Jamie Clark

What ‘Trump-priming’ of US economy means for our Macro-Themes

Jamie Clark

This week’s US election outcome presents a timely opportunity to revisit and update our prior blog entry. In ‘Why Friedman is out and Keynes is back’, I discussed the rehabilitation of Keynesian economics and the likelihood of increasing infrastructure spend. The logic was clear: the Central Bank response to the Great Financial Crisis had produced an uneven, dissatisfactory recovery and expended most viable monetary options; this had encouraged much introspection, with public investment now broadly discussed and accepted as an alternative.


Donald Trump’s electoral victory gave some proof of this thesis. Front and centre in the President-elect’s acceptance speech was a pledge to “rebuild our infrastructure” and “put millions of our people to work” – an explicit nod to the immediate demand-side benefits that are held to flow from infrastructure expenditure and lip-service to a disaffected, blue-collar America.


As one would expect, policy specifics are limited and detailed forecasts remain little more than a parlour game; naively touching demonstrations of how little we actually know and how much remains within the purview of radical uncertainty. The more critical point is that we have a political commitment to reflate by way of fiscal activism, signifying a real shift in the tectonic plates of the political economy.


Parallel to this, is Donald Trump’s criticism of a ‘politicised’ Federal Reserve, reluctant to hike under conditions of near full employment; and the repeat accusation that Quantitative Easing has exacerbated social inequality and stoked a “big, ugly bubble” in asset prices.


Given that the power to appoint Fed Chairs, currently Janet Yellen, is vested in the office of the US President, this heralds a politicised change of Fed personnel and practice in the not too distant future. This likely represents a watershed in post-crisis monetary policy, augurs a bias to normalise rates and cements the renewed importance of fiscal policy.


At the same time, Trump has consistently espoused an ‘America First’ agenda and articulated a protectionist, economic revanchism that rejects the free trade provisions of NAFTA and the Trans-Pacific Partnership. This check on globalisation signifies a renewal of Hamiltonian mercantilism and implies an upturn in cost-push inflation.


In sum, the election of Donald Trump and his bias to pump-prime, or ‘Trump-prime’, the economy with public infrastructure expenditure, gives evidence of the context informing our latest Fiscal Activism macro-theme.


But there is also a broader, important inference that follows from the combination of infrastructure spend, a change in monetary policy and protectionism. To our minds, this implies rising yields and an end of the appetite for ‘bond-proxy’ equities (tobaccos, consumer staples, etc.) that has characterised the post-crisis era of easy money.


We believe our portfolios to be prepared for this, but we think that a great many investors aren’t.


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• Past performance is not a guide to future performance. • Do remember that the value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.  Investment in Funds managed by the Macro Team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. • The Funds' expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation. • The performance of the Liontrust GF Macro Equity Income Fund may differ from the performance of the GF Macro Equity Income Fund and will be lower than its corresponding Master Fund due to additional fees and expenses.


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Originally published on 10 November 2016.

Wednesday, January 11, 2017, 5:05 PM