Thursday, September 6th, 2018
Few global leaders in recent times have created the controversy and sparked the sustained worldwide media attention as US President Donald John Trump. The influence of ‘Tweets, Tariffs and Trade Wars’ has been an enduring source of global and geopolitical uncertainty over the past two years. Investors dislike uncertainty and this influence has been marked right across global financial markets. And yet, US indices are presently nudging new all-time highs. While drawing on similarities to US leaders of the past, the motivation of this article is to better understand the current investing landscape and, in the process, help drive improved investment decision-making and asset allocation to achieve consistent performance outcomes.
Seek First to Understand
Having spent the bulk of this year’s July school holidays in the US with my family, I am naturally interested in the current mindset and established views of Americans relating to the US economy and, in particular, ‘the Trump effect’. At times, surprisingly open conversations ignited a personal spark for me to gain a better understanding of the American psyche, and in the process, relevant elements of American history. At Penn Station, Philadelphia I purchased the controversially titled (and New York Times best selling book) ‘White Trash – the 400-Year Untold History of Class in America’. What is commonly understood to be the land of opportunity, its embedded pilgrim spirit to overcome wild frontiers, land of the free, home of the brave, culminating in the ability via social mobility to achieve the American dream – despite the scepticism and cynicism, many of these values seemed to resonate in varying degrees across the East, West and the ‘fly-over’ parts of the US on our travels.
Great for Business
Almost universally, and demonstrated in the most recent US reporting season, American businesses are booming. Economic activity, business and consumer sentiment, employment opportunities, company profits, share buybacks and shareholder returns are all reflective of the strong underlying business conditions.
Perspectives on Tariffs
Conversations with people we met, whether highly educated professionals or ‘the man in Main Street’ often evolved into US citizen perspectives on trade and tariffs. Somewhat surprising was the local viewpoint of tariffs and trade essentially ‘levelling the playing field’ and thus providing an ability for US companies to ‘compete’ with key global manufacturing regions. The logic underpinning this view was that increased prices for consumers were essentially offset by increased US economic activity, greater employment prospects and job opportunities, and hence the ability to absorb the tariff impact ‘for the greater good’. It is undoubtedly true that many US trade partners engage in product ‘dumping’, local industry protection, and intellectual property ‘theft’. What appeared to be missing from this perspective were the prior decades of more open global trade, comparative advantage and incrementally lower manufacturing costs which saw a number of these industries migrate to non-US locations in the first place.
Trump Tax Cuts
It is well accepted that Trump-inspired tax cuts have provided a clear stimulatory benefit to US economic activity and more specifically US businesses. Also widely accepted is the clear benefit business tax cuts provide to the US corporate sector. The debate amongst commentators – beyond the initial headline ‘one-off sugar hit’ to employees in the form of cash bonuses / payments, is the ongoing benefit to the American ‘working class’.
The Confederate President – Lessons from History
Appeal to your supporter base
An exceptional feature of the Trump Presidential campaign was the ‘cut-through’ of the now famous slogan to ‘Make America Great Again’. It invoked strong, stirring memories of a simpler life, a better time when America led the developed world – particularly in key manufacturing sectors and regions.
Predominantly via manufacturing, examples being automobiles, steel, machine tools, white goods, electronics, consumer good and chemicals. America’s working class held down steady jobs. The flywheel of prosperity saw towns, communities, schools, colleges and supporting service industries all grow around these key manufacturing industries and locations. This period of prosperity was challenged by the rise of competitors in Japan, Europe, and more recently China and south east Asian countries. Over the period 1960 to 2017, manufacturing jobs in the US declined from 28% of total employment to 8%.
And yet the unlikely champion of the American working class and this ‘Make America Great Again’ call to action was the Manhattan-based property developer, entertainment mogul and self-proclaimed global celebrity Donald Trump. Perhaps the exact opposite of the displaced American working class targeted as his political support base.
Much like the Confederate leaders of a bygone era, the Trump Presidential campaign (and now sustained in his presidency) appealed to a targeted supporter base and built a groundswell for change in the process.
