Our round-up of the week’s best comment and analysis from the Financial Times focuses on debunking misleading parallels between Reaganomics and Trumponomics and what changes the new US president’s policies will force in investor behaviour.
The selection is taken from our Markets Insight and Smart Money columns, written by industry contributors and FT commentators.
The world is too different from the 1980s for Donald Trump to achieve a re-run of Reaganomics, argues the FT’s John Plender, and the bond markets may have nasty surprises in store for him.
The economic and political landscape varies so much in terms of stages of recovery, unemployment, energy prices and debt levels — and there is a real possibility that markets are now underestimating inflationary pressures.
“The shift from bull to bear markets is rarely accomplished smoothly. The risk is of a spike in interest rates and bond yields. The erratic rhetoric of Mr Trump could well provide the spark.
“The bond market could turn into the Achilles heel of the economy. It is a safe bet for the year ahead that bond prices will see episodes of more than usual volatility.”
Trumponomics will set the pace for market uncertainty in 2017 with policy shifts casting a long shadow, warns Allianz’s Mohamed El-Erian.
Four macro themes will dominate the coming year, monetary policy detaching from data dependency, uneven global policy rebalancing, the risk of an over-strong dollar and dealing with the anti-establishment surge.
“Investors would be well advised to book some profits while also rebalancing some of their remaining risk exposures in favour of sectors that have lagged behind (such as traditional tech), and also to emerging markets with strong balance sheets, limited currency mismatches and sound management.”
BlueBay Asset Management’s David Riley likens the very different post-US election landscape to an “investment regime change” — this is the year that investors must take back control of their portfolios.
“Regime change means that investors should favour higher yielding, shorter duration assets and express greater conviction in security selection with more concentrated portfolios rather than closely tracking long duration diversified benchmarks.”
But trusting hedge fund managers with your money might not be the smartest move, according to the FT’s Dan McCrum — for the seventh year running these highly paid experts performed more poorly than simple index funds.
“An overabundance of caution” dogs hedge funds and this “does not lend itself to reliable investment growth. Instead, collect management fees, talk darkly about future crisis and hope investors do not notice how well they could have done without you.”
Corporate chiefs will face a dilemma when they now start making outlook briefings to investors — they will have to get off the fence over Trump’s agenda, says the FT’s John Authers.
“The swell of optimism on earnings is coming from investors and their intermediaries, not from companies themselves. There is no way the move in earnings expectations during the quarter could justify the Trump rally.”
But how some US companies are using accounting techniques to flatter their earnings numbers has rightly caught the attention of the Securities and Exchange Commission, argues the FT’s Ben McLannahan.
“Some call it ‘custom reporting’, others ‘anti-GAAP’. Either way, it’s a menace.”