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Friday, August 18, 2017

Here comes president Trump

A file photo of US President-elect Donald Trump. /REUTERS
A file photo of US President-elect Donald Trump. /REUTERS

Donald Trump won the US election all ends up and for the first time since 1928 won the Presidential vote, the Senate, the House and will decide the Supreme Court's composition. It is a breath-taking win especially when you consider that Trump was an insurgent candidate and his Make America Great Again movement similarly an insurgent movement.

Trump confounded the pollsters and the traditional media echo chamber and was ranked a rank outsider at 4-1 in a two horse race just a few short hours before the final result was known. The result in the US mimicked the Brexit result and what is clear to me is that we are watching a populist wave or zeitgeist (some have characterised it as a ''whitelash'') which has now swept the United Kingdom and the US and has Italy (where Matteo Renzi has called for a Referendum), France (where Marine Le Pen is the most popular politician by a street) and the Netherlands all in its crosshairs.

Comic-turned-politician Beppe Grillo, co-founder of Five Star, said

“This is the deflagration of an epoch. It’s the apocalypse of this information system, of the TVs, of the big newspapers, of the intellectuals, of the journalists.”

And this is another important point, traditional media has lost its position of control. It’s been upended by the internet which allowed insurgent politics to broadcast over the top.

Returning to President-elect Trump who deployed linguistic warfare with devastating effect. The names he gave his opponents — Crooked Hillary, Lyin’ Ted, Little Marco, ‘Low-energy’ Jeb — were devastating.

The open question now is how many of his campaign promises will he fulfill and which ones because on a continuum they are some serious outlier promises. The US Stock market slumped by its biggest single percentage drop in the pre-market on Wednesday before taking back the entire precipitous fall and closing at a fresh all time high by the end of the day. The catalyst for that spectacular recovery was Trump's victory speech which many took to signal a pivot. The speech was conciliatory and the flavour was captured in comments Trump made when he met with President Obama

US President-elect Donald Trump has said it was a "great honour" to meet President Barack Obama for transition talks at the White House.

Mr Obama said he was "encouraged" by their "excellent" and "wide-ranging" conversation, lasting over an hour.

Ian Bremmer of Eurasia Group opined that the Trump victory was "the most profound domestic political transition of my lifetime."

“There are three aspects of American leadership that will be affected by the Trump administration and the growing geopolitical recession: the United States' role as world policeman, architect of global trade, and cheerleader of global values.”

I am a Seller of Ian Bremmer's rather hyperbolic critique. Putting a Stop-Loss into play with the Syrian rebels (who are a bunch of ne'er-do-wells and paid mercenaries), reaching out to Vladimir Putin indicate a trend-change in the way the US engages with the rest of the World strikes me as an entirely sensible mid course correction. As Trump has indicated China is the main adversary and its difficult to understand why the US was seeking to send Vladimir into Xi Jinping's ready embrace. To triangulate China, the US needs Russia on its side and not on China's. Therefore, I see Trump playing a Ronald Reagan Game.

From an economic and trade perspective, I expect Trump to be much more aggressive with China. I think the QE [Quantitative Easing] consensus is now a busted Flush. Remember a vast swathe of the pro-Brexit and pro-Trump camps were the older white folks who have seen their savings evaporate in the world of negative interest rates. This is the point. They want a return on their savings and Theresa May and Trump get that. The bond markets get it as well.

The US 30- year yield surged 32 basis points higher last week which is the biggest weekly rise in seven years. There is more to come as the cost of money is normalised. I like the tax cutting agenda. My theory remains (and interestingly was validated a few years ago in Russia) that when you reduce taxes to a level that folks feel is just and equitable, The tax take surges because its just more convenient to pay it. The infrastructure spend is long overdue. Higher interest rates are going to propel a big Dollar rally from here on in and its only just getting going. Emerging markets currencies which took a big tumble last week are set to crater, I am afraid.

Let me leave with you a Transcript from the Sidney Lumet movie Network (1976)

''You think you merely stopped a business deal. That is not the case. The Arabs have taken billions of dollars out of this country, and now they must put it back! It is ebb and flow, tide and gravity. It is ecological balance'' Sidney Lumet Network 1976.

Aly-khan is a financial analyst

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