You're listening to Strictly Business Podcast with Lindsay Williams.
As you listen to this podcast, the 47th President of the United States of America,
Donald J.
Trump, has completed 100 days in office.
And what 100 days it's been, it doesn't matter whether you like him or you hate
him,
you have to say he's a great source of fascination to more or less everybody.
It's a difficult job that Philip Saunders...
director at the Investment Institute at 91 in London,
and I have today because you can't talk about Donald Trump without certain
personal
passions about how he goes about his business come to the surface.
But I'm going to try.
I know Philip's going to try.
And what we're going to do is give him a hundred day, almost like a school report
on the various things that he's done to the financial
markets and geopolitical markets and so forth.
Philip.
That's me saying let's not argue about Donald Trump and let's not indulge
ourselves in partisan politics, please.
Can you do that?
I can just about do that, I'm sure.
All right.
Let's start with the obvious one then.
And that is the equities markets, notably the US market.
When he came to power, they were pretty buoyant.
And I think they peaked something like February the 13th.
When he started opening his mouth about various things that some people didn't
like, in fact most market participants didn't like,
because that was the peak of the stock market, and from high to low the S&P fell
nearly
20% and they were troubling times.
It was the worst start to a presidential residency in history when it came to stock
market performance.
Maybe you could sort of outline your theories on this.
Was it ripe for the picking already?
Was it Trump related?
Did one man do all this?
Well, I think that we've got to remember that we were in a momentum market,
a strong momentum market before Trump was elected.
There was then a wave of euphoria because when he was previously president,
he was clearly he's pro deregulation, he's pro business, he's anti regulation, etc.
And so that just extended this strong momentum move.
which was led, as we know, by a pretty narrow group of stocks.
And the market was sort of particularly buoyant.
Also, there were seasonal effects, because at the end of the year, you get the
Christmas rally and so forth.
And this was no exception, a particularly strong one.
And that all carried through until February.
And then he went and spoiled it all from an equity investor's perspective.
But come on, there was going to be a correction at any rate.
And that's...
certainly what we felt when we had to write the outlook.
The US market was getting overextended.
This particular bull run was mature.
And these market cycles, you have corrective phases.
Markets get ahead of themselves in any event.
And it may well be there's a sort of particular trigger that determines the
timing of a correction and possibly its
severity.
But it's part of the sort of normal behavior of markets.
So we shouldn't sort of get too carried away about that and sort of, you know,
pointing a finger at Trump as being basically sort of spoiling the party.
The party was going to get spoiled at any rate at some point.
Yes, it was.
But on the other hand, the naysayers,
when it comes to Trump's very sort of muscular political stance
in various areas, would say as soon as he stood up with that board in the Rose
Garden.
that day hastily scribbled a board about with all the countries and what he was
going to do to them
the market was closed of course he made sure of that but the markets never closed
so as soon as the futures markets opened at
midnight central european time they started ticking lower they were two
percent down and then by the end of the day the real session the next day
they were down anything between five and seven percent
depending on your chosen index then i thought that's it bit of a washout and
that was it but no That was the Thursday.
The Friday, same again, except worse.
And I thought this is something completely different.
And the complete difference factor was Donald Trump, I believe.
Sure.
So you've got to remember that.
In fact, actually, I think that the most serious market reaction actually was not
in equities.
It was in bonds, because basically, you know, the kind of things he was, the
disruption he was.
threatening, if you like, you know, by ratcheting up the demands for higher and
higher tariffs,
particularly against China, you know, obviously a major supplier to US industry.
Actually, it was the bond market misbehaving that I think basically
triggered a change of course and indicated
that, you know, because you've got to remember that...
The US is now highly indebted, you know, 122% plus government debt to GDP ratio,
which is sort of uncomfortable.
And it relies profoundly on flows of foreign savings in order to actually fund
that
deficit.
And so the fact that the dollar went down, and bond yields actually rose rather than
fall, because normally,
basically, in a risk off event, the dollar would rally.
and bonds would also rally, and equities would sell off.
That was the standard.
This time around, that didn't happen.
And that was, you know, and Trump, you know, well, certainly his advisers were
pretty concerned about that.
And that has, you know, I think triggered him to sort of pull back and to realize
that, you know,
actually banging the table like this, you know, does have...
you know could plunge the u.s economy ultimately into recession uh primarily of
things like the bond market misbehaves
yes yes the bond market was terribly terribly interesting because it's the
biggest market in the world we can't even begin to comprehend its
vastness well i can't uh and it sold off in other words the bond market sold off
and as there's a
a relationship where when bonds come off yields go up or when yields go up bonds
come down yields went up,
bond prices came down.
