Sandwich matters: How Trump’s victory influences our strategy and portfolio

Please do make any financial decisions based on the contents of this blog. My blogs are designed to be thought-provoking and introspective, not financial advice. Please do not act on any document unless it is titled “Statement of Advice.”

Before we begin, check this out…

We broke the 14% annual barrier for our Tuna Salad Wrap (The VCo Defensive 50)!

For a defensive portfolio with less than 30% exposure to equities, that is truly impressive. A quick browse of some of Australia’s leading industry & retail funds shows that we are outperforming the vast majority of defensive and balanced allocations, with much lower exposure to expensive and risky assets.

Always remember: Celebrate the wins but understand that past performance is never a guarantee of future performance. It is statistically impossible to outperform at all times. Humility is a virtue.

Now, onto the US Election and market commentary.

It never ceases to amaze me how short people’s memories and attention spans become when big news arrives.

It would be delusional to think that the Democrats were going to win following the most bizarre and economically destructive administration in US history.

While I am pleased that we now have US President who supports free speech, a value I hold dearer than the economy itself, I don’t love all of Trump’s promises, particularly his plan to reignite trade wars with China.

Does Trump really believe that the US trades with China out of some sort of ideological alliance? Or could it be that the miracles of globalisation and world peace paved the way for mutually beneficial international relations?

The only thing tariffs do is force the end consumer to subsidise inefficiencies in production. Tariffs are extraordinarily inflationary and economically destructive to both sides of the deal. If you look at the exact combination of major geopolitical events that led up to the Great Depression of 1929, tariffs of this nature were the straw that broke the camel’s back, sending the world into a decade-long recession. It was completely unnecessary.

We’ve seen these events play out before, and we’re repeating them, but on a scale much larger and much more leveraged than ever before. I sincerely hope Trump is just appealing to old fashioned conservatives and so-called “patriots” and has no real intention on deploying these tariffs.

The global trend away from mutual prosperity and towards nationalisation is not just economically bad but will escalate global tensions to World War levels. History shows us without fail that the best way to ensure peace between nations, is to have free trade and mutually beneficial commerce. Something amazing happens when nations trade with each other. Their economies mingle and thrive, and their cultures become richer and more diverse. I’m not talking about the forced diversity that comes with DEI policies and open borders. I’m talking about voluntary diversity – a choice to be together for the betterment of both societies.

A change of leadership and policy direction will not make history disappear. It will take many years of prosperity and fiscal responsibility to recover from the insolvent and anti-business predecessor. Deglobalisation only makes matters worse.

The problem of macroeconomic fundamentals has not improved at all, but in fact worsened. About 4 weeks ago, while we were all mesmerised with election news, the Fed printed another half a trillion dollars. Jerome Powell, Chairman of the Fed, is notoriously anti-Trump, so it wouldn’t surprise me if this was an economic booby trap. Such is the nature of modern politics. Power is favoured over prosperity, and so-called “policy tools” are actually economic weapons of mass destruction. Equity valuations remain to be stretched, and even with tremendous earnings, they are still 60-70% above long-term exponential trendlines. Economic growth remains anaemic at best. Jobs numbers are being continually downgraded. Manufacturing data is about as bad as it gets. Household savings are virtually NIL. Inflation is sticky, although severely understated due to the government’s refusal to take actual rents and mortgage payments into consideration and instead measure inflation based on “owner’s equivalent rent” – a ploy which among others, enables the government to declare victory on inflation while in real terms the poor and middle class are poorer than ever.

Equity markets rejoiced in last week’s “red wave”, but I believe these celebrations will be short-lived.

We remain convinced that right now is NOT the time to increase risk, but rather a time to proceed with even greater caution.

We will be retaining the same overall level of “growth” assets, however with a few slight changes. Although we believe the Hong Kong Stock Exchange remains to be the most attractively priced major index, Trump’s victory has a stench of anti-China sentiment. We are exiting the remaining position of the darling of our portfolio, the iShares China Large Cap ETF (IZZ). IZZ has seen a rebound in recent days, presenting a good opportunity to sell. We’ll be keeping our eyes on this one and if Trump’s bark is bigger than his bite, we’ll likely re-enter.

Trump’s policies favour small & mid cap equities, so we are increasing exposure to the Fairlight Global Small & Mid Cap Fund which has been performing phenomenally. We are increasing exposure to the Quilla Risk Overlay Trust to maintain the desired currency hedging ratio, and reducing exposure to the Alexander Credit Opportunities Fund to fund rebalances.

Ever notice how loud the gold and bitcoin enthusiasts are when prices are rising, and how quiet they are when prices are falling? History shows us these are seasonal fads, and the trajectory of such non-productive and speculative investments is never predictable or sustainable. Yes, they’ve had a good run, but do not fool yourself into the permanence mindset. Gold has an average long-term return of 1.8% p.a. and it is estimated that 70% of bitcoin investors lose money. If you’re a multi-gazillionaire, go for gold (pardon the pun!), but if you’re building a portfolio for the long-run and you cannot afford major losses, please resist the temptation to go “all in” on such volatile investments.

There are only two asset types that have consistently achieved double-digit growth over the centuries, and that is leveraged real estate and managed portfolios with long term exposure to blue-chip shares. There is a simple reason for this: utility. Humans need land for homes, businesses, industries and agriculture, and we need companies to make stuff. Our lives and livelihoods depend on these two assets. With 10%+ returns, you can be a multimillionaire within a decade if you follow the Rule of 4. (For further details be sure to read Chapter 4 of my book “11 Unpopular Reasons Why I’m Rich And You’re Not”). Honestly, how many people can you personally name who went from broke to a multimillionaire within a decade and sustained their wealth into perpetuity by going all in on gold or bitcoin without squandering it? Now answer the same question with real estate and business.

Governments, empires and dynasties rise and fall – their currencies perish with them, but land and business are with us forever.