More scary for investors is his administration’s hectoring of its trading partners, and the economic disruption it is feared this could bring about if the war of words escalates into trade wars. Already Trump has rejected the Pacific trade group - the TPP - and now threatens to tear up the North American counterpart, Nafta. The EU said this week that if the US turns to protectionism it will have to seek new trade partners; the UK will have no choice but to seek new trade partners over the next two years. On page 14 Chris Dillow downplays these latter fears on the basis that the economic importance of this high-level policy activity is often overestimated. I agree to a large extent - it is companies, not governments, that do business with each other, and trade has a habit of finding a way, even when tariffs and other barriers are raised. But governments do have a habit of getting in the way.
What's more, says Chris, equity markets might still take fright regardless of the true economic impact. And some individual companies may find themselves directly in the line of fire of this political upheaval. The pharmaceutical industry and its alleged price gouging has strongly featured in Trump's rhetoric – and his behaviour in office so far suggests action could follow. Meanwhile, the complexity of global supply chains in retail, automotive and technology industries will almost certainly see those industries suffer major disruption if trade battles intensify.
And, putting - with difficulty - politics aside, there is certainly an air of fragility about the markets after their latest push higher (even if, as one reader rightly pointed out to me last week, the headline-grabbing records being set by markets belie a decade of miserable performance when adjusted for inflation). Valuations are punchier than ever and profit warnings are mounting - 21 in the first 25 days of January. I noticed, meanwhile, one broker commenting this week that the end of monetary easing would make it easier for stockpickers to beat the market. I think this warrants caution. Monetary distortion has lifted bad assets along with good, such that a decent return could be had without much discernment, and cautious, value-centric stockpickers found themselves left behind. Yet while the removal of the monetary tide will make the rules of stockpicking more important, it will not in itself make it any easier; in stretched markets only those who do it properly will prosper.
