WARWICK LUCAS: Tempering Trump’s tirades

Love him or hate him, US President Donald Trump casts a long shadow in politics and the imaginations of people everywhere. To some he is a messiah, to others the devil incarnate on a mission to destroy the planet.

With these intensities of feeling, my biggest concern is that investors reacting to his antics are much more likely to do themselves a world of harm than respond intelligently.

A long time ago, I saw a US study exploring the outcomes of investors who acted on their political opinions against those who did not, and the former decidedly underperformed. You could fish around looking for counterexamples, but I would suggest that in the geopolitical context, if you are going to take an active view then it should be only on the matter of whether or not capital will be properly treated.

Trying to translate politics into economic outcomes can be extremely difficult, because they are projections and add a whole lot of moving parts. Turning to the example of Trump, his fans and detractors alike are biased and therefore unlikely to read him correctly. He is strange, unorthodox and unpleasant, but also rational and definitely ruthless about getting what he wants.

Note that I’m writing here to temper the sentiment of those who would be giddily bullish or suicidally bearish. To the former I would say that it is important to remember that a president’s duty is always to Main Street ahead of Wall Street. An example is that while he might be supportive of free enterprise, his stated tariffing ambitions are market unfriendly. To the overwrought bears I must point out that in both his first presidency and so far in this one, Trump has a history of raising tariffs and often rescinding them later.

The Canadians and the Mexicans know this only too well, and given his control of the presidency, the Senate and Congress, Trump is more aggressive and confident this time around. The fact is that these are negotiating tactics, and we just need to get used to it.

We as South Africans shouldn’t feel particularly singled out. After all, neither Mexico nor Canada had been particularly friendly with Russia or Hamas but they got smacked anyway. Repeatedly. Very hard.

In fact, it is surprising — despite us being G20 hosts this year — that Trump is bothering with us at all.

After the initial brouhaha about expropriation (which led to the ANC and DA being more united), he has already washed his hands of the matter by offering Afrikaners refugee status (which will be forgotten soon enough).

There are a lot of competing interpretations of the magnitude of the outcomes of these policies. One is that significant tariffing programmes lead to high inflation. Actually, that is far from a given. Countries implementing tariffs tend to have appreciating currencies. Just think of the last time there were major tit-for-tat tariffs around the world — that was the 1930s and the tactics were decidedly deflationary.

There are also a lot of other moving parts to his economic policies; the hollowing out of the federal government may lead to efficiencies, but it also risks elevated unemployment and a fall in consumer confidence. The repatriation of immigrants could also lead to reduced consumer demand and the tightening of labour markets.

Still, his selection of Scott Bessent as treasury secretary looks truly inspired, and the identification and championing of continued US leadership in the field of AI may be very important strategic decisions, even if not immediately profitable. The uncertainty that his policies will bring will almost certainly bring volatility to risk investments and particularly to US equities.

If this sounds complicated, that’s because it is. The surest thing I can say is that trying to forecast your way through it could get you into serious trouble. Some might say this is the best time for active management. However, I think it has to be suggested, in fairness, that a passive indexing strategy is often the most forgiving when the entire environment has gone for a swirly in the washing machine.

Bottom line: avoid hysteria or rapture about Trump. Even if he’s right, he will break a lot of eggs making his omelettes. Your investment style should be to stay diversified and seek value, low-weight US equities and bonds.

* Lucas is a Vunani private client portfolio manager. He writes in his personal capacity.