New U.S. pres­i­dent is too un­pre­dictable for any other ap­proach, David Kauf­man writes.

Saskatoon StarPhoenix - - FINANCIAL POST - Fi­nan­cial Post David Kauf­man is pres­i­dent of West­court Capital Corp., a port­fo­lio man­ager spe­cial­iz­ing in tra­di­tional and al­ter­na­tive as­set classes and in­vest­ment strate­gies. He can be con­tacted at drk@west­court­cap­i­

In the months since Don­ald Trump’s U.S. elec­tion vic­tory, the ques­tion that I have been asked most of­ten (other than, “How did this ju­ve­nile, bom­bas­tic, blovi­at­ing, nar­cis­sis­tic, bul­ly­ing, misog­y­nis­tic know-noth­ing ever get elected?”) is “Will Pres­i­dent Trump be good or bad for Canada and Cana­dian in­vestors?”

The an­swer to this im­por­tant ques­tion is, as with all im­por­tant ques­tions, “It de­pends.”

In math­e­mat­ics, it is pos­si­ble to solve multi-vari­able prob­lems, but not to solve prob­lems with noth­ing but vari­ables. Un­for­tu­nately, each prob­lem posed by a Trump pres­i­dency and how it re­lates to Canada falls into the lat­ter cat­e­gory.

Take the Tran­sCanada Key­stone XL pipe­line as an ex­am­ple. Pres­i­dent Trump was in the news this week for is­su­ing an ex­ec­u­tive or­der that may pave the way for the pipe­line’s even­tual con­struc­tion.

No mat­ter where you fall on cli­mate change, from an eco­nomic point of view this must be seen as positive for Canada gen­er­ally and its oil pro­duc­ers specif­i­cally. With oil and gas rep­re­sent­ing such an in­te­gral com­po­nent of the Cana­dian econ­omy (keep­ing in mind that it’s not just the pro­duc­ers who ben­e­fit when distri­bu­tion chan­nels open up), both the econ­omy and the Cana­dian stock mar­ket would be ex­pected to be buoyed by this de­ci­sion.

On the other hand, we must re­mem­ber that Pres­i­dent Trump can’t be counted on to keep only his rea­son­able cam­paign prom­ises. Which means that as con­tent as we might be with him keep­ing his prom­ise about the pipe­line, we must brace for a range of other ex­ec­u­tive and leg­isla­tive “Amer­ica first” ini­tia­tives that would be less wel­come to our econ­omy.

Take, for ex­am­ple, his prom­ise to tear up the TPP and NAFTA and start again from scratch, com­bined with his prom­ise to slap trade tar­iffs on all goods com­ing into the U.S. from any other coun­try.

Aside from the fact that vir­tu­ally all ac­tual econ­o­mists would agree that lim­it­ing trade in a global world is very bad for GDP growth in the long term, there is no ques­tion that re­stric­tion­ist ac­tiv­i­ties would neg­a­tively im­pact Cana­dian ex­porters, in­clud­ing oil pro­duc­ers, in the short term.

Add to that the fact that clos­ing bor­ders to trade is a two-way street that could lead to a soft­en­ing of the U.S. dol­lar (it be­ing in less de­mand by would-be im­porters of U.S. goods), which in turn leads to a strength­en­ing of the Cana­dian dol­lar in U.S. terms, and the nir­vana of ex­port­ing through a U.S. pipe­line could be­come more ap­par­ent than real.

And this is if Pres­i­dent Trump acts pre­dictably. As Don­ald Rums­feld (who, in com­par­i­son to Trump now ap­pears to have been a rea­son­able man) fa­mously said, it is the “un­known un­knowns” that we must be most wary of when plan­ning.

There is per­haps no leader in the his­tory of mod­ern democ­racy who has the po­ten­tial to be as un­pre­dictable as Pres­i­dent Trump. It is this fact that re­sults in the ad­di­tion of many vari­ables to the prob­lem we’re try­ing to solve, leav­ing it in­sol­u­ble.

This is why the only an­swer to the ques­tion of how Pres­i­dent Trump’s ad­min­is­tra­tion might af­fect the Cana­dian econ­omy and, by ex­ten­sion, Cana­dian in­vestors, is “it de­pends.” It de­pends on which prom­ises Trump in­tends to keep and how he in­tends to go about keep­ing them. It de­pends on what new “amaz­ing” ideas he has or is given while in of­fice. It de­pends on how his re­la­tion­ship with a Repub­li­can-run Congress evolves. And it de­pends on events that are im­pos­si­ble to pre­dict, such as nat­u­ral dis­as­ters and ter­ror­ism at home and abroad.

For eq­uity in­vestors with a slant to­ward Cana­dian com­pa­nies, it is hard to ar­gue that they should be liq­ui­dat­ing, es­pe­cially since there are few al­ter­na­tives to eq­uity in­vest­ing in such a low in­ter­est rate en­vi­ron­ment. And it’s equally as hard to pre­dict how the U.S. and global stock mar­kets will fare in the Trump era.

For those sit­ting on idle cash, it’s also hard to ar­gue that now — when the stock mar­kets are at all-time highs co­in­ci­den­tal with Trump tak­ing the reins in the White House — is the right time to be­come fully in­vested, hop­ing that he does all the “good” stuff, leav­ing the “bad” stuff alone.

And so the pru­dent move at this junc­ture seems to be what it is al­most all of the time: be diver­si­fied by as­set class, be diver­si­fied by sec­tor, and be diver­si­fied by ge­og­ra­phy. This di­ver­si­fi­ca­tion will cer­tainly achieve lower re­turns if things go well for Canada in the era of Trump. But it will also be some­what pro­tected if things go awry.

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