And at the same time, as you quite rightly said, equities are coming down.
And you don't see that very often.
In fact, I don't think I've ever seen it to such a correlated extent in my time in
the financial markets.
So there's one safe haven gone, the U.S.
Treasury market.
Other bonds did rather well or relatively well out of it.
The dollar used to be a safe haven.
That tumbled a little bit excessively and probably will recover a bit.
But nonetheless, it tumbled.
The only thing that seems to have done well in my next category, which was the
safe haven, is gold,
which has been astonishing.
3,500 plus at one stage, Philip.
Yes.
Well, you know, of course, it's a barometer, if you like,
of this trend towards deglobalization.
And gold, this time around, this particular cycle, prior to this particular
sort of strong move, further move up.
It has really been driven by central bank buying.
And you can date that really back to sort of when things started to go wrong.
The first Russian invasion of Ukraine, you know, where they took over the Crimea.
And then basically we sort of kicked off again after the second Russian invasion
of Ukraine.
The Europeans froze the Russians.
foreign exchange reserves that were held in euros predominantly and and of course
basically that means that you know it's
a signal that you know when you need to get hold of your reserves you need to get
hold of your reserves and
if they're going to be frozen you
know by hostile power then it's not going to do you much good when you actually need
that money and so
therefore we've seen you know significant move to diversify using gold
on the part of central banks around the world in order to reduce their reliance on
the US and US capital markets.
So that has been a sort of principal driver behind gold.
And then, of course, Trump ratcheting the conflict up, you know, again,
suggests that there's going to be an acceleration in this process of, you know,
global unraveling, if you like.
And that basically and the failure of other assets to actually provide perfect.
protective characteristics as basically you know supercharged gold let's look at a
couple of side shows now
and when i say side shows i don't mean to trivialize them at all but the gaza
situation the the first thing he said was
uh i think he woke up one morning and he said goodness me look
at the water as he calls it there in other words the the beachfront uh look at the
potential here because the place is ruined
and I can turn it all myself and my partners.
can turn it into the Riviera of the Middle East.
And instead of thinking about it and talking about it rationally, as his father
would have done, if you read the book Lucky Losers,
you get an idea that his father was a meticulous man when it came to numbers,
and only when every
I was dotted and T was crossed and all those other things would he put an ad in
the paper and say,
these apartments available for rent and so on.
Whereas his son, he's more, he thinks that the name Trump and
the cult of celebrity will help, even though he's got absolutely no plan.
And that's the first thing.
Then there was the 24 hours the Ukraine-Russia war will be solved, and
that failed.
I don't know, Philip.
The sideshows are...
It's somewhat disturbing to me.
So I think that you shouldn't get too carried away.
He basically shoots from the hip verbally a lot of the time and he says things that
aren't really serious and people take them too seriously.
Why does he say them if he knows they're not serious?
Because he obviously knows they're not serious.
Because he wants to get a reaction and he wants to be centre of attention in social
media
because that's worked for him.
And the fact that it's sort of, you know,
he's president and this is not particularly what we'd expect from
somebody who would like to
be seen as a statesman in a conventional sense is, you know,
is just the reality of Donald Trump.
But to say he doesn't have a plan, I think is wrong.
I think that there is evidence that there, you know, that there is, well, there are a
series of objectives.
And in the same way that in his first administration,
he basically started to force the unraveling of what we used
to call Chimerica, the integration of the Chinese and the American economies.
And, you know, frankly, he was right about that.
He didn't do it particularly effectively because China has gone on to get a lot
stronger subsequently.
But he...
He said enough was enough.
And then the Biden administration followed that policy and actually made it even
tougher.
And if we look at what he's trying to do at the moment, he's 100 days in.
We reckon he's got sort of political inertia he's going to set in.
He's going to be able to do very little, certainly after the first two years, and
arguably sort of...
200 days in, if you haven't really sort of got momentum, then that's going to be
tough.
And he's got ambitious plans to actually reshape
America's defense commitments to address the problem of sustainability
of debt.
So he's got a number of things he wants to achieve.
you might not like...
the way that he's going about it, and it may well be that the way he's going about
it is counterproductive,
which will prevent him from achieving his objectives.
