The Trump Effect

What effect does Tump have on investments?

This is a sea change.  With an overwhelming majority of presidential votes, a Senate majority, and a probable House majority (to be confirmed), they can make any changes.  They've got two years to do so before the 2026 Senate elections.  This time Trump has assembled a team of competent people, unlike the last time when he didn't expect to win.

What Does Trump Believe?

America has been on the wrong path for the past 40 years and needs to reverse:

• The US paid for the defence of its allies (Japan, Nato), who took advantage by selling into US markets.  From 1987: "The world is laughing at America's politicians as we protect ships we don't own, carrying oil we don't need, destined for allies who won't help....End our huge deficits, reduce our taxes, and let America's economy grow unencumbered by the cost of defending those who can easily afford to pay us for the defense of their freedom."
• "The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive." (tweet)

• China is the biggest threat to the US.  And I think this means right now - we need to prepare for a Taiwan war by 2027.  Ukraine and the Middle East are distractions.
• Doesn't want war with China.  Peace through strength.  Unlikely to see publicity stunts like Nancy Pelosi's Taiwan visit again, while both sides quietly build up military capabilities and alliances.
• The US needs to manufacture things again.  US industry is hollowed out by unfair trade practices, damaging workers, families and the social fabric.

• Inflation was a big reason he won.  Gotta either cut inflation or increase real wages.
• USD.  He criticised Biden over the weak Yen and Yuan hurting manufacturing.  OTOH, he is a "numbers go up" guy and may want a strong dollar to fight inflation.  On balance, I guess weaker USD long term.

What Policies do I Expect?

• Increasing domestic oil and gas production to grow America's industrial base.  Bad for O&G producers, good for O&G service companies and pipelines.
• Grow your way out of the debt crisis.  Growth, not stagflation.
• Maybe a Saudi security deal to increase oil, help inflation and pressure Iran/Russia.
• Tariffs.  10-20% for all imported goods.  Which countries have carve outs?  60% to infinity tariffs for China.
• Let Israel finish its war properly.  Leading to lasting peace in the ME.
• Freeze the current borders of the Ukraine war.  Not sure of this can be done - Putin may not agree, and who will enforce the peace?
• Still expect high government spending.  Expect it to be hard to decrease government expenditure.  Elon Musk cannot just fire Government workers like he did at Twitter - they are protected by law.
• Big changes in Healthcare with RFK, thought I don't follow this.  I'd worry if I was holding any Big Pharma or Health Insurance stocks.
• Deport some illegals (possibly only violent ones).  Cut welfare for them.  Fine companies that employ them.  Rising costs in US agriculture.

Biggest Change for Investors

The nature of inflation will change.  Growth instead of stagflation.  Oil and (US) natural gas should stay low in the next few years.

The US is gonna have large labour cost increases.  So inflation comes from there, instead of energy.  Good for workers.  I'm wondering how investors can benefit from it.

No chance of a recession next year.

In Asia, countries should benefit from manufacturing moving out of China.  Counterbalancing this is that countries with large US bilateral deficits may be targeted.  After China, then Vietnam, Japan & Taiwan follow:

Data Source: USTR

How do Asian countries adapt?  After 2-3 generations of trade surpluses, they need to start consuming.  Look to buy Asian importer or consumer stocks? Except for China, which is stuck.

How does this affect my investments?

One by one:

• North American Gas Pipelines: Should do well with increased natty production supporting a larger industrial base.  Just hold them and sell if they reach overvalued territory (eg: 30 times FCF).  They're fairly priced now so I probably wouldn't buy them.
• Oil Producers.  Expect stable or low oil prices in the next few years.  I'm willing to hold my oil producers, since they should be increasing production in coming years, and are profitable and pay dividends at WTI $70.  If I was buying, I probably wouldn't buy now, wait for Hedgeye's trend to change.  I think there'll be an oil shortage after a few years.
• Gas (LNG).  My gas play is Australia's Woodside.  Its a stodgy blue-chip company that pays out 80% of its profits as dividends.  Not a great capital allocator.  I think US deregulation and increased gas production may lead to more US gas exports.  Since Woodside isn't a great company anyway, I'm considering selling.
• Gold.  Questionable.  Gold won't do well with increasing economic growth - its a stagflation (or recession) play.  Not a growth play.  And gold is also a bit overexposed now, even CNN was writing about it.  But we still need to move away from the USD as a reserve currency, and gold is the only contender.  Its also the only thing in my portfolio that could go up if theres a Taiwan war.  So I'll hold.  May convert some of it to physical.
• Gold Miners and Royalty companies: Levered gold.  Miners may do better as energy costs fall.  My mid-sized miners/royalty companies should increase production in the next few quarters, so I'll hold them.
• Industrial Metals: should do well in a growth+inflation environment.  I'll hold my tin producer - I think tin has underperformed following semiconductors, it should get a boost with economic growth.  I'll trade silver and my copper producers with the Hedgeye Trend signals.  I just solf my Platinun due to this.
• Palm oil: No Tump effect.  Moves in long price cycles - 3 years before new trees start producing.  Starting to get too high?  I need to investigate the supply response in the past few years.
• Emerging Markets: Philippines stock exchange: this country should benefit from manufacturing capacity moving out of China, and their US trade defecit is not too big.  Hold it: I'm paid a 5% dividend (100% payout ratio) while waiting for a bull market.  Delfi (Indonesian chocolate producer): has been hit by rising cocoa prices - they are now unsustainably high - I'm holding, but it may take a few years for the company to grow.  Hartalega: Probably benefits from Trump, but its a cyclical, so I'm waiting for the cycle to play out to sell.  Poland Stock Exchange: may benefit from an end to the war in Ukraine.  Holding all of these stocks for now.
• Uranium (SPUT): Should benefit in the long term, but in the short term the spot U3O8 price just depends on a few buyers and sellers.