My political apathy began 30 years ago. Having just been president of the Cambridge Union — colluding with and back-stabbing many a name in Westminster today — a subsequent lack of giving a damn was a shock.
Politics still bores me, despite the odd temptation. As a lover of oratory, I always turned the sound up when Barack Obama spoke. The Brexit circus amused, so too our madcap leaders during Covid.
Mostly, though, as I have said in this column before, politics has seemed irrelevant to my life. Certainly it was to the asset prices I spent much of my career analysing.
Many readers will guess the words “until Donald Trump” are coming up. And to be sure, his second presidency is testing my long dismissal of government when it comes to investing.
From promising tariffs and deregulation, to threatening old alliances and global monetary frameworks, everyone says a new era is upon us. Yawn I may, but surely there are huge implications for my portfolio.
Are there, though? And would they be knowable in advance anyhow? Even if the answer to the latter is no, it’s pretty much investing as usual as far as I’m concerned. Lots of uncertainty. I will try my best.
And so far, it seems to me, markets have done worse than not having a clue. In fact, many so-called Trump trades, sold as obvious as soon as exit polls made his victory clear, have moved the opposite way.
Take the economy for starters. A low-tax, tape-cutting, America-first administration was supposed to take US exceptionalism and add rocket fuel. Yet the macro starship seems earthbound.
Last week, flash PMI data for February showed a sharp slowing of business growth, with services contracting for the first time in two years. Companies blamed tariffs, as well as uncertainty due to rapid-fire Trump policies.
Meanwhile, the main reading from Michigan’s consumer sentiment index dropped 9 per cent — a massive fall and the second in a row. The long-run outlook was awful.
Both surveys also pointed to rising prices as a problem. Consumer inflation expectations for the year ahead surged to 4.3 per cent. Bosses bemoaned higher input costs and an inability to pass them on.
Hence you may have seen the word “stagflation” pop up in the past few days. There are plenty of reasons why this nasty scenario of low-growth and inflation won’t happen. But few gave it thought as Trump was sworn in.
Bond markets didn’t. Add in some bottom-shelf housing numbers — existing sales are down almost a third since November — and Treasury yields, having first drunk the inauguration punch, are now crouching by the loo.
Indeed, a quarter-point rate cut in June is now forecast — versus the Fed doing nothing less than a fortnight ago. This, combined with the far end of the yield curve (which reflects longer-term growth expectations) also lowering, is why the dollar is weak of late.
This again was not supposed to happen, even though Trump is super keen for the greenback to fall to help exports. Super-sized growth and higher rates (not to mention tariffs) were all ticks for the US currency.
The list of Trump trades going awry continues. Despite a White House full of pro-crypto bros, the total value of coins out there has collapsed by $800bn since January. Donald’s own meme-coin is down 75 per cent.
Stocks haven’t imploded, but the fizz around US equities has gone. When Trump took office, the average Wall Street forecast was for a 12.3 per cent rise in the S&P 500 this year. So far in pounds, it’s flat.
What is more, equities in Europe — yesterday’s wokesville of anti-free speech, according to the US vice-president — have outperformed US stocks by 8 per cent during this new administration.
So have Chinese, Mexican, Canadian and Japanese shares for that matter, which must annoy the Maga faithful. I own plenty of the former in my Asia fund and will continue to do so because they are cheap.
I’ve written before that tariffs don’t scare me. However a prolonged fall in the dollar would. That’s because most of my funds are denominated in that currency, before being translated into pounds.
Therefore, I’ve been pondering this idea of a “Mar-a-Lago Accord” since first reading about it in November. Suddenly, it’s on everyone’s lips again. Can the US and a few trading partners really engineer a weaker dollar?
Unlikely, in my view — for the same reason Japan still rues the Plaza Accord to this day. All else being equal, if China accepts a stronger currency its exports (and economy) will suffer. Lower interest rates may need to compensate.
This risks an already-stretched property sector. Japan’s popped even without China’s level of indebtedness. Why would Beijing effectively give up control of monetary policy?
Besides, the strong US dollar is an outcome of its economic dynamism, which sucks in capital, and its profligate consumers, who keep buying more stuff from abroad than the country can ever export.
Good luck changing that dynamic. Which is also why I don’t fear my Japan fund being walloped by a rising yen. Nor a higher pound versus the dollar. For me, at least, Trump doesn’t change my positive view on UK and Japanese equities one bit.
Likewise, my energy ETF. Many reckon an oil-lovin’ prez is a good thing. But more digging equals more supply which equals lower prices, in theory. No, I’m exposed for the same reason as before: I’m betting the transition to clean energy will take a while.
Finally, I’m with Elon Musk on owning Treasuries. But not because I believe his cost savings will reduce the deficit. Frankly, he won’t touch the sides. As per the textbooks, I own bonds as protection if equities tank.
Let’s hope they don’t.
The author is a former portfolio manager. Email: stuart.kirk@ft.com; X: @stuartkirk__
