Now that the Republican party has gone full Heisenberg1, the election that will produce the next US president comes into somewhat clearer focus. And while much remains unknown and undone, the odds are that the two main candidates – Hillary Clinton and Donald Trump – are presumed to be determined. Therefore, and despite the musings of the Oracle of Omaha2 on the importance of who is the next head of the world’s sole superpower, let’s take a moment to look at one of the candidates, Donald Trump, and specifically an essential element of his modus operandi.
A key aspect of Mr. Trump’s style can be summed in one word: unpredictable. His quest for the presidency has been unpredictable to many but it is self-described style that I want to focus on.
Mr. Trump has said on numerous occasions and clearly believes that being unpredictable is a source of strength. In his world view it gives him – and other strong men he admires – leverage over another. Throughout his business career being unpredictable has, no doubt, served him well and is a necessity when negotiating a deal. Therefore, he apparently believes that, since this works well for him when negotiating a deal, it’s a good thing to do when it comes to his new vocation: politics and the economy. Unfortunately, what Mr. Trump fails to realize is that businesses and especially financial markets are not particularly fond of unpredictable situations – let alone US commanders-in-chief.
Businesses have to plan ahead. It is tough enough in the highly competitive globalized world of business to turn a profit and grow the business. Furthermore, senior corporate managements are beholden to shareholders and stakeholders that depend on them to achieve their assigned goals – which in the case of institutional and activist investors is to achieve a rate of return and growth rate no less than and preferably in excess of their cost of capital. Functioning in a less clear, less predictable world makes their job that much more difficult.
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