When we look back at 2018, the market made several mistakes. However, the biggest mistake by far last year was the belief of what drives US president Donald Trump and what it means for growth.
In our view, it was widely assumed Trump was unpredictable and irrational, but whatever he did would be pro-growth. We admit to the same error, but we see things differently now.
If we suspend our belief system and allow the concept of ‘Rational Trump’ to exist, what could ‘rational’ – and hence, predictable – Trump mean. Trump was elected on a set of promises.
The main ones were: cut taxes, quit the Paris Agreement on climate change, withdraw from the Iran Nuclear Deal, appoint conservative supreme court judges, bomb ISIS, bring US troops home, renegotiate trade deals, correct the trade deficit with China, stop China manipulating currencies, repeal Obamacare, build a southern border wall paid for by Mexico, make NATO members pay more, rebuild US infrastructure, prosecute Hillary Clinton and drain the swamp of lying politicians.
He has attempted and, in most cases, succeeded in fulfilling his promises. His focus has shifted as he has achieved fulfilment of a particular promise. In 2017, he focused on healthcare reform, climate change and taxes. In 2018 he shifted to China.
This makes Trump’s behaviour eminently rational: he is attempting to be a politician who ‘keeps his promises’, in stark contrast to how he perceives the political establishment. This, presumably, will form a major plank of his argument for why he deserves a second term.
The manner in which he has tried to fulfil his promises also matches a pattern of behaviour we are all too familiar with: he is behaving like a classic ‘boss’. We spend a lot of our time attempting to read the behaviour of bosses. In a simple sense, we do not trust them.
We believe the average boss is risk loving, highly confident, self-serving and likes power – in other words, enjoys bossing people around. Some are more extreme than others. Trump is on the more extreme end of this spectrum.
When we view Trump as a boss, rather than as a politician, he looks a lot more predictable. Most bosses, unlike most politicians, do not try to get their way through persuasion, but through diktat.
So, we would frame Rational Trump as a diktat-driven boss who wants to win a second term by seeming to be a politician who keeps his promises and ‘can be trusted’. This places greater weight on non-economy drivers of popular opinion – ‘America First’ and ‘the first politician who keeps his promises’.
A classic dictator tactic to maintain popular support, regardless of the economy, is to divert attention through acts of blame and aggression, orientated around nationalism and identity. This is why we now think it is dangerous to assume that Rational Trump naturally implies he is pro-economic growth.
In the last three years the fund has returned 36.3% versus a Long Short Equity peer average of 1.4%.