Welcome to MAGA-Vision
Coming to a Cinema near you...
As usual, the following is not to be considered investment advice (please do your own research and talk to your financial advisor), but nor is it taking a political stance, so please read it in the context of how a politically agnostic investor is considering the rapidly changing environment.
The first thing that investors need to recognise in Team Trump is that, like the markets, they don’t really care what we think. They do not respond to worthy editorials in the Economist or the Financial Times or the Wall Street Journal. They don’t care what ‘experts’ think on trade or tariffs or fiscal policy, they tell us what they are going to do, rather than ask for our opinion.
The significance of this is that we are used to expert or elite opinion in acting to limit things straying too far from the conventional thinking; Clinton/Blair Globalism and WEF Crony Capitalism survived Brexit, Trump 1.0 and multiple notional democratic votes for parties that opposed their core values of open borders and net zero.
But not this time. Trump 2.0 is set to be different, so investors need to be prepared.
This time the irresistible force of Trump has revealed Globalists to no longer be an immovable object
Team Trump is better prepared and, crucially not only does it have a well thought through and calculated plan, but they also have the means, the motive and the opportunity to deliver on it.
Thus we can chose to be like value investors railing at the valuations on tech stocks or we can try and understand the means and motivations of those driving prices, being humble enough to acknowledge it isn’t always just about us.
Indeed, recognising the influence of different groups with different opinions is the essence of Market Thinking; we believe that long term investors are best served by recognising the role of leveraged short term traders and medium term asset allocators/liability managers in setting prices. Investors refusing to accept that the old rules are changing risk being left in the equivalent of a value trap.
Two movies on one screen
Which brings us to MAGA-Vision. It has sometimes been said that we are all the hero of the movie playing in our head and also that the polarity in society is like two people watching the same screen but seeing two completely different movies. For decades we have been wise to watch the Globalist movie, even as it spiralled into an Alice in Wonderland Fever Dream, since that was defining the world we had to operate in. We could say (and did) that Zero interest rates was a terrible policy, that net zero is even worse and that covid polices were a cure worse than the disease, but it didn’t stop any of them happening.
We need to switch from the Globalist Movie to the MAGA-Vision one.
Trump 2.0 has switched us to the MAGA-Vision movie, one where there is a need to stop just printing money, where net zero is a Green Scam (note this is a criticism of the policies, not ‘denying’ that the Climate is changing) and where Covid was, almost certainly, created in a lab. It is also one that, by highlighting the extremes of the globalist movie on Culture Wars, has a large popular mandate. Which is why it is now wise to start watching this other movie.
As many of the prime beneficiaries of the ‘Ancien regime’, large parts of the financial market eco-system are resisting change, even as the wider population embrace it.
The comments below the line in the Financial Times are a case in point. Even more so than many of the opinion pieces, they are almost entirely dominated by variations on a theme of how Trump is mad, chaotic, with no plan and doesn’t understand what he is doing. They ‘like’ each others posts and swarm on anyone that disagrees.
This is not the same as the current mainstream media commentary, which is largely political based and reduced to defending the un-defensible as in trying to support evidential waste and corruption. Rather, this is a refusal to see a policy framework and insisting that none exists. It does. This is not necessarily to agree with it, rather to acknowledge it.
Heightened uncertainty is raising risk premia
Short term the financial establishment are voting with their feet, moving to bonds and cash as the supposed ‘uncertainty’ around Team Trump policies raise the discount rate, which is hitting longer duration growth stocks pretty hard. This in turn is triggering a lot of margin calls and distressed selling in US retail space, while the rally in bonds is being used to justify calls of a recession - which will be Trump’s fault of course.
The commentary is reminiscent of the establishment behavior around Brexit - except that back then there was no dominant figure like Trump, nor any plan of what to do. It was, as someone said about Trump 1.0, like a dog having caught the car it was chasing and not knowing what to do. The establishment survived and no financial models were changed. We think it probably really is different this time.
A disciplined and politically agnostic investor has an opportunity to reduce uncertainty and hence have a lower risk premia/higher target price by considering the outline plan that is there - should we care to look for it.
As ever our job is not to predict, but to prepare and be ready to adapt.
Risk Premia can fall if we can observe a plan..so let’s try
The first set of moves by Trump we discussed in Tweet loudly and carry a big stick, which were to defund his political enemies and, through DOGE, not only unwind a lot of the culture war extremes (thus immediately satisfying his base and under-pinning his power across all three branches of Government but also declare a focus on solving the twin US deficits.
It is in this context that we need to look at his plans for tariffs; part coercion for policies like the border and part to raise external revenue that goes straight to the Treasury. Higher taxes on residents require Congress, higher taxes on foreigners do not - even if they are effectively paid by residents.
