When Investing, How to Spot When Uncertainty Leads to Risk


Vitaliy Katsenelsen Image Vitaliy Katsenelsen Editor, Contrarian Edge

His “growth” policies will likely bring higher interest rates, which are both positive and negative for the consumer–they help savers and punish spenders. Higher interest rates would most likely be a net negative for corporations, whose average debt load has doubled since the financial crisis. And finally, higher interest rates will be a negative for the government, whose interest expense in 2016 was at the same level as in 2007, despite the debt load almost doubling. Thank you, low interest rates!

This is when we start thinking of Twain’s second insight and remind ourselves that we worry too much. Trump was not elected king or dictator in a lawless banana republic. He is the US president, and when it comes to domestic policy, his powers are limited by the Constitution, which includes plenty of checks and balances.

The Constitution grants the president a lot more power in his role as commander-in-chief, with fewer checks and balances. But now we should remember that Trump has kids and grandkids and owns a lot of shiny buildings with his name on them in this and other countries. In other words, he has a lot of vested interests that he really wants to keep intact during and beyond his presidency.

Think of it this way: The US is a large boat, and Trump has a very large room (a gold-plated penthouse) on this boat. Instead of worrying about his conflicts of interest, we should embrace them–they are a guarantee that his foreign policy, though it may be different from that of his predecessors and may therefore create uncertainty and volatility in the interim, will not sink this boat, since he would go down with it. (This brings to mind another of Twain’s adages: “Prosperity is the best protector of principle.”)

Of course there is an easy counterargument to be made: If Trump screws up, starts a trade war, and plunges America into a recession, his net worth may decline–let’s say from $3 billion to $1 billion–but he will remain a rich man and his lifestyle will not change one iota.