Now that the Republican party has gone full Heisenberg¹, the election that will produce the next US president comes into somewhat clearer focus. And while much remains unknown and undone, the odds are that the two main candidates – Hillary Clinton and Donald Trump – are presumed to be determined. Therefore, and despite the musings of the Oracle of Omaha² on the importance of who is the next head of the world’s sole superpower, let’s take a moment to look at one of the candidates, Donald Trump, and specifically an essential element of his modus operandi.

A key aspect of Mr. Trump’s style can be summed in one word: unpredictable. His quest for the presidency has been unpredictable to many but it is self-described style that I want to focus on.

Mr. Trump has said on numerous occasions and clearly believes that being unpredictable is a source of strength. In his world view it gives him – and other strong men he admires – leverage over another. Throughout his business career being unpredictable has, no doubt, served him well and is a necessity when negotiating a deal. Therefore, he apparently believes that, since this works well for him when negotiating a deal, it’s a good thing to do when it comes to his new vocation: politics and the economy. Unfortunately, what Mr. Trump fails to realize is that businesses and especially financial markets are not particularly fond of unpredictable situations – let alone US commanders-in-chief.

Businesses have to plan ahead. It is tough enough in the highly competitive globalized world of business to turn a profit and grow the business. Furthermore, senior corporate managements are beholden to shareholders and stakeholders that depend on them to achieve their assigned goals – which in the case of institutional and activist investors is to achieve a rate of return and growth rate no less than and preferably in excess of their cost of capital. Functioning in a less clear, less predictable world makes their job that much more difficult.

As for the financial markets, it is a well-known fact that the financial markets dislike (abhor might be a better word) uncertainty. And being unpredictable equates to a more uncertain environment. In investment calculating terms, the cost of capital goes up the more uncertain a situation turns out to be. And an increase in the cost of the capital equates to an overall lower valuation for financial assets.

As you can see, on two levels – business and financial markets – Mr. Trump’s adherence to being unpredictable makes for a more uncertain climate. And that uncertain climate has direct economic effects, as in a higher cost of doing business and lower asset values. Think about that. Higher cost of business, lower asset values. Where does most of the wealth created come from? From a paycheck or from stock ownership and options awards is where. Therefore, does it not seem logical that the powerful and wealthy will simply go along with this indefinitely? Not likely.

Lastly, when we add to this the economic consequences of blowing up the established operating order of the global economic and financial markets’ systems³, the dream state that investment strategists and portfolio managers operate in comes into question.

Investment Strategy Implications

The fact that the Republican party has gone full Heisenberg begets the question: Will the American voter also go full Heisenberg? If so, all bets are off as to the consequences for investors and society overall.

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¹ The self-destructive meth cook in the award winning TV series “Breaking Bad”.

² According to Warren Buffett, "That won't be the main problem" for Berkshire Hathaway, Buffett said at the company's annual shareholders meeting, adding the company will "do fine" whether Democratic front-runner Hillary Clinton or Republican candidate Donald Trump win the November elections.

³ Not to mention the geopolitical system in place since the end of World War II, e.g. NATO and various security umbrellas the USA has afforded.