In his famous soliloquy, Hamlet ponders whether the Great Unknown is better than the familiar misery of life on earth. Eventually, with the help of a poisoned sword, he finds out.
Tomorrow we will find ourselves in a very similar position.
Donald Trump’s inauguration is a big day. We’re getting rid of a failed president, but we have big questions about the man replacing him. Mr. Trump’s track record is a blank slate and his policy statements are often contradictory and inconsistent. Though highly intelligent, he’s not a deep thinker; he’s instinctual, spontaneous. These may be good qualities for a businessman, but statecraft requires vision, patience and discipline. We have yet to see our President-elect exhibit these qualities.
Trump is pro-business and pro-tax cuts but he’s also pro-chaos, and markets don’t like chaos. Many of Mr. Trump’s policy statements, regardless of their merit, are destabilizing and would be better handled privately or diplomatically, not in the media.
For instance, in a recent pair of confounding interviews with London’s Sunday Times and Germany’s Bild, Trump called NATO obsolete, predicted that “more countries” would leave the EU (he is correct but this is not something an American president should say to the press), and threatened to impose a 35% import tax on BMW’s Mexico-made cars. Perhaps most alarmingly, in an interview with The Wall Street Journal, Mr. Trump departed from a long tradition of presidents refraining from commenting on the dollar – and if they do from talking it down – by saying the dollar is “too strong.” This resulted in the dollar falling 1.3%, which means it has given up half its post-election gains. Talking down the dollar is not what markets were expecting of the man who wants to make America great again.
Markets crave stability and they’re not getting it from the President-elect. So far he’s been somewhat constrained, but became more aggressive in his comments as inauguration day came closer. When he’s president there will be little to constrain him.
The bottom line is that Trump constitutes a monumental policy shift, not just away from Obama but from all previous presidents. On foreign policy he is saying some very disruptive things as he breaks not only from Obama’s disastrous policies but also from George W. Bush’s failed policies of nation building in the Middle East. He is challenging the status quo on trade which may prove to be enormously damaging to markets. And he may cut taxes as much as Reagan but would be doing so with the United States in a much weaker economic position than in the 1980s and little way to pay for it, resulting in much larger deficits that would freak out the bond market.
There is honestly no way to predict what this man is going to do, but I can tell you one thing for certain.