The emperor

2018 sucked. Well, not for me because I sold a general store and bought a bank, had another year with Bandit (he’s 13 now) and spent more time by the sea (with my squeeze). But like most people my portfolio lost some air.

That’s okay. This isn’t my first rodeo so I know dips happen. They’re temporary, not permanent. Doing nothing is always the best strategy. There are times to feel good about investments and times to ignore them. Fretting is pointless, if you have a properly weighted account. Things will work out.

Having said all of that, 2019 poses an interesting dichotomy.

The good news is obvious. More people are working now in Canada and the US (especially) than in decades. The economy is growing, yet inflation’s tepid. Corporate profits have been outstanding, which is why companies have been hiring. Housing has corrected but not crashed. No big wars going on to threaten the world. Adele still isn’t touring. And after almost a decade of recovering from the credit crisis, the world is growing again. The time to worry, seriously, was 2009. Not 2019.

But there’s also bad news. In one word, it’s Trump.

The American president has become the biggest destabilizing force on the planet. Hard to believe one guy could do that, but he did. After helping push markets to historic highs with his corporate tax cuts, deregulation, pro-business, inflationary, expansionist, protectionist, America-first agenda, he’s now single-handedly torn them down. Trump has turned the US government into a one-man band. As the shutdown currently shows, when he doesn’t get his way (like funding a silly wall), he’s willing to throw 400,000 people out of work. Being a billionaire must shield you from knowing what that means over Christmas.

Trump fired his secretary of state, Rex Tillerson, because that pillar of the corporate world disagreed with him. Now he says in a tweet the former Exxon CEO is ‘dumb as a rock’. He fired his attorney-general, Jeff Sessions, because he disagreed with him by taking an ethical stand. He fired his White House chief of staff, General Kelly, because he disagreed with him. He fired his secretary of defence, General Mattis (technically he retired), because he disagreed with him over Syria and working with America’s allies. Trump has insulted Britain, France and China. He has cozied to dictators in North Korea, Turkey and Russia. He forgave MBS for slaughtering a US journalist. And he has started a global trade war.

In short, the US president has taken over the legal, military and diplomatic affairs of the strongest nation on earth, installing lackeys to follow his orders. With each of those moves, investors, markets, American allies and most reasonable people have become alarmed. This is a pattern of destructive, quixotic behaviour that goes beyond being an iconoclastic populist. This is emperor stuff. It’s scary.

Now the worst may be to come. Trump’s considering taking over monetary policy. The implications are epic.

Since the Fed raised interest rates for the 10th time last week, the president has been seething. Despite the fact he appointed Jerome Powell to be the Fed boss less than two years ago, Trump is reportedly talking to aides about dumping him. Never before has a president done this. The result would be a grand mess. Such a move would destabilize markets by scuttling investors’ confidence in an independent, non-political central bank setting policy that guides the global system. A Fed chairman has always been above the fray, beyond partisanship and focused on the long-term, multi-decade health of the economy. Not the next election.

Will Trump be the first American leader to attempt such a thing? Myopically, he thinks the Fed hikes have caused stocks to plop, and changing monetary policy will make it all better. But the move would be seismic, destined to breed turmoil and lead to a constitutional crisis as the House and Senate refuse to ratify it.

Let’s hope this doesn’t happen. Higher rates and vigilant central banks are needed to deflate asset bubbles, remove the stimulus that has made houses unaffordable and pave the way for sustainable growth. That’s why the Fed, like the Bank of Canada, has always been independent from politics. But in Trumpworld, everything becomes an extension of him.

Next year brings a divided Congress to the US and more conflict. That’s certain. Mueller could emerge with evidence of personal crimes and misdemeanors. The Dems could start an impeachment process. And the president, true to his nature, will fight in a compelling way that divides the country further. There is no good outcome to this, whether he punts the Fed boss or not. Just talking about such a thing is shocking enough.

As the second year of his presidency ends, however, one thing is clear and, for markets, ultimately reassuring. He’s now toast.