Donald vs. Mickey

What saved performance in April was pretty much Trump backtracking on major issues, such as announcing a 90-day pause on tariffs or denying that he had any intention of trying to sack Powell. Whatever made us think so? While both equity markets and most high-yield corporate bonds still recorded losses, final statistics reflected what might just have looked like a normal month.

Stagflation worries did not go away, though. We don’t know what tariffs we’ll have once Trump is done playing his negotiation game, but we do know they’ll harm growth and world trade. Most, if not all, economists agree on this point, and some are more vocal than others. Jeffrey Sachs, professor of economics at Columbia University, said at a recent conference in Turkey that these policies are delusional. Nor did he hold back on the sarcasm: “This is Mickey Mouse. … I apologise to Mickey Mouse. He would not do this. Mickey Mouse is smarter than this.”

As it happens, Nouriel Roubini, professor emeritus at New York University, also invokes the famous mouse. Professor Roubini is often referred to as Dr Doom, due to his many pessimistic comments on markets and the economy, but he is now decidedly more optimistic. Even if Mickey Mouse is president, he says, the US economy will keep growing. In a Project Syndicate opinion piece, he argues that US private-sector innovation promises to offset bad policies and erratic policymaking.

Let me expand on that point. The major unresolved issue in the US economy, Disney characters aside, is the government deficit, which has grown from 65 per cent of GDP in 2007 to over 120 per cent today. Much less talked about is the situation in the private sector, which is in fact in good shape. Since the Great Financial Crisis, US non-financial companies have reduced their debt/equity ratio from almost 240 per cent to almost 72 per cent. Admittedly, this is based on market values, but even a major correction would leave them looking a lot healthier than 10, 20, or 30 years ago.

Pending the end of Trump’s 90-day tariff pause, any numerical forecast is a fool’s game. There is of course a real chance of both recession and stagflation in the US, and global trade is not likely to prosper under Trump. Given the strength of the business sector, however, and perhaps a modicum of common sense in the Trump administration, I believe it is not likely to be severe.

And if it used to be true that Europe catches a cold when the US sneezes, it is now likely to be counteracted by a more expansionary fiscal stance in Germany and increased defence investments in Europe. That’s one reason not to lose sleep these days.

The best reason, however, is the strength of the companies we invest in. They are in much better shape than the governments you read a lot more about in the media. So, this time, I’m siding with Roubini’s Mickey Mouse argument. I put my trust in firms with sound balance sheets, capable leadership, and resilient business models.

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