Blog: You, us, everyone

Donald Trump's election had aroused great enthusiasm with an economic program favoring the supply economy (aka onshorin) which is expected to lead to creative destruction, deregulation, tax cuts and stimulation of private investment.

Aiming at a strong economy and to create jobs, multiple initiatives are undertaken to shift expenses that are expected in the short and long run, to generate a circular and self-sufficient economy with a high and sustainable ROA. Many world citizens are surprised by the extent of the proposed discourse and the effective measures taken. While most of the articulated cost savings are hugely overdone, many of his signed decrees will indeed have lasting effects. We are concerned that the concept of “America first” is missing an important part of due diligence and might ultimately disrupt a vulnerable economic system, be it the one of the United States, or globally.

In comparison, the liberal-inspired program administered under the Reagan administration in the 80s was built upon an all-inclusive concept and led to the globalization witnessed during the last 30 years. Very remarkably, it has pulled millions of people in emerging markets out of poverty, provided a solid social and economic foundation for many countries in Latin America and Asia.

During the presidential campaign, the candidate Trump brandished new tariffs and all sorts of changes as a weapon to get better deals here and there. The equity markets were quite keen in following through as they considered clear and favorable investment opportunities.

Yet, the administration’s domestic and foreign policy has considerably changed ever since the election day, and at the same time, the analytical framework. Various tariff announcements were made, with some being so messy that the intended course of action needed a reversal. Added to this, there is now a decidedly isolationist American policy, a major change in the world order since WWII.

Financial markets hate uncertainty and unpleasant surprises, resulting in some important sector reallocations. While some subsectors are underperforming the average market, we would expect more to come as there are solid suggestions that the inflationary environment could pick up quickly, which would unleash more disappointed expectations.

For the time being, US and international investors have limited damage but should prepare for more power shifting which in turn could send the average market to a global correction of some 20%. While there is a clear risk for equity investors, we believe the risk/reward opportunity is much better for fixed income investors. The engaged government restructuring, numerous lay-offs, and the inflationary environment, the FED is expected to adjust its monetary policy quickly and in a meaningful manner.

On the other hand, the geopolitical action by the US administration has led to an unexpected move in Europe. In the aftermath of the US’s Ukraine support, it was clear that in the next step, the US administration would exit support, via NATO, to European countries in the case of an aggression. Multiple countries have committed immediate and meaningful steps to build up an independent defense system, outside of any connection to an unreliable partner such as the US. Today, the question is not whether to rearm Europe or not, but how quickly this can be achieved and which type of infrastructure is required.

We expect that Europe’s rearmament is resulting in a new and lasting secular growth trend with multiple industries sectors to benefit, ranging from infrastructure, equipment, to state-of-the-art technology. Provided concepts and strategies are put together in a meaningful manner, we would expect Europe to become the next global powerhouse as all other major regions have to tackle their own lasting issues.