Trump Talks, Markets Listen – But Europe Has a Much Bigger Problem
This post was originally published on jpfs.com
Donald Trump went to the United Nations and, depending on your political persuasion, either delivered some uncomfortable home truths or behaved like the headmaster addressing a particularly troublesome school assembly.
Either way, the markets didn’t run for the hills.
Trump hammered home his views on American economic strength, AI, energy and the wars currently draining both money and confidence from the global economy. Subtlety, as usual, wasn’t invited.
Trump approaches many global problems like a businessman: What does it cost? What do we gain? What’s the deal? And how quickly can we get it done?
Compare that with much of Europe, where apparently nothing happens until someone forms a committee, commissions a consultation and writes 400 pages of regulation.
I’m old enough to remember Thatcher and Reagan. Whatever you thought of them politically, they understood that economies need businesses to invest, people to work, consumers to consume and entrepreneurs prepared to take risks.
Today I see something very different.
Trump is pushing American energy, AI, cryptocurrencies and industrial investment while trying, successfully or otherwise, to force diplomatic solutions to global conflicts. He is doing it for American interests – which is rather the job description.
My greater concern is Europe.
It has roughly 450 million consumers. If their disposable income continues being squeezed by energy costs, taxation, regulation and weak growth, the damage won’t stop at Europe’s borders.
Consumers matter. Eventually, even beautifully priced equities need somebody able to buy the products their companies produce.
For now, equities can continue higher. American technology remains powerful, AI investment is enormous and capital naturally gravitates towards economies where investors believe growth can still be generated.
The dollar’s renewed strength also tells us something. This isn’t simply an interest-rate story. Currencies reflect confidence, capital flows and comparative economic prospects – and currently I see more reasons for international capital to favour America than Europe.
But there is a political clock ticking.
The US mid-term elections matter. If Trump loses substantial influence in Congress, markets will have to reconsider how much of his economic programme can actually be delivered. That doesn’t automatically mean a collapse, but it changes the calculation.
And markets are nothing if not giant, expensive calculators.
However, my longer-term concerns are increasingly European.
I worry about EU politicians trying to regulate AI faster than they understand it. Innovation moves at 100 miles an hour; government generally moves at about three, stopping occasionally for lunch.
Putting yesterday’s bureaucracy in charge of tomorrow’s technology rarely ends well.
I also remain concerned about Ukraine and Russia. Whatever anyone’s moral or political position, wars eventually require diplomacy. Europe cannot pretend indefinitely that defence spending, reconstruction costs and damaged trade relationships disappear because somebody moves the numbers onto another spreadsheet.
Then we have digital money.
Europe is already developing tokenised central-bank settlement infrastructure while continuing work towards a retail digital euro (CBDC). At the same time, Brussels wants more European household savings directed towards productive investment and strategic priorities.
To be clear, nobody is currently marching into your bank and confiscating your savings. But Europe has trillions sitting in household deposits, and policymakers openly state, they want more of that capital invested.
Call me an old cynic, but whenever politicians become excited about somebody else’s money, I put both hands on my wallet.
So, what does this mean for markets?
My longer-term view is that oil eventually goes lower. Not tomorrow, perhaps not next month – geopolitics can keep energy expensive for longer than expected – but rising production, technology and political pressure for cheaper energy should eventually weigh on prices.
That ought to help consumers, although in Europe governments’ appetite for tax revenue may absorb a fair chunk of the benefit.
The euro also worries me.
My view remains straightforward:
There are few reasons to prefer Euros over dollars.
Bitcoin, meanwhile, is becoming increasingly interesting.
I’ve been cautious about promoting BTC because crypto has an annoying habit of making geniuses out of people immediately before making fools out of them.
But as governments and central banks move further towards digital financial infrastructure, some investors may increasingly seek assets outside the conventional monetary system.
Gold belongs in a similar conversation.
If investors become increasingly uncomfortable about government debt, currencies, taxation or greater state involvement in finance, assets that cannot simply be created by pressing a keyboard become more interesting.
For me, the longer-term positioning is simple:
Gold and Bitcoin:
Hold, and add on meaningful dips.
Oil:
Sell if you see substantial rallies.
Equities?
Positive shorter term – particularly America – but increasingly selective longer term.
And then there is AI.
AI may transform the global economy, but being right about the technology is not necessarily the same as being right about the price of AI equities.
If politicians over-regulate it, development becomes more expensive. If growth deteriorates, corporate spending falls. And if hundreds of millions of consumers become poorer, AI may be extremely clever, but it still doesn’t buy cars, televisions, holidays or hamburgers.
Profits ultimately require customers.
So where does that leave us?
America currently appears focused on growth, technology, energy security and capital formation. Much of Europe appears increasingly comfortable with regulation, taxation, centralisation and greater government involvement in capital.
Those approaches may eventually produce very different economic outcomes.
And America cannot completely escape the consequences if one of the world’s largest consumer markets becomes substantially poorer.
That is why investors should occasionally look beyond next week’s CPI number or the next 50 points in the S&P.
Sometimes the priority is creating wealth.
Sometimes protecting what you have already accumulated becomes just as important.
Over the coming months, the latter will prove to be the most prudent.
The markets may continue dancing for quite some time yet.
Just make sure that when the music stops, you’re standing close enough to a chair.
Please note the political opinions expressed above are those of the author himself, and do not necessarily reflect the opinions of JP Fund Services AS.
The post Trump Talks, Markets Listen – But Europe Has a Much Bigger Problem first appeared on JP Fund Services.
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