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So, Donald Trump won the presidency and the Earth continued to rotate.
The sun rose at its appointed time.
The markets rallied for days.
Given all the build up to election night, I wouldn’t have been surprised had you thought none of this would happen if underdog Trump prevailed over Hillary Clinton.
But this is a very teachable moment for investors.
It shows that these events, although seemingly endless, do not make much difference in the grander scale of things.
Yes, the U.S. political establishment is on notice and somewhat uncomfortable as Trump names his cabinet and advisers. Many professional politicians will now be stuck in the wilderness, having not embraced Trump in the primaries or the general election.
Establishment Washington — and New York — will change
Having spent most of my life inside the Beltway — more as an observer than a participant — I can tell you that most Congressmen and Congresswomen are not the sharpest knives in the drawer. They act by animal instinct — fear and hunger.
They do not thoughtfully consider the existential options and then make measured, reasonable decisions. They’re always reactive. Part of that is because they’re only elected to two-year terms and they have to make the most hay out every opportunity.
And when you’re coming into the final months of a brutal campaign with a controversial guy heading up your party, you start to get into your survival mode, fight or flight.
But that lack of faith will now cost these Congressional members prized committees and sub-committees.
And Trump’s relationship with Speaker Paul Ryan will be a study in how the separation of powers plays out.
The markets see beyond the election
Mark Twain once observed that the Capitol was built on a hill and the White House in a swamp, and asked, who do you think holds the power in Washington?
I think the markets were the best practical indication of what a Trump presidency means.
It looked at his agenda, which in political terms from the perspective of the incumbent Democrats was the leveling of all democratic principles and good judgement, and said, “We can work with this.”
Truth be told, some of the rally was a relief rally that the election was over, regardless of who won. But you can already see the market factoring in who is set to win and lose during President Trump’s rule.
David 1, Goliath 0
But my favorite lesson in all this is, the little guy still has a chance. David beat Goliath here. Trump had the entire Washington political Establishment against him — the Bushes even voted for Hillary and it was Billy Bush who dropped that audio tape on the bus, just days before the election. He was literally fighting everyone.
The politicians. The media. The lobbyists.
Trump saw what all of these myopic groups missed. That the country was much bigger than D.C., New York, LA, San Francisco and Seattle.
This is the theme that will resonate and we will now have to see what Trump and his Republican colleagues will do with all this.
But as far as the markets go, it shows that we, too, can beat the institutional investor, hedge fund, bankster crowds. There is still room to beat the odds.
Granted Trump is a billionaire and most of us are not. That certainly helps. But he spent less than half of what Clinton spent and had a staff that was a tenth of the size.
And since he took no corporate donations, it means he’s not beholden to any particular company or industry. Congress has already passed a measure that freezes all new government regulation until Trump takes office.
Some of Trump’s vision will be much harder to carry out than it is to say.
Finding advantage in the markets
And some things will happen regardless of his presidency. For example, the Fed will likely raise rates in December and that means investors sitting on large amounts of Treasuries — insurance companies, banks, investment houses — will make some serious money on the hike.
Trump will also likely lower business taxes and build in some kind of amnesty for all the profits that have been offshored by many corporations.
In the short term, gold and silver will not be doing much but falling. However, this is a buying opportunity, not a selling opportunity.
There’s a good chance that if the global economy doesn’t pick up, this rate rise could usher in a new recession that would see precious metals demand surge once again.
Despite India’s attempt to crush cash by making higher denomination bills obsolete, which is damping the people’s ability and desire to buy gold, the Chinese yuan has hit eight-year lows, which will likely see Chinese demand for gold grow even if India’s wavers.
Energy will also be a big winner as Trump navigates a way to boost U.S. production and limit overseas imports. Saudi Arabia already has warned the new administration that is should not mess with oil imports. We’ll see how that plays out.
The only loser in the energy patch will be coal. And that’s simply because too many domestic companies, utilities and industries have switched over to abundant U.S. natural gas. There’s no putting that toothpaste back in the tube.
December will be as interesting for the markets as November was for the politics. But don’t allow these short-term blips to make much of a difference to your long-term investing plans.
— GS Early