But he has got a series of objectives that he's trying to get on with.
And, you know, I suspect he will, you know, ultimately succeed in part, but he's
got to be careful,
clearly, to not get too carried away,
because basically to see further substantial weakness in the equity market.
He's going to damage his popularity and damage his ability to actually get stuff
done.
Speaking of damage, a lot of people are saying it doesn't matter what he does now.
It doesn't matter if he cuts Chinese tariffs from 145% down to 25%. A lot of
the damage has already been done.
It's going to be difficult to undo.
Do you believe that in his first 100 days, a good deal of damage has been done and a
good deal of confidence in the United
States and the United States administration has been shattered?
Yeah, I mean, I think that the people really now get the fact that there's going
to be a serious
reset in global geopolitics, in things like defense spending,
and the willingness and indeed the ability of the U.S.
to play this role of sort of global number one.
You know, they're saying, right, you know, we cannot sustain sort of imperial America
in the style that we've.
you know, been used to after the Second World War.
And if you have a problem with that, then clearly a lot of people are shocked.
You've got German politicians weeping and all this kind of stuff.
But come on, this is reality, the rise of China, you know,
and I think you can sort of over egg the fact that they're sort of this sort of
evil empire and so forth, led by communists, etc,
wanting to take over the world.
But they represent a very serious geoeconomic and geopolitical threat to the
US.
And the US basically is trying to get its act together, or Trump is trying to make
America great again, i.e.
what does that actually mean?
Well, it's to actually sort itself out so that it can compete effectively with
China.
That's really the thing.
And yeah, he's managed to upset his allies and this, that and the other,
but a lot of his allies have literally been enjoying an unlevel playing field.
You know, they haven't been paying enough for defense.
They've got sneaky tariffs.
This idea that we're in this wonderful world, seamless world of free trade, I
mean, it's a sort of,
it's a nonsense, you know.
OK, tariffs were relatively low,
but there are lots of exceptions and there are a lot of non-tariff barriers and so
forth.
And by and large, you know, the U.S.
sort of was prepared to put up with that because, you know, certain sections of
U.S.
society actually did pretty well out of it.
But, you know, unfortunately, you know, the absorbing China, you know,
a typical sort of, you know, Dirigis type economy with...
a lot of state intervention, you know, it was just too big and too successful.
So now the system has to change.
And that's the important thing.
You know, tariffs is a peripheral thing.
I don't think that, you know, tariffs is a sort of, as a weapon, you know, is it
really going to, are they really going to be that effective?
They're going to raise a bit of money because, you know, when all the dust
settles,
I think we've passed peak tariffs or peak.
tariffs in rhetoric, then, you know, you are going to have tariffs, maybe 10%
or something like that across the board in the US, which is, you know, which is like
a tax, you know,
and American consumers will be paying some of that.
And the US, you know, needs more revenues, because otherwise,
the budget deficit problem is going to get worse, which will leave the country more
vulnerable.
OK, let's have a look at another few things.
We can't go into each one in any great detail, but we can look at the Panama
Canal.
We can look at Canada and Greenland.
You can look at some of the appointees.
I mean, the most notable one at the moment in the news is Pete Hegseth, who is the
Defence Secretary.
He's clearly out of his depth, again, my opinion.
So it just all comes together at the same time.
I mean, there's the really meaty stuff, which you've beautifully described.
And maybe he does have a plan.
I really hope he does.
And then there's the other stuff, which really annoys people, Philip.
And I don't want to be annoyed by the most powerful man in the world.
Yeah, well, I mean, I'm afraid, Lindsay, you know, that is your lot in life.
And I can't really do very much about that.
No, but you can explain it to me.
You can explain it to me, Philip, and then at the end, you're going to tell me how to
take advantage of it, of course.
This time around, he's appointed his people.
Some will fail and some will succeed.
And I suspect that, you know, Besant, as US Treasury Secretary, you know,
will turn out to be a very good appointment.
Yes.
And he certainly pulled Trump back from the brink.
He understands markets in a way that Yellen, his predecessor...
you know, was sort of hopelessly out of depth.
And, you know, Hesketh, basically, if he isn't up to the job, he's going to get
fired.
And, you know, maybe he, you know, peaked as an anchor on Fox News, and that was, it
was a bad appointment.
You know, Trump, you know, you know, he doesn't go down with the ship if somebody
isn't performing.
So I wouldn't get too hung up about Mr Husky.
