From Marat to Mar a Lago

Every time I write a post, I get a lot of feedback.  The one which I sent a few weeks ago about the stock market generated more replies than usual.  Most of those notes struck a positive tone of agreement with at least some of what I said.  But a few messages took issue with my basic thesis, which is, namely, that government and changes to government policies, as administrations change, do not matter as much to your investments as you think.  Which president we elect or which party holds power has barely mattered over the past 45 years.  The stock market has done great under all of them.

Dissenters say "This time is different".  They point to the stifling effects of tariffs and the fact that President Trump is less constrained now than he was during his first term, appearing to want to rewrite the world trading order, and calculatedly trying to offend our closest neighbors and allies.

Writing about these topics veers dangerously close to politics - not my field of expertise - and presents a dilemma for me.  A little fewer than half of my clients support Donald Trump, while the other half despise him.  Everyone is passionate, angry even.  Knowing this, I try not to take sides, lest I offend one half of my clientele or the other.  I will keep trying.

Besides, it's not my business.  My job is to give you the best investment advice which I can give, taking into account the realities of the day and my best guess about the future, under any president.  

But... let's look at a distant example, and see if it helps you to think positively about your investments during the Age of Trump, especially with regard to tariffs and foreign trade.

From the start of the French Revolution in 1789, through the Napoleonic era, and back to the restoration of the king in 1814, the Paris bourse went up.  France suffered bankruptcy, shortages of food, massive inflation, the storming of the Bastille, a bloodbath during the Reign of Terror, including the execution of the king and queen, currency devaluation, a near total embargo on foreign trade with all of its closest neighbors, during twelve years of Napoleonic warfare, which left France in defeat, not to mention devastating losses in human life, and yet still, the stock market found causes for optimism.  Ask yourself, how is that possible?

That's how stock markets work.  They are machines for finding and celebrating the good.  Businessmen strive for success under any conditions.  They adapt flexibly to the challenges of the moment.  Setbacks represent opportunity - for someone.  Stock markets follow all of this very closely and reflect it back to us in real time.

In retrospect, but not obviously at the time, we can also point to a nascent industrial revolution, and to the growth of modern finance, as exemplified by the rise of the Rothschilds and the birth of the Bank of France. Railroads had not quite arrived, but they lurked just around the corner.  Massive defense spending played a role.  Populations grew.  Cities took off and further developed their bourgeoisie.  They turned into hotbeds of networking and entrepreneurial activity.  Lawyers wrote new contracts for new situations, and accountants found new uses for double-entry bookkeeping, such as the creation, in accounting terms, of goodwill.

Enlightenment philosophy, which preceded the revolution, found its highest expression in business, spurring all manner of invention.  Through all of the political turmoil, economically, France moved forward.  Of course the stock market would go up.

Add to that: the French Revolution was a conservative revolution.  France replaced one conservative regime with another.  It ditched the king in favor of an emperor, but then ditched him and returned to a king.  I don't fully understand why they fought so viciously, at such high cost, over this, although I see parallels to our own time.  Coalitions must fight.  In terms of how the country conducted business, things changed for the better.  The revolution marked the end of feudalism, and ushered in an age of capitalism.  Karl Marx was not yet born.

Old businesses failed, but new businesses sprang up to replace them, flexibly adapting themselves to the political winds of the moment, in creative ways which they saw fit to try, and finding ways to thrive.

I do not pretend that these events took place without pain and without volatility, which must have been extreme.  Add to that the fact that the bourse was an immature institution, conducting business outside, trading in as many scams as in real enterprises, and you understand why stocks gyrated wildly and the best investors stayed away.  Today, we have many regulations to vet listed investments, but scams still sneak through, and I consider it part of my job to look for them.  Volatility remains an important issue.  We must take it into account, and temper our risks to best suit the times and our own abilities to weather whatever volatility-inducing event comes along.

What does all this have to do with Trump?  Only that the same principle of business optimism for the future applies today as it did then, only now in a different epoch and under much less extreme circumstances.  Trump's critics see madness and catastrophe.  I read headlines about it every day.  But I still don't think you should worry too much about Trump, or any president, to the degree that others suggest, for the reasons which I have mentioned above and in previous posts.

People and businesses create value, not governments.  They will continue to do so.  Government can only help or hurt at the margins.  In our current era, the rise of Amazon, Google, Microsoft and Nvidia, not to mention more old school businesses such as Walmart and TJ Maxx, owes almost nothing to government, and everything to competition, innovation, and the industry and creativity of founders.

Good governments create the conditions for such enterprises to flourish.  The Napoleonic Code, which established the rule of law and the legal basis for all of the business activity which followed, remains Napoleon's most important contribution.  But the companies grow and maneuver flexibly at every turn by themselves.  Witness the latest change of direction regarding free speech at Facebook.  No more fact checkers!  What a command performance in how to blow with the wind.

I recognize that governments have some influence over the economy.  Fiscal policy and budget deficits matter.  High interest rates do no good for anybody.  They throw sand into the machinery of commerce and slow down the pace of business globally.  We need them sometimes to temper inflation, but that's it.  Tariffs have a dampening impact with specific regard to international trade, and, if and when implemented, they will cause a sharp, one-time jump in prices on imported goods and slow down that sector.  Since we import so much, that will make a difference.

But, as in France even during its most turbulent period, and acknowledging that markets will experience volatility, businesses will adapt to new circumstances under Trump, especially in trade.  All of the AI, the rocket ships to Mars, developments in quantum computing, and I don't know what else, will continue concurrently and, if history sets a precedent, overcome whatever economic headwinds our policymakers create.