Tweetonomics: Implications of @realDonaldTrump

Faced with a Tweeter-in-chief, how are investors to navigate what’s ahead? Is there a strategy behind President Trump’s outbursts; and if so, how shall investors position themselves to protect their portfolios or profit from it?

With all the outrage about Trump’s style, we have all seen equity markets rally in the aftermath of the election. Is the rally due to investors loving the policies proposed in Trumps’ tweets? We argue no, if only because one can hardly call most of his tweet storms policy proposals.

Before I expand further, I need to point out that discussing portfolio allocation in the context of politics is bizarre, as, in my experience, today's breed of investors - and this may well include you - are looking for an "investment experience." In an era where stocks have gone up and up for years, where buying the dips has been a profitable strategy, does it really matter what you invest in? So, it appears to me, many invest in what appears warm and fuzzy to them. The days are gone where investors bought shares of tobacco companies because they were good value; instead, they buy solar energy companies if they want to save the planet. Similarly, my own anecdotal research suggests investment portfolios of Clinton supporters look distinctly different from those of Trump supporters. It’s incredibly difficult for investors to put emotions aside. That said, I have no problem with an environmentally conscious investor specifically avoiding coal companies because they don't want to support it even if it might churn out more profits in a Trump administration - as long as he or she does it with open eyes. Such investing, in my humble opinion, means gathering the facts, then making a conscious decision. To gather facts in a politically charged investment environment, here are some of the steps you might want to consider when you hear stories that might affect your investment decision:

  • Get multiple perspectives. That means, embrace news outlets that disagree with your political views. If that’s too unbearable, at least follow journalists of those outlets on Twitter that write coherently, even if you disagree with their views. Get an outside perspective by reading (or listening to) foreign news services from the UK, Europe (I mention Europe separately from the UK, as news coverage is different on the continent), the Middle East and Asia. What does German chancellor Merkel think of Trump’s recent assault on Germany? Look it up to gauge how the dynamics might unfold.
  • Go to the sources. In our office, we listened to hours of confirmation hearings to get a better handle of what policies the new administration might pursue. We listen to or read speeches of central bankers, policy makers and influencers around the world.
  • News breaks on Twitter. With a Tweeter-in-chief, it’s not a matter of political preference, but one of staying on top of the news to follow @realDonaldTrump (he now tweets under the handle @POTUS as well; Obama’s Twitter handle has been moved to @POTUS44). Following policy makers allows you to stay on top of breaking news. Following influencers allows you to receive close to instantaneous interpretation of the news. On that note, please ensure you follow @AxelMerk.

So what have we learned from our Tweeter-in-Chief?

  • Trump likes to take credit, but does not like to own problems
  • There’s method to what appears to some as madness
  • New policies may be hiding in plain sight

Not owning problems

Trump says he is a "winner." To defend this brand, he disavows any potential problems. He throws Schwarzenegger under the bus for not-so-great ratings on his first appearance on the Apprentice, so any decline on the program doesn’t reflect badly on him. He cautions Republicans to be careful not to own "Obamacare" when it’s pretty obvious that Trump himself might be "owning" it; the cost of healthcare will continue to rise independent of the healthcare system we will have; as a result, odds are high that there will be lots of unhappy folks. He publicly denounces Paul Ryan’s tax reform proposal as being too complicated (he singled out the concept of a ‘border adjustment tax’), even as his nominee for Treasury Secretary Mnuchin all but admitted that Trump’s tax proposal was written on the back of an envelope (he didn’t quite say that, but he did say that they had a very small staff and that it would take substantially more work).

There’s method to what appears to some as madness

All Presidents have the bully pulpit at their disposal, even as Trump’s use of it may elevate it to new highs (lower it to new lows?). Trump’s nominee for Commerce Secretary stated it succinctly in his nomination hearings: "When you start out with your adversary understanding that he or she is going to have to make concessions, that’s a pretty good background to begin." The Financial Times recently published an OpEd that discusses how Mr. Ross thrived in his career employing this principle. From the article: "The first step in such negotiations is to get everyone to admit to the problem, perhaps even to create an exaggerated sense of it, so that no one thinks it can be ignored until tomorrow."

In reality, keep in mind that it is the House that initiates new tax legislation, not the President. Would President Trump really veto a tax bill with a border adjustment tax? To a significant degree, Trump’s success in implementing his agenda may well be directly dependent on how seasoned the politicians are at the other side of the negotiating table.

In my view it is no co-incidence that German Chancellor Merkel shrugged off Trump’s recent assault on German trade policies suggesting to wait and see what the actual policies of the new administration will be. She is a battle-proven politician who has dealt with rather eccentric partners in the Eurozone debt crisis (remember Greek finance minister Varoufakis?).

But do not under-estimate the power of the bully pulpit: we all "know" that the banks are responsible for the financial crisis, right? While I don’t want to downplay the role financial institutions played, where is the ire at the politicians that put rules and regulations in place that incentivized bad behavior? Politicians own the bully pulpit, not bank CEOs. In that context, it is in my view no coincidence that Facebook CEO Mark Zuckerberg has as this year’s project to travel the country to get to know the people better. With pictures of him with firefighters, farmers and other "regular" people, he either sets the stage for running for President, or he is taking steps to fight the image that Facebook is responsible for fake news, the rise of terrorism or other ills of the world, a perception that might be promoted by the Tweeter-in-chief. The bully pulpit is effective when there’s an overlap of perception and reality.