I can't help it.
I turn on the television, I get hung up on little things like that.
It's like his cabinet meetings.
He's got everyone recorded.
And he sits there, the emperor, wearing no clothes.
And it's like in the old days.
I don't know if you're a channel surfer, if you sit at home after a long day's toil
at 91 in London.
Productive.
But you want to watch something.
And so you go through the channels.
There's nothing there.
Click, click, click, click, click.
In the old days, it used to be court jesters.
You'd sit there, and a number of court jesters would be waiting in the wings.
And you'd say, right, you're on.
Go and make him laugh, will you?
And he dances around and does some juggling and whatever, and the emperor
claps.
And so it goes on.
Some are rubbish.
What he does with the cabinet meeting, he goes, right, you.
And they say, Mr.
President, I just want to thank you for doing everything you said you'd do in
this.
And this sycophantic spew of praise.
It's just like that.
And I don't know.
Again, I can't see leaders of the past doing that, and I can't help but be
annoyed.
I'm going to have to go and see someone about it, I think.
Clearly.
So we've got to ask ourselves, yeah, I get that, and that's the reaction of a lot of
people.
They scratch their heads and think, you know, this is, well, I mean, this is the
kind of behavior we'd expect from Putin.
where sort of some sort of unfortunate general has to come and sort of spout
nonsense and so forth
on Russian TV.
But just think about it a moment.
I mean, Stump is, you know, an unusual person.
He's not a typical politician, et cetera, et cetera.
Yeah.
And.
You know, despite the fact that a lot of people, a lot of the electorate in the US,
you know,
have your kind of feelings about him, he got elected with a significant majority.
And so why was that?
Well, it's because basically, you know, it's no, I don't think it's just promises.
I think it's because it's a rejection of the existing political establishment,
which has, you know, left America vulnerable.
It's made a lot of poor choices,
which has resulted in extraordinary degrees of inequality in the U.S.
The haves obviously have a lot more.
The have-nots basically haven't had it.
You know, it just hasn't worked for them for many years.
So globalization, you know, has been great for the few.
It has been less great for the majority.
And this is a rebalancing and this is a rejection of the existing political order.
And, you know, that's put a populist, a demagogue like Trump in power,
whereas previously he wouldn't have stood a chance.
Before we get on to what to do now, Philip, the most important part of our
conversation.
One of the reasons he got elected is because of the cost of living crisis.
And even though inflation was coming down, inflation was still there, two and a half,
three and a half percent, whatever it is.
And he said, I'm going to bring down the price of eggs.
And he had a little table in front of him with lots of different staples and
biscuits and
everything else.
Not that he's ever been in a grocery store, of course, but that doesn't matter.
I don't mind that whatsoever.
If I never have to go in one again, it'll be too soon.
But the point is that the price of eggs, he keeps on saying, the price of eggs is
falling.
It's not.
The price of eggs is as high as it's ever been.
In fact, in March, it was 6.3% higher.
I think so.
He said, I'm going to make things better and things are going to be cheaper, but he
hasn't.
And people forget about that.
I've got to give him more than 100 days.
I mean, you're talking of moving a supertank.
So, you know, this idea that you can have sort of instant gratification is just sort
of naive.
You know, China at least has the has, you know,
stability in terms of government continuity in terms of government.
The U.S.
is, you know, you've got midterms coming up in two years, less than two years now.
And then basically, you know, probably lose control of at least one of the
houses.
And then basically another year after that, it's presidential election campaign
season again.
So it's really difficult to actually achieve anything.
And sure, you know, you've got this.
He has is using a lot of executive powers in a.
sort of somewhat dubious way, it has to be said.
But he's doing that simply because basically it's the only way to get
anything done,
given the endemic inertia of the US political system.
Hence the urgency of doing deals and being seen to make progress and all this kind of
stuff.
I wish him well, Philip.
The opportunity to make real changes, you know, is going to narrow pretty
significantly.
I wish him well.
I really, really do.
I like to be annoyed by him.
It's a sick sort of perversion that I have.
But I do agree that he has in his own special little way, some sort of plan
somehow.
It's just somebody's got to take him aside, like the Treasury Secretary, and
say, look, why don't we do this, Mr.
President?
I think it's a really good idea you've got.
But maybe we could just tweak it just a little bit.
But will they say it?
I don't know.