Trump stated he would do this and the financial markets largely ignored him, only to panic when he carried out his promise. As we always say, we should take him seriously, but not literally and pay attention to what he does, not what he says.
He also talked about the ‘fairness’ of allies paying for US security guarantees and while there remain many ways this could be done, the notion of a Mar A Lago accord whereby Sovereigns with a security guarantee hold zero coupon perpetual bonds - effectively reducing a large expenditure item of debt interest - is gaining a lot of traction among economists.
This would be a major shift in markets and we need to track it closely. We discussed this in Eternal and Perpetual , at the same time pointing out that Trump looks to be redefining US foreign policy - taking a Palmerston view of national interest - no allies are eternal and no enemies are perpetual. This was made clear at the beginning of March with the remarkable scenes at the White House when Zelensky was given a serious dressing down by Trump and JD Vance as the US made clear that there was no business as usual.
The proximate cause was the apparent refusal to sign a deal on ‘mineral rights’ - something we would interpret as a narrative framework necessary for the US to begin to normalise relations with Russia. The US public need to see they are getting something out of any deal. In fact, we would argue that the real treasure is in the unconventional gas fields in Eastern Ukraine - the earlier pursuit of which we would suggest was a major contributor to the instability of Ukraine during the civil war.
In any event, Treasury Secretary Scott Bessent had expected to sign the deal in Kiev when he visited recently, only for the subject to be bounced to the Munich Defence Conference where Secretary of State Mario Rubio had in turn expected to sign it. Zelensky had insisted on coming to the White House to do so and it was the attempt to play the standard ‘Putin bad, give me more money’ act that seemingly triggered the public row.
The plan is to normalise relations with Russia
This has caused panic in the Political Salons of Europe, especially as both Starmer and Macron had visited Trump to try and set the terms for European peacekeepers backed by a US defence guarantee. The reality is that Trump doesn’t want to provide one if it compromises his aim of normalising relations with Russia.
This has left the EU, rather like the Democrats, appearing to defend the indefensible. Trump says he wants peace, the EU appears to be saying they don’t, or at least only on terms that they know Russia will not accept (foreign troops in Ukraine).
Ironically, pursuing normalisation with Russia used to be the European plan, now it is Trump’s, as he recognises that the previous neo-con policy had worked against America’s broader interest by driving Russia closer to China and impoverishing and de-industrialising Europe.
Tariff wars with China has cut off the US from rare earths. A rapprochement with Russia could fix this
Thus a normalisation of relations with Russia would help Europe in general, and Germany in particular, restore some of the status quo ante, with a return to cheaper energy and raw materials but it would also allow the US access to vital rare earths - Russia has far more than Ukraine - that the tariffs on China has led to the US losing access to.
The (possible) Plan
It’s wide ranging, but seems to go something like this. (maybe)
Reset Foreign policy apparatus by moving CIA funding from hidden US AID and NGO model back to State Department. Tulsi Gabbard and Cash Patel to clean house.
DOGE to increase accountability and shift incentives around bloated expenditure and waste. Defund political enemies and the culture warriors, deliver popular support.
Treat the US economy like an overleveraged, inefficient corporate. Cut failing divisions (Ukraine), pay down and restructure debt (DOGE and Mar a Lago), cut head office costs (DOGE), get a greater share of existing customer wallet (security arrangement with allies).
Sweat assets - possibly revalue Gold holdings and use the resultant $750bn to launch a Sovereign Wealth fund that would invest in long term infrastructure - likely as a co GP with the major Private Equity firms. Potentially hypothecate all overseas revenue service income from tariffs here too. Avoid the pork barrel.
Increase production - drill baby, drill - and sell to foreigners, cutting trade deficit. Push down domestic energy costs, scrap Green energy inefficiencies.
Use tariffs to re-shore production, copying the European model of attracting FDI and closing the NAFTA loophole that allowed China (and others) to produce in Mexico and Canada
Secure supply chain and inputs - Greenland, the Arctic and now possibly Russia for rare earths and metals as risk of getting cut off by China.
Agree Peace accord with Russia (get Nobel Peace Prize), bring Ukraine in once they have held new Presidential Elections (Zelensky’s Presidency expired last May) that can be supervised by the Europeans. Separate referenda in all oblasts as to whether they want to be Semi Autonomous Regions (SARs) of Russia.
Resurrect old plans to exploit huge unconventional gas reserves in Donbas and Crimea region, installing Shell, Chevron etc with US to take half the revenues with the rest to go to Ukraine for reconstruction. Set DOGE after the missing monies and maybe get Russia to give up its trans-Ukraine pipelines to Eastern Europe in return for getting its frozen assets back.
Ahead of the mid terms, Trump stands back and lets JD Vance continue with the MAGA-Vision.