I just received an interesting email from Steen Jakobsen, chief economist and CIO of Saxo Bank. Steen wonders if Trump changed anything. More accurately, Steen commented, “Back to the past – when change is not a change”.

This is a guest post by Steen Jakobsen, with minor formatting edits by me.

Steen’s Chronicle: Back to the Past – When Change is not a Change

I have spent the last month on the road around Europe meeting with clients and investors. It has led to some interesting discussions and conclusions for me.

President Trump remains an enigma even for people who have met him. His personality is at best erratic and at worst compulsive. Having said that his ability to “keep the ball rolling” impresses me. In the process, he has been able to convince many of the investors I respect the most to buy the concept of ‘an animal spirit’, the very concept instilled in us economist’ from Adam Smith and his laissez-faire economy concept.

One problem, if you haven’t noticed, “laissez-faire” is the exactly opposite of what Trump believes in! His idea of animal spirit is forcing companies (and that’s put diplomatically) to keep jobs in the US despite it’s hurting earnings, productivity, and long-term growth.

It’s also interesting how Trump wants to “create jobs” in an economy where the Fed and others are concerned about the heated labor market. The US today has an unemployment below its historic average. Here’s just a bit of advice to Trump: It’s not jobs you need more of per se, but rather a more productive US. Higher productivity will force wages up and increase jobs quality.


There is an almost perfect correlation between GDP growth and productivity and Trump’s policy is countering the “preferred” solution which should be massive investment in basic research, more competition and most importantly a big upgrade of the educational system.

Instead, President Trump will force jobs to remain in the US, the quality of those jobs will be driven by a mistaken concept of “keeping industries alive” – favoring manufacturing at a higher marginal cost over a conversion to more competitive and productive setups. A desperate attempt by Trump to go back to the manufacturing base of the US in the 1950s and 1960s



I have long argued that the best way to see Trump is to look back at Nixon’s Presidency, where a disengagement on foreign policy (the Nixon Doctrine), a weak Dollar policy (Treasury Secretary Connally’s famous 1971 quote: “It’s our dollar, but your problem” comes to mind”), a very nationalistic agenda, a “in your face President attitude” and a White House constantly at war with Fed (The then Fed Chairman Burns ultimately caved in) is but a few of the similarities.

I got semi-confirmation for this idea when I learned that one of the personal things Trump will bring to the Oval Office is a letter from former President Nixon. I received this information under Chatham Rules. You will have to take my word for it, but confirmed it is.

So here we are three weeks of The Donald and what have we learned?

He has been able to reconfirm the narrative on US reflation but on the “actuals” (What has he done relative to what he has promised) he is tallying up major loss’.

  • The travel ban is now heading for Supreme Court ruling
  • The affordable Care Act, Obamacare, look more likely to the replaced than repealed, and only in 2018
  • The foreign policy side has been a mess with The Donald playing tough but backing down faster than you can count to three: Point in case, after making China the main target of all things evil, the Donald overnight suddenly acknowledged decades of US foreign policy by nodding to One-China.
  • NATO is useless. Now Trump will attend the May NATO Summit (which is really not a summit but a highly charged political house warming party (NATO is moving HQ!).
  • Yesterday “The Donald” promised a “phenomenal tax plan” and the market was off to the races again.

The point? Don’t judge or trade on what The Donald says but on what he does! This is critical: Ignore the tweets but look at what is executed done relative to the empty promises.

Trump more and more looks like Obama on foreign policy and his momentum domestically will now be on the “phenomenal tax” plan, a tax plan which so far have left more question than answers: When Trump Press Secretary Spicer was asked if the promised proposal would meld with the one suggested by House Republican – then answer came back:

“I don’t want to get any further ahead of it, but I will tell you it is going to be the first time that this nation’s seen a full, comprehensive tax reform in a long, long time.” I think Tidwell from Jerry Maguire should give have last word: The Donald.

Enough about the Donald.

In the real world, the market is more than confused. Even seasoned multi-decade veterans struggle to make sense of direction, but it’s fair to say that the consensus remains:

  • Equity: Reflation, TINA (There is no alternative), momentum, deregulation rules
  • Fixed Income: The present sell-off in yield is temporary – either The Donald delivers and or Fed gets behind in raising rates.
  • FX: The US Dollar will fly – border tax could mean 25% one-off increase in its value.
  • Economics: Small impact on growth this year- Consensus survey says GDP in 2017 & 2018 will be 2.3% and CPI will be 2.4-2.5%

My take, however, remains the same, which of course is really more function of me being old and not able to adjust:

My general model is the good old “permanent portfolio” which means 25% allocation to each of four asset class’: Commodities, Equity, Fixed Income and Cash (or real estate). This is then rebalanced yearly back to 25%. the modern version is risk parity. This is a chart of Risk Parity vs. S&P500 – yes same return but significantly less volatile:


Right now my allocation is:

  • Equity: 25% – Respecting the momentum
  • Fixed income: 50% –  See attached internal memo
  • Commodities: 25% – – Overweight gold + silver
  • Cash: Zero


I beg you an excellent weekend with a Donald joke: “how do you know you are reading a Trump book?” – “It starts at Chapter 11”.

