Trump is killing the dollar

For a manager of foreign exchange reserves it used to be a no-brainer. You hold your money in the United States, simply because they possess a winning combination: a large, dynamic and integrated economy as well as robust public institutions, including a reliable central bank and an effective legal framework.

These institutions guarantee that you will not have to deal with an unreliable government, which for example, suddenly comes up with the idea of boosting inflation to burn off debts. Your money is safe and broad, deep markets ensure that you can easily repatriate big sums if you want to. A country like China lacks institutions that are independent of politics. Therefore the renminbi will never be able to match the status of the dollar, so I always thought.

Donald Trump

But with president Donald Trump things have started to tilt. With his super-expansionary fiscal policies in times of economic boom, chances are that he will allow the economy to boil over. He not only risks a large wave of inflation, but also, according to the US Congressional Budget Office, that budget deficit results in a national debt of no less than 180% of GDP by 2035. Tellingly, Moody’s already warned that the USA’s ‘triple A’ status is in danger.

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Do our politicians have an eye for good management?

If you expect raw material prices to go up and you want to take advantage of that, you have to put your money to work in the futures market, commodity specialist Evy Hambro from BlackRock once told me. You don’t want to buy shares from miners or trading houses, because they are led by managers, people who can ruin a good return with stupid decisions. At the time, I thought that was a good argument. On the other hand I felt that if you invest your money in raw material companies with good managers, the benefit would be doubled.

Dure aandelenGood management is crucial. I concluded this last week during an interview with Paul Donovan, chief economist at UBS Wealth Management. He explained to me why he has a much larger position in equities than his colleagues in the market. If the global economy grows by more than 3.5% in real terms, he said, this comes down to 6.5% in nominal terms and to more than 10% in corporate profits. And that is a percentage where you, as an investor, have to be ‘overweight stocks’.

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