For financial advisors like the experts at Southridge Capital, the rise of Trumpism and the broader dynamic of populism signals a shift in investment strategy. Every day brings news of additional tariffs and changes in the trade relationships between international entities. Inasmuch, Southridge Capital joins a growing cadre of advisors determined to keep their clients fully aware of the “big picture” as they tweak investment decisions. Now, more than ever, investors must stay attune to the geopolitical landscape as they hone their portfolios. Investments that were “smart money” just a few weeks ago, may be bad moves today.
The Rise of Trumpism
At Southridge Capital, there is a growing awareness that the investment market may be deeply affected by the protective measures enacted by the Trump administration. A move toward tariffs, domestic investments in manufacturing, and a recasting of long-held trade partnerships means jittery markets in the short-term. As Trump’s team recalibrates the American economic position within the larger international community, the political currents of international entities shift as well. “As national politics change, expect international politics to change as well. The driver here is the inability of the current international trading system to deliver the benefits that citizens expect.”
The economic posture adopted by the Trump administration also accounts for the administration’s populist move toward the loosening of long-held military alliances. Indeed, as the U.S. willingness and ability to provide a “security umbrella” to all its allies’ declines, there is a growing sense that allied nations are investing in their own rearmament. How will this impact investment decisions at home? For some advisors, Trumpism brings its own fool heartedness.
“Do not be surprised at the logical conclusion of this trend: the re-armament of our formerly dependent allies, most notably the Germans and the Japanese. We fought a World War to the death to defeat them, with Americans fighting and dying on foreign soil, is it really in our long-term interest to encourage their re-armament? In time, the chances of a global arms race are higher than most think.”
Indeed, an inadvertently invigorated arms race may deeply impact the private investor’s portfolio decisions.
Firms like Southridge Capital understand that the “currency game” is part of the economic tango that international entities use to strengthen their position against the US Dollar. Because US currency remains the world’s reserve currency, there is constant international pressure to overvalue the dollar and increase the cost of US goods, giving other nations substantial trade advantages. Barry Eichengreen explores this trend in his book Exorbitant Privilege.
“The international influence of US dollar valuation is pronounced and systematic. The world’s constant demand for reserves means a chronic and systemic over-valuation of the US dollar relative to all our trading partners. Therefore, as long as the dollar is the world’s reserve currency, it is likely to remain overvalued causing a persistent trade deficit. A sustainable solution will elude us until we fix this core problem.”
Of course, the fixes to the “core problem” remained varied and elusive. Short of handing over the “global reserve” title to another currency, the US dollar will always be impacted by the movements of other international players.
Lessons from the Past
For investor and advisor Lewis Johnson, studying the past provides insight into future financial trends. Reflecting on the gleanings he gained from a thoughtful review of the currents associated with the Great Recession, Lewis asserts that the investment horizon is better understood when we revisit the past.
“In 2006, I had the good fortune to work with a handful of truly brilliant thinkers who helped me understand how the housing boom would turn to bust and cause a global financial crisis. I was convinced that we were facing the biggest financial crisis since the Great Depression. But how to prepare for something that hadn’t yet happened? My first thought was to study history.”
In a subsequent study of the economic malaise that impacted Greece in 2010, Johnson homed in on a substantial economic trend. When an economic “player” is deeply impacted by currency devaluation, recession, and the like, it’s tightly woven network of international partners feel symptoms of the illness as well. Johnson writes, “My history studies switched to politics in 2010 when Greece needed its first bailout. This revealed the fault lines in Europe’s overly leveraged financial system, and how vulnerable it was — especially its banks — to any change in the existing political order.”
Successful advisors like Southridge Capital remind investors that “all parts of the elephant” must be digested when making investment choices. In the current investment market, for example, the rise of nationalistic populism, localized military investment, US Dollar pressures, and the impact of tariffs mean volatility for many portfolios. Again, a careful study of economic history serves as a hedge against fluctuating marketing trends. We cannot know the future for sure, but the past provides us with some sense of market trajectory.