Safe travels,
Steen Jakobsen | Chief Investment Officer

Mish Comments

Trump has indeed backed down or moved to a slower path for nearly everything.

Replacing Obamacare may prove to be more difficult than he thought, especially since Trump has promised to take care of pre-existing conditions. Will Trump change his stance on pre-existing conditions? Who knows?

I do expect to see a tax plan, and lower corporate taxes will help. But if lower taxes are offset by damaging tariffs, any advantages may be thrown out the window.

NATO? Who knows?

Someone challenged me the other day regarding the loss of manufacturing jobs. I responded with the exact same chart as Steen posted above: manufacturing Jobs divided by total jobs.

The ratio has been in decline since the end of WWII. It’s further proof that it is crazy to blame China, Mexico, or Germany for the loss of US manufacturing jobs.

Yesterday, Trump backed down on his “One China” stance. One reader commented that Trump was one step ahead of me. How so? It’s far more likely China threatened to cancel huge numbers of Boeing orders.

I commented about Boeing twice recently.

  1. “America First” in Practice: Boeing, a Major Casualty of Trade War With China
  2. Trump Reverses One-China Stance: What Happened?

My take is a simple two-point reality: 1. No one wins trade wars. 2. The US has far more to lose than China.

For whatever reason, Trump backed off. His bluster failed.

One reader asked, “How do you know what Trump wanted?”

That’s a reasonable question. I don’t know, nor does anyone else. It’s debatable whether or not Trump had anything in mind.

However, history suggests that if Trump received any concessions from China, real or imaginary, he would have bragged about them. The logical conclusion is Trump came up empty.

Even if China did promise something like more cooperation on intellectual property, will China deliver?

Politics As Usual

Unfortunately, it’s politics as usual, in all corners. Ahead of the election, I had several readers email they were tired of my pro-Trump stance and would stop reading me.

Since the election, I have had several readers email they were tired of my anti-Trump stance and would stop reading me.

Here’s the deal:

  1. Most of the pro-Trump crowd is convinced Trump can do no wrong.
  2. Most of the anti-Trump crowd is convinced he can do no right.

Neither position is correct. And I do not play partisan politics.

I will not defend Trump because he is a Republican nor criticize Obama because he is a Democrat (or vice versa). Instead, I react to policies.

Ahead of the election, Obama was more likely to get my wrath. After the election, Trump was more likely to get my wrath. Why? Because the party in power has a chance to do more things wrong.


My sole disagreement with Steen’s otherwise well-thought-out take is in regards to productivity. Steen says “Higher productivity will force wages up and increase jobs quality.”

I disagree. I propose the next major round of productivity will come in the next several years when millions of long-haul truck jobs vanish, practically overnight. Taxi and other driving jobs will vanish soon after that.

Perhaps wages rise for those with jobs, more likely not. Regardless, the overall effect of losing millions of jobs to self-driving vehicles and to other productivity improvements in the works will be very price-deflationary. Boomer demographics are also price-deflationary.

As noted by Lacy Hunt at Hoisington, there are Five Major Impediments to Growth.

All of them are deflationary. The Fed will not at all be happy when the next wave of productivity improvements kicks in big time.

Related Articles

  1. Reflections and Reader Comments on Free Trade: “China Doesn’t Play Fair!”
  2. Steen Jakobsen on “The Nixon Doctrine”, Trump, Equities, Gold
  3. Trump Accuses Germany of “Currency Exploitation”: Merkel vs. Trump, Is Either Side Telling the Truth?
  4. Navarro Nonsense and the Folly of Trump’s Proposed Tariffs
  5. Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold’s Honest Discipline Revisited

Microsoft founder Bill Gates said the US is “the biggest beneficiary by far” of globalization. He is an “Unabashed Pro-Free Trade Person“. So am I.

Meanwhile, it’s easy to dispute Trump’s alleged NAFTA “Catastrophe”. For the final icing on the cake, please see Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?

Trump and his protectionist team need to take a look at realities. So do all the misguided armchair “fair trade” activists, and so do all the Trump supporters who believe Trump can do no wrong on anything.

Mike “Mish” Shedlock