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What will the Post Trump World in Investing Look Like?


I'm writing this on Friday November 6th and it seems as though Joe Biden is on the verge of winning the Presidency.  As such it looks like we will be heading into a Post Trump world and there are a ton of opinions on what that could mean for investors.  

How Has the Trump Administration Effected the Markets?

We've been talking a lot lately about how politicians don't actually have a big impact over the long term on investment returns.  While that is true, they can have a big effect on the experience of investors in the short term.  At no point has that been more true then under the Trump Administration where markets have often moved based on the late night tweets of a president who has often been quite erratic and inconsistent. How will the economy change in a post Trump world?  

Well for one thing we should be able to expect a less volatile trade policy from the United States.  The Trump administration picked trade battles with friends and foes alike.  He forced a re-negotiation of NAFTA which introduced a lot of fear and uncertainty into markets but in the end changed very little (other than the name).  His administration slapped tariffs on aluminum and steel under the thinly veiled excuse that it was for national security reasons.  He also slapped tariffs on things like Scottish Whisky and French Wine trying to inflict maximum leverage on international trade partners so that they would concede more favourable terms to the US.

Is There Going to be a Possible Resurgence in Globalization?

This kind of international trade negotiation is a very zero sum and often unproductive game.  It certainly doesn't leave the parties in a very cooperative mood, and I doubt many foreign leaders will be sad to see the end of the Trump Presidency.  Of course that doesn't really matter to many Trump supporters who deeply dislike globalization and want to see a reversal of it.  Does a Biden presidency mean a resurgence in globalization?  Unlikely.

Biden has been moderately in favour of free trade and globalization in the past, but 2020 is a different world and I don't think it will be high on his list of priorities to cater to multi national corporations and the wealthiest Americans who benefit the most from globalization.

While it's certainly true that many Americans not in the 1% also benefit from globalization, those benefits are harder to see and harder to understand, and because of that they don't make great political moves. I think the Biden presidency will be stuck in a similar pattern of deglobalization just based on the inertia of the current political climate.  Still I don't think trade wars will get worse under a Biden presidency, and that is at least something.

Pledge to Partially Reverse Tax Cuts

One of the main accomplishments of the Trump presidency was to substantially lower corporate taxes on American business.  While debatable from a fiscal standpoint, there is no doubt that this supercharged the American economy over the past 2 years and led to very low unemployment pre-Covid. Biden has pledged to partially reverse those tax cuts, which would definitely be bad for stock prices.  It's currently unlikely that he will be able to follow through on that promise though as Democrats currently do not hold control of the Senate, which would need to approve any tax changes.  

There is two runoff elections for Senate seats in Georgia which are due to be decided in January.  If the Democrats were to win both then they would have the slimmest majority control possible in the Senate.  However, winning both seats is probably an unlikely proposition and even if they did, the majority probably wouldn't be strong enough to force through large tax changes against unified Republican resistance.  Still we will have to see on that one.

Energy Industry in North America

One of the things that the Trump Administration did was eliminate a lot of regulations on American business, not the least of which was environmental protections in many areas including the energy industry.  Under Trump, America briefly became the largest oil producer in the world and a large reason for that was the reductions in environmental protections.  

This is clearly some that Biden's administration wants to address.  The North American energy industry is already facing problems because of a lack of demand caused by COVID.  Going forward it is likely going to be much harder to get things like pipelines approved in the US.  Biden has also promised to ban fracking on federal land which would obviously hurt production.  

This could actually prove to be a positive thing for Canadian producers however.  Less US production means less overall global supply.  Energy demand is going to be pretty consistent in a non-pandemic year, though it is expected to gradually trend down as more renewables are used.  A Biden presidency like means the movement to renewables accelerates in the US, though probably not dramatically so.

Take Advantage of Factors and Invest

If this is how we think things will go under a Biden presidency, then how do we invest to take advantage of these factors? Well unsurprisingly for our clients, our portfolios won't change much after the election from what we owned before the election.  I think a number of our businesses that we own are well positioned to take advantage of these trends, but I also think they are well positioned even if none of these predictions turns out to be true.

Warren Buffett has said that in order to invest in a business you should feel comfortable owning it even if you went into a coma for ten years and couldn't sell it.  I can say that with all of the businesses we own, I would sleep very well even if I was prevented from selling them for 10 years.  In fact, for some of them, I'd like to own them for a lot longer than 10 years.

Once you remove yourself from investing on a short term political cycle, you actually get a huge time advantage over other investors.  That's something we've taken advantage of this year and will undoubtedly get more opportunities to do so in the future.

- Craig White, BA, LL.B., CIM

Craig White is an Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Craig White an Investment Advisor for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.

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