The following opinion piece is reproduced by permission from Joseph Palmer & Sons (VIC). For more information, please visit their website www.jpalmer.com.au
Malcolm Palmer made the following observations regarding the outcome of the US Presidential election recently.
“The return to power of the Republican Party (GOP) in the United States came as a bit of a surprise in one sense, due to Donald Trump’s non-conformist views and sensationalist utterings. Yet on the other hand two successive Democrat parliamentary terms had not really achieved the outcomes that the American people had desired, so a change was well due. The populist election of the GOP was a vote by the people for change, seemingly irrespective of how unorthodox their candidate was.
So rather dramatic change in America (and by extension the world) is afoot, and there will be many implications, both positive and negative. It’s too soon to draw too many conclusions, but some observations are worth making now.
It should be remembered that a shift to the right in America after eight years of left-of-centre administration should generally be considered as good for business and commerce, both in the United States and elsewhere, so it’s a little odd that markets fretted. Of course, the mass trading algorithms, driven by news-feed data and short termism can carry some of this blame. Lifting the heavy hand of regulation and a smaller public sector footprint are inevitable outcomes of a Trump presidency, and may help investor confidence in sectors such as healthcare, financials and infrastructure.
One near term issue to contend with is December’s Federal Reserve FOMC meeting, at which is an interest rate raise is a real possibility. A bit of volatility in the next few weeks might stay the FOMC’s hand, though they’d be just be kicking the can as the US economy needs eventually to be weaned off the Central Bank stimulatory programs.
The election of Donald Trump and indeed Brexit and political swings elsewhere are rightly referred to as populism. There are lots of reasons for the populist trend but the prime ones are the stagnation of economic growth and consumer prices, insipid job creation and weak job security, and the widespread disinflation that is a feature of the post GFC world. Many Americans and Europeans suffered tremendously during the financial crisis years, and have not yet enjoyed a semblance of recovery – at least here in Australia we get some interest on our deposits and our real estate prices have risen. These woes are partly caused by the combination of globalisation and technological automation, both of which are heavily disinflationary. The populism movement believes that a vote for the more extreme will help alleviate these woes, by pushing back against globalisation, often in a xenophobic manner.
The United States has a very robust political system and constitution, backed by a strong separations of power doctrine, effectively checks and balances between the Legislative, Judicial and Executive arms of government – the effect of which is that some of the more outlandish demagoguery espoused by Donald Trump during the campaign is unlikely to proceed.
Populism won’t be disappearing any time soon, so we need to stay prepared for its implications. The next manifestation of populism is imminent, being the referendum in Italy on 4th December, at which the extraordinary Five Star Movement, a cyber political movement run by the comedic Beppe Grillo, is seeking to disrupt proposed constitutional reform. A populist movement for Italy to exit the Euro Zone, or ‘Ixit’, is a possible outcome. 2017 elections in France and Germany will also feature strong anti-establishment trends.
Donald Trump’s victory in itself won’t have immediate major implications for the economics of Australia, though the possible alteration or renegotiation of trade arrangements might be problematic. Our GDP is unlikely to be materially affected, remembering that the vast majority of our trade is with Asia, and our domestically focused industries like construction and retailing are not particularly US sensitive. However, we are somewhat hostage to world events, so sharp shifts in foreign exchange, stock and interest rate markets will be felt here. The US election rhetoric immediately reminded me of the 2012 commissioned Asian Century White Paper, which portrayed a more prosperous Asia-centric future for Australia. Perhaps Trump’s stated trend towards more US protectionism, and their possible trade constraints with China could ultimately prove beneficial for Australia.
Unexpected shifts in politics when combined with non-conformist policies inevitably cause some short-term market volatility, but the world hasn’t ended and markets will soon settle down and resume their more fundamental based course.”
For more information, please visit www.jpalmer.com.au