Trump, Brexit and Europe rumour and sigh drives markets..
Blain’s Mid-Morning Porridge – Jan 16th 2017
“[looking forward to].. Skiing with the grace of a rhinoceros recently acquainted with roller skates…”
(Apology: The porridge should start getting earlier through the coming weeks as I return to normal work mode, but for now it’s going to remain mid-morning rather than early-doors.)
Among the clutter of news, views and other noise moving markets this morning there are lots of opinions, speculations and fervid reasonings about the future post Trump, Brexit and European Elections. There is a light smattering of other stuff like oil, China and commodities, but overall the underlying forces that players are basing their market rationales upon look very like assumptions and “what-if” guessing games.
Nothing new in that.. markets react..
Aside from the worrying implication of geting paid in Sterling – the fact some currency analyst based in Aukland, that hot-bed of informed sterling knowledge, can confidently explain last night’s crash in sterling as “the growing understanding there is no other option except hard-Brexit”, fills me with fear. What does he know I don’t?
Aside from the fact Asian traders don’t seem to know a pound from a florin from a turd, I’ve got to be honest and admit I don’t have a breeze what a Hard-Brexit or a Soft-Brexit might actually be or mean. For some reason they remind me of the old song: “how many legs has a haggis? how high up can if fly? has it fins or some such things to propel it through the seas?” (If you are interested, I think I can even remember the tune..)
In the same way I don’t know if Donald Trump is going to be a good, bad, awful or terrible president. I’m pretty sure that each rant at whomever is in his sights at any particular time shouldn’t really be riling markets the way they are though. What I can do is make some educated guesses what Trump might actually mean – but I simply don’t know enough yet to do so. (Clue: I’m very positive on tax reform, but watching him treating Gove to some non-answers this morning wasn’t so hot. Seems to me the message to the UK is “I’ll talk to a failed and discredited Tory warlord because he opposed Europe”, rather than the PM of the country because she didn’t..)
And it’s much the same uncertainty thing about Europe. The vagaries of what a right-wing Dutch, a fiscally minded French, or an increasingly illegitimate Italian government are heading are real concerns – but difficult to define and model in the face of EU slipperyness. A clue here might be not to assume European electors will be so keen to play the “Die Liberal Die” card we saw smack the table during Brexit and Trump. European voters may vote more tactically, and the entrenched bureaucracies are smarter.
In the face of the current uncertainty drivers, an investment approach requires taking long term views. Not playing the momentary madness of the market’s frenetic stabs and haymaker swings at each piece of trivia or news, but finding a more long-term perspective.
Of course, taking a long term view in the face of such contradictory bluster isn’t easy. The UK is likely to come to some kind of positive accommodation with whatever the EU/Euro bloc becomes. How positive or negative Trump will be requires more information on what exactly his policies will be, versus the risk his foot gets firmly stuck in his mouth so deeply and early we don’t actually get the possible upside.. (I understand there is a significant book betting he’ll be impeached in months..)
I can’t say I disagree with the general assessment markets look overpriced. Justify current stock prices? Well.. perhaps tax reform and cuts will increase corporate earnings dramatically – but surely that is already discounted in prices?
Its likely to be a thin day with the US holiday and ahead of the inauguration on Friday, but I can’t help but wonder if that means opportunities are there to be seized as others pause to catch up?
Bill Blain