So Britain thought they had the story of the decade with outcome of the Brexit vote. Now America, as always, comes in and does it bigger & better than all others. So what does a Donald J Trump presidency look like? We’ve already seen the share market fall, and then have 5 straight days of gains … the Armageddon some predicted that would happen so far has not occurred.
A man that has never run or held a political office, no experience in politics at all, made statements that alienated half the country, did not follow the election play book and did not have a traditional campaign. Half of the Republican party had distanced themselves from him.
His candidacy was looking shakier than the Australian cricket teams top order there for a while, thanks in no small part to some astonishing events. Not anymore though (Trump that is, Australia’s batting woes are going to continue I fear), “The Donald” has – somehow – managed to convince enough of the American voters to place a tick next to his name. This to me shows how disenchanted middle America really is with the possibility of another Democratic term. And isn’t this somewhat of a theme the world over? Voters looking outside the ‘norm’ for answers to a period since the GFC that has challenged many people’s resolve in an environment of low growth, low interest rates, higher unemployment and negative wage growth.
I’ll say this: I like Obama. He was the charismatic leader we like to see from Presidents / Prime Ministers. Sharp, quick witted (if you haven’t, have a look on YouTube his White House Correspondents dinner address, it’s an entertaining watch), and did his best with what was a pretty bad hand he was given. Some policies we will see how it stands the test of time. But now, we could see a lot turned around. Climate change, open free trade, health care … just three main areas for starters (already it appears Trump may try and repeal the ‘Obamacare’ legislation).
What happens now?
After Trump’s come-from-behind victory, the question now turns to how he will actually govern – will he deliver on his campaign promises or shift to a more moderate stance? And what would be the global repercussions of those policies? The main issues will be trade; Trump has taken a very protectionist stance. For Australia that may be challenging on many fronts. China is a large trading partner. And they will be happy to throw their economic weight around if they feel America … or those countries who are ‘friends’ with them … are not giving a good deal. But then again, China & America are massive trading partners. Huge. Will Trump see sense and take a more businesslike, deal-maker approach to the table? Or will he continue to throw barbs over China manipulating their currency lower? I personally can’t wait to see the first Trump & Mexico President, Enrique Peña Nieto’s meeting.
TRUMP: Let’s get that Mexican band going.
PENA NIETO: Band?? We thought you said ‘ban’?
TRUMP: No way, that’s harsh. Also, how’s the Mexican mall coming along?
Electoral polls – do they have a future?
On a serious note however, we see yet another outcome from an election or federal vote go against what the polls were predicting. I was watching the live BBC coverage long into the night and day and none of the ‘experts’ saw this coming. So, how can investors? What are the two things we now need to do?
The first, quite simply, is stop believing the pollsters. Surely they’ll be searching for new careers. David Cameron comfortably won an election in the UK but then lost the ‘Brexit’ vote. Both of which the polls said would be a different result with a tight UK election and the ‘Stay’ vote winning the EU argument. Now Secretary Clinton seemingly ‘home’, comes up well short.
The second, is to be patient. I know this is an easy cliche. However, a well-diversified investment mix, particularly in your superannuation fund is not only easy to achieve, but will include areas that cover all segments of markets from shares, property, bonds and cash. Not all perform well, at the same time. This is why we talk about diversification and risk management. After Brexit, the markets reacted negatively, then they recovered. Markets have done the same again post Trump winning the election. What we do know is that Cash will continue yielding next to nothing, and is definitely struggling to keep pace with inflation.
What about the safety of cash?
For now the chance of a US interest rate rise is up in the air. Much debate has ensued. Certainly back on the table is another interest rate cut in Australia. Not a certainty, but look out for it. Good for housing? Maybe. Don’t forget the China influence … we can’t ignore it’s influence on property in the Sydney & Melbourne markets. Brisbane has lagged, and I have my thoughts on that but will explain them in another edition. But if Chinese investors no longer feel Australia is a good risk, and I acknowledge there has been a large flow of cash out of wealthy China to property in Oz (via Hong Kong), this could dry up. Therefore property may start to cool. Note I didn’t say crash. A plateau is more likely. Whilst these interest rates are low, attack the mortgage if you can. Many remember mortgage interest rates at 16% (I certainly do … and it made a very large dent in the take home pay).
Market nervousness is likely to be here for some time, but all investors should hold tight rather than get caught up in a mass panic attack. Let’s face it, since the ‘GFC’ from 2007 nothing has been what we used to call ‘normal’ where markets are concerned. We’re in a new economic era and the old text books are well and truly gone. I firmly believe that this period, and not the great depression, share market crashes of ’86 etc, will be what the next generations of students will be studying for decades to come.
We would be more than happy to have a chat about all the above and how more directly this may impact you and what you may need to think about with your super, non-super, and any property investments. You can call the office directly on 07 3354 9000