Investors who want to make sense of today’s markets must venture into a cold, dim abyss, where ordinary rules of logic don’t apply.
I refer, of course, to Donald Trump’s brain. Two weeks into his second kick at the U.S. presidency, he is busily breaking things. His on-again, off-again tariffs on the United States’ closest allies, his bumbling attempts to take over Gaza and Greenland and his maybe-legal-maybe-not assault on the U.S. bureaucracy are the work of someone who delights in busting up the existing order.
For investors, the spreading chaos makes it more important than ever to arrive at some assessment of what is driving the man. So let’s ponder three theories about what lies inside that cranium.
The first theory maintains that Mr. Trump is actually an astute geopolitical strategist who feints and bluffs as negotiating ploys. According to this view, the President realizes that China will inevitably dominate Asia. Therefore, he wants to forge a North American empire, stretching all the way from Panama to Greenland, to create a Western counterweight to Chinese influence.
This theory can help explain Mr. Trump’s lust for Canada and Greenland, but it is ultimately unconvincing as an explanation for his behaviour. If the President were intent on hemispheric domination, he would presumably want to project an aura of tough-minded, focused competence. Instead, he is flying off in all directions, some of them flagrantly loony, such as his scheme to turn Gaza into a new Riviera or his appointment of unqualified cranks to cabinet posts.
Let’s entertain a second theory, then. Maybe Mr. Trump is a sincere believer in at least some of the nonsense he’s spouting. Perhaps he really is convinced that tariffs can fill the enormous U.S. budget hole and revive U.S. manufacturing, no matter what economists outside of the White House say.
The problem with this theory is that many of his notions have obvious holes. Just for starters, consider Mr. Trump’s core complaint that foreigners are taking advantage of the U.S. It’s not a contention that withstands a minute of scrutiny. U.S. unemployment remains near historic lows, the U.S. stock market has thrashed its global counterparts over the past 15 years and the U.S. dollar reigns supreme in international trade. If anything, foreigners have a right to complain about U.S. hegemony.
So this brings us to our final theory: Maybe what really drives Mr. Trump is nothing but a desire to build his own fortune.
One theme that unites all his recent moves, from his spectacularly unimpressive cabinet nominees to his blitzkrieg attacks on government bureaucracy is that they concentrate an unusual amount of power in his own hands. As we saw in this week’s back-and-forth on tariffs, the new reality in Washington is that Mr. Trump – not Congress, not cabinet, not federal bureaucrats – decides who gets punished and who gets rewarded.
Such wide-ranging personal authority opens up rich possibilities for exchanging favours – doing “deals,” as Mr. Trump might say – with people who want his approval. Those deals could theoretically take the form of bribes, but Mr. Trump doesn’t have to actually do anything illegal. If his ultimate goal is to make himself the constant centre of attention and build the value of the Trump brand, he may simply crave opportunities to harass other world leaders and stir up trouble.
To be sure, a willingness to invest in the right assets might help win his favour. Recall that Mr. Trump took time on the eve of his inauguration to launch a personal crypto token. It was a remarkably crass manoeuvre for an incoming president, but it makes sense if you assume Mr. Trump would like to leave office richer than when he entered it. Hey buddy, you’re a corporate titan who wants to demonstrate your unwavering support for the president? Then buy his crypto.
If Mr. Trump is a man on the make, an entrepreneur who wants to maximize the income potential of the presidency, then his administration is likely to become increasingly erratic and grasping. For investors in U.S. stocks, the combination of an unpredictable administration with sky-high stock prices doesn’t bode well. Perhaps it’s time to hedge your bets.
Canadian stocks hold some appeal, but they suffer from their vulnerability to Mr. Trump’s tariff threats. So consider assets that are better insulated from the turbulence in Washington. Gold comes to mind. So do European stocks.
Both investments have had a strong start to the year and both could be on track for more gains. “The gold bull market looks set to continue under Trump 2.0 with trade wars and geopolitical tensions” reinforcing the case for the metal, Citigroup analysts wrote this week. They boosted their short-term target for bullion to US$3,000 an ounce, up from around US$2,900 now.
In similar fashion, European stocks could catch a lift from investors’ desire to put some distance between themselves and Mr. Trump’s shenanigans. Old World stocks are considerably cheaper on average than their U.S. counterparts and it would not take much of an economic recovery on the continent to send their prices higher. To be sure, European markets have underperformed U.S. ones since the financial crisis, but in Mr. Trump’s new reign of chaos that could change quickly.