coming year’s surprises.
Four of the books were
related to the US Presidential
scenario: ‘The Making of
Donald Trump’ by David Cay
Johnston; ‘Great Again – How
to fix our crippled America’
by Donald Trump; ‘Electing
Donald Trump’ by Newt
Gingrich and Clair Christensen;
‘How Donald Trump won the
2016 Election’ by Alexander
Davis; and for self-education
purposes ‘Ian Fleming: A
Biography’ by Andrew Lycett.
All very illuminating and
interesting publications. What
is crystal clear is that the 2017
investment year will be full of
surprises. The consensus view
will, more often than not, be
turned completely on its head.
The usual geo political worries
will be amplified as Donald
Trump continues to negotiate
new deals and re-negotiate
old ones with countries and
companies.
It is important to bear in
mind that Trump is a “pluses
and minuses” thinker. Wall
52
Street and Washington, by
contrast, think in terms of
multiples and percentages.
Trump is above all a
dealmaker. This is what he
loves most and what he excels
at. He is not concerned with
macro-economics. He wants to
negotiate the best deal he can.
Right now, Trump is
playing the ‘New CEO move’.
That involves moving fast
and decisively on day one
to set the mood for the rest
of the Presidential term. So
far Donald Trump has set
the mood as an aggressive
negotiator on behalf of the
country, clawing and fighting
for every American job. So
far so good and consumer
confidence has soared since
the election.
In the past, US trade
agreements were made by
Washington lawyers. The
FEBRUARY 2017
other side employed their best
and brightest to negotiate
trade deals. In the Trump
Administration, America’s
most capable negotiators will
be the ones re-negotiating old
trade agreements and any new
ones.
The Trump government will
likely be run by some seven
or eight individuals, namely
the Secretary of State (Rex
Tillerson), the Secretary of
the Treasury (Steve Mnuchin),
the Attorney General (Jeff
Sessions), head of the newly
formed National Trade Council
(Peter Navarro), National
Security Advisor (Lt. General
Michael T. Flynn), Secretary
of Defence (General James
Mattis), the Secretary of
Commerce (Wilbur Ross) and
Vice-President-elect Mike
Pence. (Clearly, Steve Bannon,
White House Chief Strategist
and Jared Kushner, Trump’s
son-in-law, will be major
powers behind the throne.)
However, Trump will be less
radical than people think.
Every decision or action
by the new Administration
will be focused on getting
re-elected. Trump will only
pick battles that are winnable
and he will only implement
as much change as he thinks
the American population can
handle and adjust to before
the next election. (Assuming
he wins re-election, his second
term will be the time for
radical change.)
with Simon Bond
Trump is a master of
symbolism, turning a small
action, such as jobs at Ford
and Carrier, and cost overruns
for Air Force One, into the
appearance of a major victory.
Trump knows how to make his
actions as visible as possible,
even if they are more symbolic
than real. He wants to avoid
major “amputation” – to
use the words of one astute
observer – because he doesn’t
want the US economy to be
weak before the next election.
Suppose that inflation
surprises on the upside, and
long-term interest rates head
sharply higher.
There is an enormous
number of investors who have
purchased long-term assets
with short-term financing
which personifies the classic
characteristics of a financial
squeeze. These investments
were made on the premise
that interest rates would stay
“lower for longer”.
As interest rates rise, these
investors will find that they are
paying more in interest than
they are receiving in cash flow.
This has the potential to
cause significant financial pain
for those who are locked in
and the subsequent domino
effect will draw more into this
vortex.
In 2017, watch the US as Joe
Public continues his fightback
against the Establishment via
President Trump.
Simon Bond of Morgans
Newport (9998 4200) has
been actively involved in
all aspects of Stockbroking
since 1987. Simon’s area of
expertise includes equities,
portfolio management,
short-term trading, longterm
strategies, derivatives
and fixed interest. His focus
is on how technology is
changing the investment
landscape, demographic
trends and how they
influence equity markets.