Perspectives – Looking beyond the MAGA noise to the inevitable

Trump is like marmite but getting drawn in to whether he is abhorrent, or the next saviour, is unlikely to clarify the impact on the financial market environment.

Stepping back from the noise and the emotion, we can observe what’s happening more clearly. History can be a useful starting point, and current events can be seen through the lens of the cycle of empires. The US is an empire in decline, just as the British empire was before that. It’s relatively easy to predict the broad growth and decline of empires but not so much the precise timing.

This also helps us depersonalise events. Most leaders in charge of an empire in decline would be doing something similar to Trump, i.e. trying to maintain their dominant position, albeit with a different style no doubt (but that’s just style, not substance). Let’s not forget that all empires are there to serve themselves and in decline this becomes clearer, and more desperate perhaps.

Helpfully, there are several factors that are evident during a declining empire. Namely, economic deterioration, including increased competition, political instability including social unrest, and overexpansion including military defeats. The US is now facing, in the form of China, its first genuine economic competitor since the rise of its empire and, while we’re about it, did the US win in Vietnam, Iraq and Afghanistan? I guess it depends on what they wanted to achieve.

In the meantime, we are moving from a unipolar world, with the US all powerful, to a multi-polar world, with the US, China and Russia all flexing some sort of muscle. The relative peace of the last few decades is being challenged, with injuries and deaths from conflict at a 50-year high.

At the same time, traditional democracies are struggling. Rarely do governments get a chance to govern for a second term these days and increasingly the share of vote from traditional parties is at, or heading towards, historical lows.

Weak economic growth and high debt levels are a big part of a government’s inability to meet its side of the social contract. This is compounded by the increased cost of living and higher inequality, adding to the misery for large parts of the electorate in many Western democratic economies. For example, the German economy hasn’t grown for five years, with the UK also proving pretty anaemic. Meanwhile, both have experienced rocketing debt after the Global Financial Crisis and then the Covid lockdowns, and they are by no means alone.

Growth aside, there is a similar environment in the US. Indeed, it should have come as no surprise that Trump was voted in: he offered fundamental change while the Democrats offered more of the same. The US electorate is certainly getting change. No doubt Trump is the personality changing the rules, but the rules were changing anyway. He’s happy to embrace a “might is right” philosophy and he might well have accelerated the move, but that’s the way the US was going – typical of an empire in decline, where actions become more obviously self-serving.

Of course, when the rules of a complex organic system like the US economy, and indeed the global economy, are changed, the uncertainty of outcomes increases. However, there are certain observations we can make with more certainty. The major observation for us is that many of these forces will continue, and indeed many of them reinforce each other.

Politically, expect shifting global allegiances, a move away from traditional political parties, and an increasingly multi-polar world with higher levels of conflict. From an economic perspective, expect deglobalisation to continue, ongoing pressure on high government debt levels, compounded by increased defence spending – and expect reaccelerating inflation and scarce growth to make grim reading for those in power.

Much of this adds to the uncertainty facing markets and, of course, markets don’t like uncertainty. However, we believe that the main investment point to take out of all this change is that inflation will continue to accelerate (see chart).

US 5-year inflation expectations vs commodities: both on a rising trend

Source: Bloomberg 22.04.2022 – 21.02.2025. Past performance is not a reliable indicator of future returns.

Therefore, we hold bonds at the short end, for income and to dilute equity risk, but hold commodities to actually diversify equity risk, something they do well during periods of elevated inflation.

Whether Trump will achieve some of his MAGA objectives in the short term or not is unclear.  What is crystal clear is that he can’t influence the eventual decline of the US empire and the rise of the Chinese empire, though he might be able to delay it, or indeed end up accelerating it.

Anthony Rayner

Premier Miton Macro Thematic Multi Asset Team