Forget Donald Trump quitting climate accord, key issue is rates dynamic

DONALD Trump takes the US out of the Paris climate accord — and Wall St rockets to yet another all-time high, writes Terry McCrann.

Donald Trump has taken the US out of the Paris climate accord.

PRESIDENT Donald Trump takes the US out of the Fake Paris Climate Accord — and Wall St rockets to yet another all-time high.

Overnight on Friday, the Dow, the S&P 500 and even the Nasdaq tech index — which, forget about the GFC market crash in 2008, has had a long, long uphill path, to get back to its dotcom bubble all-time record high set at the turn of the century — all hit new peaks.

Now to those on the Left, this would merely confirm the belief that President Trump was putting profits ahead of the planet. Although that does sort of jar with the enthusiasts claiming that all tomorrow’s money is in alternative energy.

Well, to some extent the Left’s view is right — at least on the first part. As the President said, he was elected to represent Pittsburgh not Paris. That’s to say, jobs and businesses (which go together like a horse and carriage) in the US.

But not at the cost of killing the planet: the basic truth is that it is only economic prosperity, built fundamentally on electricity and energy more broadly which has been cheap, reliable and plentiful, that has created the profits to deal with real environmental pollution (as contrasted to Fake Carbon Pollution).

Well, “expert” predictions about President Trump and his impact tend to have a half-life of about half a week.

Overnight on Friday, “Wicked Trump” was sending Wall St to a record high. Not much more than a week earlier, “Wicked Trump” was sending Wall St plunging.

Donald Trump after signing Bills at the White House on Friday.

He was going to bring on economic Armageddon long before the planet fried. The truth is much more anodyne.

Despite the millions of trees that were killed to lament the President’s declaration that the US for one would not always have Paris, the billion tears that were cried literally and figuratively, the declaration was of zero actual consequence.

As they characterise it in official circles, the President’s Paris declaration was not a macro event. On this front the message from Wall St was more that the sky was not falling; investors were really focused on the here and now economic and financial reality.

What exactly is that reality? Aha, that is the question.

We have two extraordinarily exactly opposite views.

One is that the global economy is finally embarked on pretty much across-the-board growth. Sure, it looks uneven from country to country, there are big uncertainties in relation to China, and the growth rates won’t be spectacular, more “solid”, at best.

The major international bodies like the IMF and the OECD, along with our Reserve Bank and Treasury, are signed on in slightly differing degrees to this view.

What would it mean for the major investments, the share market and property? Again, broadly, it wouldn’t guarantee further rises far less booms, but it would count against sharp falls.

In short and very broadly, the outlook for both would lie somewhere between going sideways and modest advances.

The other view is very, very different. It sees global share markets and global property markets as teetering on the edge of a precipice. They’ve all been built on credit bubbles and those bubbles are inevitably — about to? — burst. There’s a parallel view about individual and the global economies.

Demonstrators protest in Chicago against the Trump climate accord decision.

That the US’s, still the world’s biggest, is about to struggle; that the second biggest (and the great driver of global growth this century), China, is about to implode. The latter especially would be utterly disastrous for us, of course.

Now these two negatives — for the economy and for investments — are not tied together. The one does not depend on the other. Although if the global economy did plunge into recession, it would be hard to see property and share markets not being hit.

It’s not possible to know who’s going to be “right”. We can’t even be confident we’ll get some “warning” — early or otherwise — of how things are tilting. You pay your money and you takes your chances.

That said, it does point to some degree of “capping” any upside for both property and the share market from here.

A solid economic recovery, rising corporate profits and renewed business investment are more going to validate existing asset values rather than underwrite a new surge.

Further, the “good” economic outcome would lead to higher interest rates; and higher interest rates would tend to cap property and share values.

Sure, the major central banks are going to go very, very gingerly; they are going to leave rates relatively low through 2017 and 2018 — albeit running the risk of being ambushed by too strong a global upturn.

But if we do get the “good” economic outlook, we will get higher rates. And if we get the “bad” outlook, zero rates would not save the property and share markets.

So it’s a case of gingerly but closely following the developing dynamic, whatever it proves to be.

Originally published as Forget Donald Trump quitting climate accord, key issue is rates dynamic