Made in America

The results are in, and so is President Elect Donald Trump.

November 10, 2016

The results are in, and so is President Elect Donald Trump.  After a knee-jerk, crash like sell-off in the futures market Tuesday night, US equity markets are at all-time highs.  Why?

Globalization and free-trade are ultimately good things.  Emerging and developing economies are sharing in the wealth, and there is a sharing of ideas and values across borders. Perhaps though, things have moved too quickly and too many have been left behind as innovation in technology/ideas race ahead (perhaps blindly).  While the forces behind globalization are here to stay, we may have reached a point where we have to let people catch-up. As it turns out, there’s a lot who have fallen off the pace, and if we don’t help pull them forward, they may actually pull everyone back.  We need to find new ways of expanding the global wealth pie -merely transferring ownership from one group to another is not a win-win outcome. There will always be hard feelings on the part of those whose share of the pie is shrinking.

Brexit and President Trump are the reality and markets seem to be coming to grips with this.  It would appear the market doesn’t view these events as great leaps backwards, rather, opportunities to make sure we are on solid ground before we all leap forward.  I’m no expert on the US social/political landscape or constitution, but there are checks in the system to keep things in balance. Sadly, it would appear things have been too balanced this past term, and the ball has been stuck.  Brexit and the US election have tipped the board so the ball can get rolling again. A democratic process protected by rule-of-law that raises the lowest common denominator, will ensure the ball moves in the right direction.

The stage has been set for a smooth transition of power.There is a window of opportunity to actually get things done, and markets are recognizing that. We positioned our portfolios to hold up, regardless of the US election results, and to take advantage of any opportunities that might arise.  Infrastructure looked to be a winner going into the election, and now seems to be an even better bet coming out of the election.  Global fiscal policy spending on infrastructure may be the spark that gets the global economy moving.

Assuming central banks keep policy rates down, this will likely result in the yield curve steepening.  This is very bullish, as it provides an incentive for financial institutions to pursue profitable (stimulative) strategies.  These strategies aren’t without risk, but we can discuss that another time.  For the immediate future, we continue to like stocks over bonds from a relative value perspective.  We’re looking to add to a global infrastructure trade and initiate a US financials trade.  It looks like recent strength in the USD$ will continue, and we are looking at removing some of our currency hedges.

While emotions are still running high, calmer minds should prevail.  As Canadians, perhaps there’s an opportunity to negotiate a better deal – one Made in Canada.