Trump threat to investors
AS if there is not already enough economic uncertainty threatening growth, employment and the investment climate, the final Las Vegas presidential debate ended with Donald Trump rolling a dice.
If he didn’t like the outcome of a ‘rigged’ Presidential election, he would challenge the result. How precisely he would do this is not clear, but given the way the American judicial system works, you could imagine the eight current judges on the Supreme Court (it is down from nine because of Republican intransigence) in emergency session.
What might this have to do with economics? We know from the drop in the pound since Brexit and the postponement of some investment decisions how political uncertainty can rapidly change the landscape. The immediate impact of any Trump challenge might come from the Federal Reserve. Should matters go to plan then Janet Yellen and the central bank, which Trump is pledged to reform, will raise interest rates in December as part of the slow grind to normalisation.
If the Bank of England’s robust response to Brexit is any guide, the Fed might have to rethink and loosen policy with the goal of shoring up stability. Indeed, powerful Wall Street figures, such as veteran activist investor Nelson Peltz, say that with US inflation moderating, the case for a rate rise is weak.
In most American elections it is ‘pocketbook’ issues that settle the outcome, with Bill Clinton’s dictum ‘it’s the economy, stupid’ still remembered. On strictly economic grounds, the adoption by Trump of Reagan-style policies – cuts in tax rates for companies and the middle classes – might be something of a winner. Especially if he could persuade the richest firms in the US to repatriate the cash they have deposited out of Uncle Sam’s reach in Bermuda.
Trumponomics certainly seems more growth orientated than Hillary Clinton’s re-distributive policies. If you want to know what happens when you raise taxes on the best off in society, just look at the exodus from France after President Hollande took office and tried to raise some tax rates to 80pc.
Trump also has manoeuvred Clinton onto the back foot on trade policy. The Obama White House has staked a huge amount of political and diplomatic capital on completing the Trans-Pacific Partnership. Trump has opposed this and every other trade deal, including NAFTA with neighbours in Mexico and Canada. So while it is perfectly possible, as the Brexiteers will tell us, to live under World Trade Organisation rules, cracking open the trade system is usually considered a good thing.
What happens in the US – still the locomotive of the global economy despite sub-optimal growth in recent times – is profoundly important to investors. The dollar is the de facto reserve currency and US Treasuries the gold standard. Anything which disturbs that stability at a time when the eurozone remains in the doldrums and the newly rich economies from China to Brazil are misfiring is deeply disturbing.
This is especially the case when faith in the ability of monetary policy to stoke output is fading.
Safety first
IF chief executive Andrew Mackenzie had hoped to strike a positive note at the BHP Billiton annual meeting with the company’s bold plan to make the group the most womenfriendly in the hard-boiled natural resources sector, he may be disappointed.
His admission that the company is not as ‘inclusive and diverse as we could be’ is admirable for its honesty. And the target of employing an additional 21,000 women by the middle of the next decade ambitious. It goes far beyond the initiatives in Britain led by former trade minister Lord Mervyn Davies and BAE chairman Sir Roger Carr, among others.
In one of the most testosterone-fuelled sectors of business, Mackenzie even likes the idea of women miners alongside chaps at the workface. The difficulty for Mackenzie is that the main talking point among investors was not the march of diversity, but the fallout from the Samarco dam collapse in Brazil, which released a deluge of mining waste and resulted in the deaths of 19 people and left 700 people homeless. Just hours after the AGM finished it was revealed that Brazilian prosecutors planned to charged eight people over the dam collapse, further undoing Mackenzie’s efforts.
The scale of the devastation has led some people to compare it with BP’s enormously costly Deepwater Horizon tragedy. The disaster contributed to a £6.4bn loss last year, a slashing of the dividend and Mackenzie also taking a big pay cut. The final costs are far from being settled with Brazil and human rights groups seeking more compensation and damages.
Chairman Jacques Nasser is planning to hang up his helmet by next year’s AGM. The group should begin as it intends to go on by finding a female chair to counterbalance Mackenzie and demonstrate its commitment to a kinder and more safety-focused enterprise.
Flash crashes
WHAT is it with share prices at present? The ‘flash crash’ in the pound is as nothing compared with some of the shocking falls in the FTSE 250. Earlier in the week Laird tanked by nearly 50pc only to be followed in later trading by engineer Keller, down 27pc, and Senior, which dropped by 12pc.
The suspicion must be that computer-driven trading, sparked by aggressive shorts, is creating a marketplace that is becoming ever more unsafe for unsighted private investors. Time for the London Stock Exchange and the Financial Conduct Authority to ask searching questions.