Scientists remain unsure as to whether or not there are benefits to unrealistic optimism. In forming realistic theses, antitheses can help; and the oxymoron – ὀξύς (oksús) = keen and μωρός (mōros) = dull – is itself one. Malign, benign. Military intelligence. Rabbit-proof fence. Pianoforte. Hot ice. Colourless green ideas sleep furiously. Belle laide. Donald Trump.
By stimulating growth and bringing ’em back from abroad, DJT promises to create 25 million new jobs in Liberty’s Land. Last Friday, he took credit for the better-than-expected rise (of 227,000) in January’s payroll. So he only has to create 24,773,000 more. The last time that US GDP grew by more than 4% pa, incidentally, was from 1997-2000. Then the number of Americans aged 16-64 went up by 2.5 million a year. This year there will only be 800,000. Hmm.
Anyway, at the same time as he promises “something phenomenal on tax in the next two to three weeks”, Trump continues to espouse protectionism. Consequences would emulate those of president Adams’ Tariff of Abominations in 1828 – though Trump’s mooted 35% looks modest against Adams’ 62% on 92% of all imported goods. Or, in antithesis, will the rest of the world just crack on? Thailand and Malaysia are to start talks on building a 1,500km high-speed railway between their capitals. That could be the start of a network running all the way from Singapore to the southern Chinese city of Kunming and on through Malaysia, Thailand, Myanmar, Cambodia, Vietnam and Laos. Such a thing would fit in with Xi Jinping’s “Belt and Road” initiative (aka the “New Silk Route”.)
That will include a direct rail freight service to London. It will pass through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France before arriving at Barking Rail Freight Terminal in east London, directly connected to the High Speed 1 line to the European mainland. The train will take about two weeks to cover the 12,000 miles. It will be cheaper than air and faster than sea.
The world, in short, may set the US aside to a considerable and new extent as the pax Americana goes the way of the pax Romana, Mongolica or Britannica. As paces do, they pass. Or Trump’s promises may be in time as forgotten as the threats of nuclear war which gave rise to the joke of 1980: “What’s flat and glows in the dark? Tehran, five minutes after Ronald Reagan gains office.”
Much could go wrong, of course – and some things, no doubt, will. WWI was not, despite prognostications, predicated in 1905-1906 (Germany’s intervention in Morocco), or 1908-1909 (Austria-Hungary’s annexation of Bosnia Herzegovina), or 1911 (Germany’s second intervention in Morocco) or 1912-1913 (the First Balkan War). Negotiating Article 50 alone involves 200,000 pages of secondary legislation. China’s holdings of US Treasuries have already dropped over the past year by $215 billion (to $1,049 billion.) Italian banks hold almost €360 billion of non-performing loans – about €6,000 per Italian. And so on.
But on balance and in antithesis, we feel hopeful. Says Jacob de Tusch-Lec (Global Income): “The argument of the pessimists has moved on. Now they insist that this is ‘as good as it gets’. Clearly, there will be a slowdown at some point, but there is great reluctance in some quarters to acknowledge the health of the global economy. With economic data all pointing in a positive direction, large areas of the stockmarket are becoming ‘investible’ once again: buying financials, mining companies or even banks is no longer unthinkable. The magnitude of the gains in these areas is not just a consequence of their recovering earnings. It also reflects their rediscovered investibility. That creates positive momentum, enhancing their credentials and so creating a self-reinforcing trend. And as these cheap areas are rehabilitated, they are draining capital away from areas – safe havens and bond proxies – where valuations had risen to stratospheric levels in response to unsustainably low yields on government bonds.” And so, across our funds, we seek:
The virtues of value …
For Global Emerging Markets, Peter Saacke and Raheel Altaf point to a p/e of 9 vs over 12 for the market; and a dividend yield which, at 3.7%, is 32% higher than the market’s. The bears usually point to the effect on emerging markets of a strong dollar. Peter and Raheel observe that because 66% of the countries in the index run a current account surplus, for them the dollar is not an issue. The fund is very happy to hold the likes of Russia’s Lukoil (on a p/e of 5), Geely (Chinese cars) and Creditcorp (a Peruvian bank.)
Cormac Weldon (US Select) is understandably less sure of value at these levels. But he still sees alluring, further potential in the likes of Lam Research (semiconductors) and Take-Two (video games.) For UK Select, Ed Legget applauds housebuilder Crest Nicholson, which has just announced a 40% increase in its dividend for the full year. Ed sees great value in both Crest Nicholson – trading on a forecast dividend yield of over 6.5% – and in the broader sector.
The Profit Hunter
The eponymous hunter, always seeking the Profit.