Call on your inner Hillbilly instincts
The Appalachian Mountains extend through Kentucky, Tennessee, Virginia, Maryland, West Virginia and North Carolina in what was the heartland of Southern colonisation. In the mid-1850s it was not uncommon amongst the new southwest states for at least 1/3 of the population to not own real estate. Compounding this situation at the time for the ‘lower class’ was that no clear path existed for sufficient funds to be earned to purchase land. This led to a migration of people to the hills, swamps, infertile and otherwise unwanted / unproductive land – where they lived a hard life, typically in rustic cabins, with little education and a primal tenacity to survive. Not surprisingly what became know as the ‘Hillbilly’ was a tenacious, ferocious character and not inclined to play by the ruling class’s established boundaries of etiquette. The ‘foul language’ and ‘kennel filth’ behaviours displayed by Mississippi’s James Vardaman in running for Governor in 1903 were described by then US President Roosevelt as being worse than that of the lowest of society, wallowing in the gutters of New York City.
Another similarity of Confederate leaders through history is President Trump’s willingness to move outside of established cultural norms in insulting, belittling, intimidating or otherwise discrediting political opponents.
Prioritise industry over the environment
<’I think climate change is just a very, very expensive form of tax’>
A further challenge presented to the ‘Hillbilly’ underclass in and around the Appalachian Mountains was the largely open access granted to coal mining companies of the time. Following the Great Depression and coupled with destructive farming, irresponsible lumbering and (at the time) traditional mining techniques, the consequences were substantial erosion, the washing away of fertile topsoil and even further challenges to the tenant farmers – particularly in the southern states.
Fast forward to today and the obvious comparison comes via the Trump Administration’s relaxation of environmental controls relating to fracking and extraction of coal seam gas and more generally expanded US oil and gas production (including unwinding Bureau of Safety and Environmental Enforcement [BSEE] third party inspection requirements following the Deepwater Horizon spill).
While less well understood than is the case today, the environmental policy of Confederate leaders showed limited regard for the ongoing sustainability of natural resources. This is another area of similarity to date with President Trump.
Dividing a society
By its nature this article has a political element. This sub-section will be brief. Confederate-state society was historically characterised by a planter/landlord class elite ruling over the black and white (red and brown) poor. Much has changed since this time. Division amongst ethnic groups, exclusion of some cultures from free travel movement and an apparent resurrection in causes associated with ‘pure Anglo-Saxon blood’, are reflected in today’s American culture.
Whether physical or metaphorical, there are walls underpinning the racial divide. This division of US society is another similarity to Confederate leaders of America’s past.
Bringing it Together – Investment Implications
The biblical phrase ‘there’s nothing new under the sun’ seems appropriate in bringing this article to its conclusion. While certainly controversial and in the modern political arena both atypical and unorthodox, many similarities exist between Confederate leaders of the past and US President Trump.
While geopolitical uncertainties exist, and trade tensions will require resolve, diplomacy, understanding and compromise to reach an agreement – the primary outcome remains achieving an improved negotiating position for the US. Trump’s ‘Hillbilly instincts and antics’ are unconventional. Their ultimate objective remains to ‘reset the negotiating terms’ and achieve an improved global trade relationship for the US. While difficult to forecast, America’s economic size and strength suggest it has the upper hand in negotiating amendments to the existing trading superstructure (the recently announced amendments to NAFTA in the agreement with Mexico being a case in point).
An appropriately diversified investment program, comprised of ‘fit-for-purpose’ strategy components, aligned to achieving a clear investment objective, over an appropriate time horizon remain the central elements of Clime’s investment approach. We believe geopolitical uncertainties, including those emanating from Donald J Trump, provide an opportunity through investment market volatility for the selective deployment of capital. We see an investment landscape conducive to steady if not spectacular growth and will continue to judiciously seek out high-quality investment opportunities across asset classes to deliver strong risk-adjusted total returns.
 ‘White Trash. The 400-Year Untold History of Class in America’, Nancy Isenberg (Penguin Books, first published 21st June 2016)
 While a (very) small sample set, some of which being good friends, most of these conversations were held with college-educated, white collar professionals.
 Donald Trump 18th Jan 2016, Fox News Interview