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Written by: David Waddell | Waddell and Associates
THE BOTTOM LINE:
News of Trump’s moves this past week has been relentless and frenetic. For investors seeking handholds, the pace and degree of activity may seem unique and unprecedented, but it is not. Donald Trump colorfully combines conservatism, pragmatism, and radicalism into his economic agenda. History offers examples of similar leadership philosophies and actual results for analysis. For those wondering what Trump 2.0 holds for investors, remember that accurately predicting the future requires thoroughly studying the past.
While politics may be polarizing, investors must dispassionately adapt to all environmental shifts. On Tuesday of last week, the United States voted to overhaul our Federal Government. To accomplish President Trump’s ambitious reform agenda, his administration must de-bureaucratize the system, reduce regulatory burdens, and open rapid legislative throughputs.
Historically, trifecta governments tend to perish with subsequent mid-terms as they did under Obama, Trump 1.0, and Biden, so the Trump team has only two years assured. Given Trump’s presidential experience, action-oriented appointees, and tireless work ethic, expect high legislative volume. Many initiatives will pass quickly, like the extension of the Trump Tax cuts, while others, like the ones soon to be proposed by the DOGE committee, will undoubtedly stoke more debate. Nonetheless, the environment over the next two years will likely feel frenetic and uncomfortable for investors. But that does not make it unknowable.
Conservatism
Margaret Thatcher rose to power in 1979 after an extended period of slow growth and high inflation across the British economy. Thatcher promoted a bold reform agenda that included significant privatization of state-owned industries, major restrictions on unionization, dramatic deregulation of the financial markets, massive tax cuts, and revolutionary housing reforms. Many of her privatization pursuits drew spirited political rebuke as the Government’s share of GDP shrank significantly over her tenure. For investors, however, it was a time of plenty. Fueled by “Thatcherism,” the UK stock market index grew five-fold between 1979 and 1990 without a single down year.
Pragmatism
China’s model for economic success under Deng Xiaoping drew inspiration from Lee Kuan Yew’s model for economic success in Singapore. Lee Kuan Yew ascended to power in 1959, pledging to apply “common sense” to a senseless Government. At the time, Singapore was mired in infighting, overly export reliant, and notoriously corrupt.
LKY demanded pragmatic “results” from the Government. He recruited the brightest minds into critical positions and overpaid them. This greatly increased governing competence while greatly decreasing government corruption. He used strategic planning, incentives, human capital development programs, and performance measurement to transition the Singaporean economy away from relying on cheap exports to developing high-value industries.
Under LKY’s leadership, per-capita GDP rose from $400 in 1959 to $14,500 by the time he stepped aside in 1991. He created the Singapore stock exchange in 1960 and, by 1990, it housed companies with a total market capitalization of $36 billion. Today, Singapore has a higher per capita GDP than the United States.
Radicalism
Argentina elected Javier Milei president of Argentina in 2023 with 56% of the vote amidst widespread desire for radical change. Corruption, economic mismanagement, runaway inflation, and currency devaluation eroded public trust in the incumbent political system. Firebrand Javier Milei promised to “blow up” the system and used images of a chainsaw to communicate his budget balancing intentions.
Milei’s first act as president was to eliminate nine governmental ministries (departments). He also signed a major deregulatory decree and has eliminated an estimated 25,000 of the Government’s 300,000+ jobs. Union protests have erupted, but populist support remains strong. The budget is now in surplus, the trade balance is now in surplus, and monthly inflation has fallen into the low single digits.
Argentina remains mired in recession, but confidence in Milei has grown. He faces his own midterms in 2025. Should his party pick up seats, his agenda will embolden. Since his election, the Argentinian stock market has appreciated 54% vs. the S&P 500’s 31%.
In summary, it’s unclear whether Donald Trump, his cabinet, or his policies will prove legislatively viable, economically effective, or politically pleasing, but—as anxious investors search for environmental analogs, the real results of conservative Margaret Thatcher, pragmatic Lee Kuan Yew and radical Javier Milei should offer context—and comfort.
Source: YCharts
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