I have resisted the urge to comment on the US elections, but things have got the better of me. After my own in-depth analysis and consideration of Trump’s policies, I am as confused as everyone else.
In spite of the collective confusion, we are now facing some clear direction globally. In some ways it reminds me of the late 1970s with Thatcher and Reagan, then the micro economic reforms of the Hawke government in the 1980s.
These policies were a push against the entrenched position. For those of us who are old enough to remember, in 1984 there was a miners strike in the UK. The Thatcher government had decided to close unprofitable black coal mines. What was really happening was that the direction had changed: the general populace had decided not to fund well paid miners into an unhealthy businesses for a product that no one wanted. Thatcher had been in for 5 years by then and progress was being made. The tide had changed.
Here we are in 2016 and we see a global trend back to nationalism and protectionism. We are seeing this everywhere including Australia.
Trump’s policies seem to be simple and go against the trends we have seen since the GFC. So what are some of the possible impacts of Trump’s policies and what do they mean for us?
- Domestic economies will be more important as the tail winds we have had from globalisation are coming to an end. Companies with major growth plans internationally may face head winds. Look for those companies with domestic growth opportunities as a potential better bet.
- Increased volatility of currency pricing/exchange rates. What we thought of as a normal range in the exchange rate with the Pound, US dollar or Euro could be way off. Consider hedging currency to reduce risk.
- Expect longer term interest rates to rise (but not by much) and inflation to increase. So investments benchmarked against interest rates such as property and infrastructure may face head winds. Like our grandparents who invested in war bonds at 2% and then lost all their savings in the 1950s inflation, be prepared and able to change your investments as things evolve.
- Australia is a natural ally of both the US and Great Britain. As they refocus internally then Australia may benefit.
Most importantly, we humans often get it wrong in predicting change. Firstly we expect a lot of short term change, but the real impact is longer term, and secondly we fail to understand the ability of people and companies to adjust to changed circumstances.
Looking back and observing what goes on in times of change it is clear that economies, people, businesses and governments adjust. Most of the negative predications and scare mongering assume there is no adjustment.
If we look at Australia, we have some debt issues at the government level (including states such as Queensland and WA) and excessive personal and housing debt. Yet unemployment is low, inflation is low and governments are moving to build infrastructure.
Reports proclaim a pipe line of $73 billion in government spending on infrastructure in NSW over the next 4 years and significant private investment to follow. I am not sure if we will see half the $73 billion or 10 times it, but this is good for short term, mid term and long term economic growth.
All in all, looking on the bright side and ignoring the noise on the 6pm news, things are OK.