The View

‘Loves winners and hates losers’ or how to describe Donald Trump’s new cabinet appointments

‘We are about to experience a profound, president-led revolution that will have a big impact on both the US and the world’

PUBLISHED : Thursday, 29 December, 2016, 10:28am
UPDATED : Friday, 30 December, 2016, 8:39am

You have to dare to be rich. Dare to be great. Visualise the money. And the power and glory will come. It’s how Al Pacino, as the upwardly mobile Tony Montana, described the American Dream in the 1983 film Scarface: “In this country, you gotta make the money first. Then when you get the money, you get the power. Then when you get the power, then you get the woman.”

When Trump rode down the escalator to the lobby of Trump Plaza and announced his candidacy for US president a year ago, I predicted he would emerge as the “Accidental President”.

Because Donald Trump saw the American crisis more lucidly than anyone. And attacked mercilessly with one of history’s great democratic political revolutions. Like other Americans outside the system Trump saw that US politics had become corrupt and hypocritical.

The change from the Obama to Trump administration will probably be even bigger than the 1979 to 1982 shift in the UK and US

The Obama years were defined by a profound lack of leadership. Lots of grand speeches declaring politically correct goals. The result was to let everyone take their own direction such as in the Middle East and then intellectualise that the outcome was planned all along.

Meanwhile, more average Americans lost their US$50,000 year manufacturing jobs and descended into the concentric hell of US$15,000 fast food jobs. Nominally and statistically many jobs were created, but the vast majority paid minimum wages. From the 1980s to today, America finally became a hollow economy and divided country.

After all of the key cabinet posts have been nominated it appears that we are about to experience a profound, president-led revolution that will have a big impact on both the US and the world. Government policy and how it is developed will change.

This new administration, like its leader, loves winners and hates losers. It will despise weak, unproductive, politically correct, socialist types and their policies. Only virile, take-no-prisoner, profit makers and achievers will hold court in the Oval Office.

Trump envisions his policies as a series of deals. He is a deal maker who negotiates hard, and doesn’t mind using intimidation and hurting sensibilities. All of his key cabinet secretaries have demonstrated careers of playing hardball in their respective fields. Expect big changes to occur in economics, foreign policy and other areas.

The change from the Obama to Trump administration will probably be even bigger than the 1979 to 1982 shift in the UK and US when Margaret Thatcher and Ronald Reagan assumed power. Possibly bigger than China’s revolution from an “iron rice bowl” economy to embracing “it’s glorious to be rich.”

After a “post-truth” election comes “post economic sense”. Trump and his trade team have no idea of how to rebuild high value added and advanced manufacturing. It requires more than threatening CEOs and countries over tariffs and exchange rates. Tax rates only matter once you are competitive enough to make profits. You can’t control exchange rates. Erecting tariff barriers are a zero sum game of retaliation.

Rebuilding manufacturing needs a programme of years of investment in skilled workers. It’s not as easy as building hotels, golf courses and casinos. Get rich quick schemes and instant trade barriers that antagonise China - the biggest US trading partner for manufactured exports - will be counterproductive.

Despite higher US interest rates, Russian financial markets could substantially benefit from a major improvement in Washington-Moscow relations, stable oil prices and the lifting of economic and financial sanctions. According to a Bloomberg report Russian stocks are at a record high and the ruble is set for its biggest ever annual gain. Ruble bonds are at their strongest position in more than three years. The carry trade of borrowing in US dollars and investing in ruble assets, returned 27 per cent for investors in 2016 according to Bloomberg data.

Hedge funds have been borrowing dollars at close to zero per cent to buy assets denominated in rubles. They have gained as much as 7 per cent in the last three months, the most among 31 major currencies, Bloomberg reports. Since September, hedge funds have almost tripled net long ruble positions.

Carry trades might still provide investors with returns of nearly 15 per cent by the end of next year according to forecasts compiled by Bloomberg. And the end of sanctions could also result in a rerating of major Russian stocks and an improvement in credit ratings.

However, the contrast between hopeful investor expectations and the likely reality of Trump policies is wide. How much he can cut taxes and deliver on infrastructure spending will represent a major equity risk as 2017 unfolds.

But, do not underestimate Trump’s emotional and visceral appeal. His call to arms may move investors out of cash and into risk-on investments. The impact would be dramatic because businessmen and investors are able to rapidly redeploy their capital.

Peter Guy is a financial writer and former international banker