June Update, 2019: Hydra or Godzilla?

Every civilization had its own mythology, with mythical creatures that often sowed chaos. One of the more famous ones is the Hydra from Greek and Roman mythology. The Hydra had multiple heads (brains or ideas) and if you chopped off a head, two more would grow in its place. The Hydra was a tough beast, but Hercules eventually prevailed using many swords quickly (an election in most of today’s world). Now I’m not calling Donald Trump a beast, but he does have some common personality traits to the Hydra. Or is it Godzilla? I think perhaps Donald Trump is more like Godzilla than the Hydra.

Donald Trump is keeping everyone fixated on what he will say next. In his previous gig, he was a house cat compared to the rampaging bull of today. He has a serious case of “overachiever syndrome” when it comes to disrupting the universe. There are cases where his views have merit and there are others where the consensus opinion is that he is of a different species. But in the end, what we care about is your long-term well being. Does Donald Trump really matter? Do we need a Hercules? Will it recede into the ocean never to be heard of again?

The fact is that in America, where we invest the bulk of your money, things are pretty good. Unemployment is at 3.8%. Businesses are trying to hire more people than are available—Americans are looking for work. It has been decades since this number of Americans have been earning money. When people have money, they spend it; some save a bit too, but most spend it all. Americans are in the best financial shape in fifteen years and because all this income is being earned, businesses are making money selling stuff to all these ‘happy citizens.’ It’s a virtuous cycle. People may not like what Trump says, but it’s not affecting the way they feel financially, and they continue to spend. Happy people usually make for employed leaders. Godzilla was King of the Monsters because in the end, he always did the right thing even though he crushed a few things in the process.

Donald Trump is driving the Chinese nuts. We care because all business relies on global supply chains. We stick to our belief that both countries want a deal and it will happen before it gets out of control, which should be by years end. We stick to our further previous position that there will be a lot of “noise” (think Godzilla’s screech) getting to the “deal”. The concern of some is that businesses need to make investment decisions and if they lack clarity, businesses slow their investments. This is bad. Donald doesn’t want this. He wants to be signed on for season two.

Already, some companies are moving production out of China. Even the Chinese are! What China loses, someone else gains. There is a pause while this happens, and it costs money. It’s not a major concern to most long-term thinkers. Godzilla makes a mess but eventually it gets fixed and sometimes it’s even better for everyone in the end because it requires investment and jobs to fix a mess.

Recently, Trump threatened Mexico with tariffs while at the same time campaigning to get his trade deal with Mexico ratified by his own government. The U.S. imports three times as much from Mexico as it does from China. If Trump had not quickly rewritten this script, markets would have fallen much more. This movie is not getting made; Donald’s script was DOA. Mr. Trump is a rich guy and he wants the markets up!

Most think the second half of this year should show a reacceleration of global growth. Asian economies are being invigorated by new business opportunities coming from the U.S./China “issue”. Their populations are growing, and more people are rising out of poverty. Donald Trump can say whatever he pleases but everyone else in the world must go about his or her daily chores and that’s exactly what is happening. The global economy is like watching a colony of ants at work. If something obstructs their path, they just climb over it.

“Government” is shorthand for spending, interference, commerce and influence. Every government in the world is spending aggressively right now, interfering in things, messing with business plans and garnering—or destroying—influence. It’s a headwind to business, increases costs and creates uncertainty, but the spending part is the thing to keep an eye on. All that “government” money is going somewhere, and business usually sees its fair share, as do we “common” spenders. That’s good for business because government is big business.

Whether it is gods, fictional characters or politicians on the world stage, it doesn’t matter in the end. Like ants, we all do our thing, and collectively that has been progress. We believe the current investment landscape fairly balances the risk and reward for long term investing in well-run businesses. That’s a boring and safe call and it’s a fact, not fiction.

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