A few months ago, the Fat Tail Investment Research team got together to discuss how the election will change Australia.
What adjustments do investors need to make to their portfolio? Which windows of opportunities will close? And which will open? How can we help our readers prepare and profit?
Back then, the Coalition looked like a shoo-in. But then someone threw a spanner in the works…
The media are keen to blame Peter Dutton for his sudden polling plunge.
Just as the Canadians are busy blaming the drop-in candidate Mark Carney for the left’s similar surge in their polling.
But they’re both wrong. As easy as it may be to blame Dutton, something else must be afoot. It’s not like Dutton’s debating skills put off voters as far as Canada…
As ever, following international news helps identify what’s really going on. There must be some common cause at work in Canada and Australia. Actually, the same polling shift took place in rather a lot of places around the world simultaneously.
And the common cause is Trump’s trade war.
Ever since US tariffs became the dominant news item, the electorate has swung wildly towards Trump’s critics in each country. Even Trump’s closest political ally Nigel Farage carefully distanced himself from the tariffs.
Voters everywhere want someone who has been critical of Trump and will stand up to him. And who can blame them given the news coverage? “America first” is a nasty business for the rest of us.
And so now the Labor Party is dominating betting markets in Australia while Mark Carney is suddenly looking promising at the expense of right-wing opposition leader Pierre Poilievre. And he’s actually good at debating.
Poor Dutton must feel like he’s been robbed. But it’s been even worse for investors. Tariffs triggered a truly global stock market meltdown. Everything except this plunged.
But that just means stocks are cheap now, right?
Yes, but which stocks?
As you’ll discover on Wednesday, politics still holds the answer to that question…
Tariffs are just the beginning
The premise of tariffs is that they encourage domestic production of goods instead of imports. They encourage local industry, rebalance trade deficits and make local labour more cost competitive.
According to my co-editor at Strategic Intelligence Australia, Jim Rickards, Trump is harkening back to something called the “American System”.
We’ve hauled the ex-CIA insider in for questioning about what this means for investors. So you’ll hear more from Jim in coming days. Before revealing what he thinks Australians should do about Trump’s plans.
But the “American System” refers to the rise of America’s industrial might under the protection of tariffs before the two World Wars. A bit like Germany, Japan and Korea did after the World Wars.
It’s just that the protectionism seems to have stuck in America’s trading partners, while the US liberalised trade far more rapidly.
But protecting your industry so that it can grow isn’t enough. You also need to feed it something.
That’s why…
Trump’s next move is bigger than tariffs
In coming months, Trump is going to unlock a source of wealth so large it’ll make the impact of tariffs look small.
Funnily enough, one of the best investment ideas we had at that meeting of the Fat Tail Investment Research team was that Dutton would do the same thing…once elected…if elected. We gave the project the working title “The Dutton Button”.
But now the polling says the Australian economy will miss out on the whopping opportunity…while the Americans profit from the launch of what Jim Rickards’ calls the ‘American trust fund’.
By the way, Trump has used a similar playbook before, during his first term. First he launched tariffs, to much wailing and gnashing of teeth in the stock market and the media. And then he unlocked the wealth opportunity for investors who knew what was coming next.
Trump’s plans eventually triggered billions in profits for a small sub-sector of the US stock market. Those profits went truly wild in 2022 and 2023, for reasons Trump also predicted.
This time, the opportunity is orders of magnitude larger. Because it involves a far bigger sub-sector of the stock market. One that’s been beaten down to record cheap levels.
Given history is set to repeat, here’s a quick reminder of what happened during Trump’s last term, from the Australian Financial Review in 2017:
The prospect of the most petroleum-friendly US policy settings for decades has revived worries about a potential flood of natural gas exports posing a competitive threat to Australian producers in Asia, the biggest market.
In the “America First Energy Plan” posted on the White House website shortly after Donald Trump’s inauguration as US President, the new administration pledges to “embrace the shale oil and gas revolution” and take advantage of “the estimated $US50 trillion in untapped, shale, oil and natural gas reserves”.
Together with the administration’s commitment to “less expensive energy”, the scene is set for a greater increase in US liquefied natural gas exports than had been anticipated, some experts say.
Five export terminals were built in the US. It’s as if Trump knew that Europe’s reliance on Russian gas would backfire. And they’d soon come begging for America’s LNG.
Well, actually, he did expect it.
If he hadn’t warned the Germans about that prospect openly at the UN in 2018, people would accuse him of underhanded tactics. Conveniently, he wasn’t president when Nord Stream blew up, so nobody could accuse him of causing Europe’s gas shortage to benefit US LNG exporters.
Instead, he simply positioned the US economy to profit from what was going to happen. And it worked, beautifully, for those investors who listened.
So, spot the pattern. Trump launches tariffs, is ridiculed for his geopolitical position, and then…enables an explosion of wealth.
Did you invest in US LNG while Trump was busy expanding it? Or did you believe gas was a sunset industry in the age of climate alarmism?
Did you agree with Trump about the risks of relying on Russian energy? Just as he’s warning about reliance on Chinese trade today? Or did Russia’s invasion seem impossible?
You didn’t need to read between the lines during Trump’s first term. He told you what would happen, loud and clear, at the UN.
And he signalled which investments would profit by preparing them for the boom.
More on exactly what he’s telling you to do this time next week, from Jim Rickards.
Until next time,
 |
Nick Hubble,
Editor, Strategic Intelligence Australia
PS: Trump just greenlit the epic potential rise of five obscure cryptocurrencies. We’ve been beavering away on this investigation with James Altucher for some time now. The results are revealed here.
Comments