Markets ill-prepared for forces unleashed by Donald Trump

The world will be a different place in the Trump era and Australia had better wake up, and wake up fast.

Donald Trump supporters celebrate in New York yesterday.

Donald Trump has changed America for a generation.

The forces Trump unleashed in America will govern the actions of the 45th president in a way no president has faced since the days of US isolation that came after World War I. Accordingly, the world will be a different place and Australia had better wake up and wake up fast.

I wrote those words for the print version of The Australian just as Donald Trump became President elect. Its now the morning after and I stand by them. When I was writing Australian and Japanese shares had reacted badly to the Trump win and incorrectly I expected American markets to follow. I was wrong on shares but the market fall I expected actually took place in bonds. So I will not change the commentary but have added additional commentary in italics below. And don’t forget to read the reader comments — the early ones are spot on.

We should not forget that many of these forces were tapped by Hillary Clinton’s democratic rival Bernie Sanders. Sanders’ solutions were very different to Trump’s solutions, but he was addressing similar issues. And we saw many of those same forces unleashed in Britain’s Brexit vote.

Let me isolate five of the forces Trump has unleashed and then look at the market dangers. Where appropriate I will isolate an Australian equivalent.

Whether it be London, New York or Canberra-Melbourne-Sydney, the political, public service and media elites have their own agendas and tend to ridicule those that have different agendas. Trump and Sanders understood that the way the political/media elites think and communicate are totally different to the way large slabs of the mainstream population think. There were five big themes in Trump’s campaign.

The first force: globalisation, as was imposed on America in the last two decades, simply didn’t work for the masses. I can recall talking to Chinese experts about 10 years ago and they were stunned that America had let China steal its manufacturing base. And steal it they did and with that “theft” went jobs.

The idea was that the growth created by lower-priced products would create new jobs, and to some extent that was right. But it also created huge employment wastelands and bitter resentment. The Turnbull government felt a portion of that backlash and almost certainly Bill Shorten would have become prime minister but for the bungling of Victorian Premier Daniel Andrews in the CFA dispute.

The globalisation game will now change and we are going to see much more industry developed in home countries, but costs will not rise dramatically because of robotics and other new technologies. That won’t fix the employment problem, but that is another matter.

The second issue is that the wealth that was created by globalisation was not shared among ordinary people. Instead corporations, banks, investment banks, Wall Street and the public servants took huge slabs. In the US, the very people who created the financial crisis in fact in a strange way benefited from it. Ordinary Americans took it on the chin until Trump unleashed their deep resentment. In Australia, non-public servant wages are stagnant while top executives and senior public servants are gorging on money feasts. As in the US, resentment is growing. Trump and Sanders tapped it and next time Shorten will not miss the opportunity.

The public service in Washington became a complete law unto itself and in the process distanced itself from the population, imposing overregulation and actions that ordinary people thought were stupid. Trump came from a different background and plans to revolutionise the public service. .

In Australia, the government has a record number of departments and duplication with the states is one of the fastest growing industries. On January 1, we are about to attack ordinary Australians who have saved for their retirement in the most brutal and savage way (Perverse incentives will lead to superannuation exodus, Oct 31).

I am a fan of migration, but that is not a popular view. And to talk about Muslim migration is almost dangerous, but the simple fact is that terror content in Muslim migration, albeit minute, has really frightened Americans and Australians.

Trump took the issue head on and gained support from many migrant groups. In Australia, Pauline Hanson attracted a lot of her support from migrant communities that had settled in Australia. These are sentiments that I don’t necessarily agree with, but the fact is, politically correct media simply misread the game in the US.

Last, Obamacare did not work in America and the population was angry. In addition, the elite promoted power generation changes that lifted costs and were seen as lowering living standards. Trump understood how to tap Obamacare and green hostility.

Americans were clearly looking for somebody who was prepared to lead and not skirt around the issues. Australia has not had good decisive government since the second term of John Howard. We yearn for Howard and Peter Costello plus Hawke and Keating when they were at their best.

If Trump places high tariffs on China our exports will be affected. Trump’s advisers have been told about the JSF and other US defence equipment mires, but it’s not top of his mind. We need to join Canada and convince him to merge the JSF and the F22 to preserve US air power.

Because markets have not been prepared for what took place, it is going to be a very bumpy ride. If all that happens is that we have a sizeable correction on the stockmarket and a few currency moves, a rise in the gold price and weakness in other commodities, then we will ride through the situation.

My fear is that because there was such confidence in a Clinton victory, the subsequent fall in the market will create a big decline in economic activity and, worse still, it will trigger big losses on the derivatives market. The European banks are not well equipped for this and there is some danger of a catastrophe.

Updated: 7:30am (AEDT) on November 10.

Last night on Wall Street it was clear that Americans are relishing the fact that finally the smokescreen put up by the media elites has been removed and the nation can reflect the will of the ordinary people. The sharemarkets embraced the idea that under Trump the US can be great again. But for the bond markets there was no euphoria.

Bonds slumped and the 10-year bond yield rose above 2 per cent (it was below 1.4 per cent a few months ago) as it became clear that Trump’s policies, including big tax cuts, will usher in a higher interest rate environment in America. That bond fall will cause damage in parts of the banking system but will not cause the collapse I feared unless the bonds fall a lot further. Our currency fell in the wake of the higher US interest rate environment. A Clinton victory may have triggered a war in Europe (Russia and China set to challenge the new commander-in-chiefNovember 9).

That danger has been downgraded but in our neck of the wood, the Asia Pacific, the danger has been increased and our defence policies are totally unprepared for the Trump era. The profession of global journalism with its green, politically-correct agenda has been shown to be absolutely out of touch with ordinary Americans. The same event happened in the UK with Brexit and will occur in Europe. At least on day one the victory of ordinary people over the elite journalists, pubic servants and politicians cheered the sharemarket. But there will be plenty more surprises. Stay tuned.