“…any business that leaves our country for another country fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its products back into the U.S. without retribution or consequences, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies wanting to sell their product, cars, A.C. units, etc., back across the border.”

President-elect Donald J. Trump, December 4, 2016

To many who voted for him, the above image¹ is exactly what they want to see America project to the world. One problem is that the above words that accompany this thinking is in direct contravention to the principles of productive trade: trade that has lifted hundreds of millions of people from the rolls of poverty and, in the process, enabled vast new markets to open up for companies to do business with; trade that has provided inexpensive goods and services to be provided for all, including those in developed countries like the US. Are there important issues that must be dealt with as a consequence of our globalized, technology enhance world? Absolutely, fair trade being at the top of the list. But it is undeniable that trade – fair trade – has benefited more than it has hurt. Tariffs – implied and otherwise – are in direct contravention to business practices and principles that guide ALL businesses toward a more effective and productive future.

But let’s not stop there.

After slapping China in the diplomatic face with his indiscreet phone call from the president of Taiwan, Mr. Trump tweeted the following:

“Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the US doesn’t tax them) or to build a massive military complex in the middle of the South China Sea?” I don’t think so!”

President-elect Donald J. Trump, December 4, 2016

And, as was the case throughout his campaign, Mr. Trump has correctly identified important issues. But this is nothing new. Everybody knows this. The huge differences are the words spoken and written, the sentiments they illustrate and the policies that will come from the source. Barking out strongman statements is not policy. Executing actions beyond one-off “deals” like the Carrier giveaway must be a central part of policies employed. And for that to happen knowledgeable individuals in key positions within an American administration are vital, especially when a loose cannon occupies the oval office, which brings us to the b-list cast of characters Mr. Trump is assembling and the very likely consequences therefrom.

Every US administration – bar none – screws up. Count on it. In a complex world with many interdependent components and consequential interactions, what happens in one place impacts other parts of this complicated machine called the world economy and societies. Up to now, every US administration has pulled from the best of the best their respective parties had to offer to build its working mechanism. Therefore, consider this: As Mr. Trump continues to build his b-list of appointments, just how badly will they screw up when (not if) the next crisis comes along? If the best of the best can screw up royally, then how will the b-list perform? In other words, just because I have a pilot’s license doesn’t mean I can fly a jumbo jet. (Or, if you prefer, just because he owns a home doesn’t mean he could run HUD.)

Investment Strategy Implications

In the downstream DCF world of most investment professionals, none of what I have noted above matters. As long as the DCF inputs allow for justifications to be attributed to investment decision-making actions, all is well. To everyone else: buckle up! turbulence ahead.

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¹ The image is from the cover of The Economist referring to the strong “our currency, your problem” US dollar.