I hope he's successful.
and I hope you're successful as well.
at 91 and if so how do you plan to be where does it go from here at the moment
as we record this podcast the us
markets having um a second lovely day yeah so i think that um you know obviously
markets got
oversold um you know the reaction to uh to
what was going on the uncertainty and the sort of poor positioning of market
participants uh and so you've seen this
sort of brutal unwinding at positions.
And that's now settling down a bit.
And so really the sort of, you know, we can have a U.S.
recession or not.
And that sort of, you know, rather depends on where we end up tariff wise.
It depends on the underlying strength of the economy, because we think corporate
sectors in pretty good shape.
Actually, consumer balance sheets are in pretty good shape.
And of course, the Fed has got a lot of scope to cut interest rates if things get
weak.
So the market, I think, sort of recognizes that...
You know, we're sort of in this sort of corrective phase and we'll have rallies
and we'll have relapses and so forth.
But unless something new comes out of the woodwork, then we're in this sort of
sideways kind of environment.
However, there is a big thing going on, and that is that there's far too much
international crowding in U.S.
assets.
Foreign investors basically had thrown the towel in and were being dragged more and
more into US assets as
they became larger constituents of the sort of typical indices that people use,
like the MSCI,
all countries' world index.
And so that now, I think that really what this recent period,
the significance of it is that it's marked an inflection point.
in what we labeled as U.S.
exceptionalism, you know, exceptional relative outperformance, you know,
that had been seriously overdone.
So we're now seeing basically a sort of rotation out of U.S.
assets, a rebalancing, if you like, as international investors sort of, you know,
rebalance their risk exposures.
And you're also seeing a rotational move within markets and the stocks that really
benefited from
the sort of hyper-globalized world, you know, they're the ones that are
potentially looking vulnerable now.
So we have hit an inflection point.
You know, we may be in a corrective phase for markets for some months now.
But coming out of that, I suspect that, you know, the Chinese are going to
stimulate more.
The Europeans are already stimulating their economies to sort of offset the
effect of tariffs and so forth.
And also to address the problem of you know, sort of sluggish, very sluggish
growth.
Energy prices are coming down.
That's actually quite constructive.
So I think we will come out of this funk, you know, whatever, you know, however,
you know, whatever Trump's rhetoric.
And I think he will continue to fascinate you, I'm sure.
He will keep you glued and channel hopping to make sure you get your daily dose of
Trump.
Oh, yes, please.
And but we are.
Sort of, you know, the hysteria of the level of uncertainty is going to reduce.
Volatility is likely to reduce.
We will have some tariff deals, I suspect.
We've passed peak tariffs and the world will not come to an end.
So it's time to maybe tentatively have a look at the ground because you're already
sitting on the fence at the
moment.
Tentatively look at stepping off that fence.
dipping your toe into the water, would you say that selectively, of course?
Yeah, I mean, I think that you, you know, a lot of US assets are heavily oversold
now.
And so what we're seeing is we're seeing basically a sort of rebound from those
oversold positions.
And a lot of the moves we've seen have been driven by short term market
operators.
And, you know, that have been squeezed and wrongly positioned.
Obviously, you know, often with high levels of leverage.
So you get these weird market movements.
So bond yields going up was obviously not what the resistance was saying.
And you heard all about the sort of basis trade unraveling and so forth in bond
markets.
So I think that phase has gone.
Markets have been, you know, positions have been cleaned out.
And so it's now, you know, longer term investors are going to be looking at this
and thinking, Well, we...
probably got too much in the way of US exposure.
So they're going to be selling rallies.
And there will be rallies, pretty powerful rallies, to be seen.
And, you know, but I suspect, basically, they won't be followed through.
And then if you look at China and Europe, you know, by and large, a lot will depend
on, you know, the level of stimulus,
whether markets are prepared to look through it.
And then, of course, obviously, there's considerable scope for sort of interest
rates to come down further, not just.
in the US, but the Chinese is in a position.
ECB cut rates the other day.
The Bank of England will probably cut rates next month when it meets.
So you've got this sort of synchronized global reduction in short-term interest
rates, which ultimately is going to underpin growth.
So I think we come out of this.
It just depends on basically what level of weakness we've got to actually sort of get
through in the
nearer term.
Saunders with his soothing words.
Philip Saunders is Director at the Investment Institute at 91 in
London. The views and opinions expressed in these podcasts are those of Lindsay
Williams and various contributors and do
not reflect the policy, position or opinion of any other agency, organisation,
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