Words on Trump's First Fortnight

Introduction

Welcome to Words on Wealth, a podcast by Evans and Partners that unpacks the key trends and opportunities shaping markets, the economy and your financial well-being. Join us as we make sense of the issues that matter most to you.

Tim Rocks

Hello, and welcome to Words on Wealth. I’m Tim Rocks, Chief Investment Officer at Evans & Partners. And today I’m delighted to be joined by Peter Novak, Josephine Linden and Alexandra Linden from Linden Global Strategies. Josephine has been a long-term mentor for our business. She’s on the EMP board, a counsellor to senior management and works in partnership with some clients and some advisors on particular management of accounts. So we’re delighted to have her. Linn and Global Strategies is based in the US. So they have a on the ground perspective on recent developments. But I should note we are recording this on Tuesday, the 4th of February, and things are moving quite quickly, so bear that in mind. Anyway, with that introduction, welcome Josephine, Peter and Alexandra.

Josephine Linden

Great to be here. Thank you so much, and we’re delighted to be talking to you.

Tim Rocks

All right, well, let’s start as we must with recent developments with President Trump and the trade war that may or may not be on. What’s your take on the ground on how this sort of might end up sort of playing out and potential impacts on equity markets and inflation?

Josephine Linden

Tim, I have always had an incredible respect for you, but I’ve never known what a incredible seer of the future you are. We planned this timing, I think about three weeks ago, and you must have known that over the weekend, Donald Trump, president of the United States, or two weeks of being in power, had decided to rock the world. And I really mean rock the world. We are not only in New York, but we are directly kitty corner from Trump Tower. And so we see it all. So what happened last weekend? Well, everybody is scrambling, trying to figure out the impact of tariffs. But one thing is for sure, the market has now taken the Trump agenda very seriously. In fact, we’re not surprised by any of this at this stage. The Mexican and Canadian tariffs were driven by Trump’s desire to make immediate progress on the fight against fentanyl, which as you know, has been entering the United States in mammoth proportions and to secure US borders. So we’re not surprised that Mexico tariffs have already been delayed and that Mexico has already come to the table to negotiate in the last 24 hours. Canada discussions are ongoing. In fact, they’re going on exactly as we speak with Trudeau speaking to the Trump government. China is on the other hand being driven by a multitude of factors and it’s a much lower level. The big surprise I think to the markets is in fact how low the starting point on the China tariffs of 10% are, and with the others being at 25%. But we’re very fortunate today because we’re joined by Alexandra Linden, who has actually served in the White House. And I’m going to ask her to talk about how this happens on transition teams, what is Trump doing, and how she would put it into a historical context.

Alexandra Linden

Thank you. So for quick background, I did have the pleasure of serving in the first 100 days of an administration, very different from the one that we’re seeing today. But the stark contrast, I can already tell, is the amount of activity that has already unfolded within the very first two weeks of Trump’s presidency. Donald Trump has moved quickly to implement his foreign policy agenda and more changes are coming. He has hit the ground running with shock and awe. And whatever you might say about describing a quick and decisive beginning, they all apply to Donald Trump’s first days in office. He has promised to disrupt the way Washington does business. And this week and this weekend, he has moved quickly to make good on his pledge. To put Trump’s start in perspective, the office of the federal register lists just two presidents in recent years besides Trump, who issued executive orders on their first day in office, Bill Clinton and Joe Biden. Clinton issued one, Biden issued nine, and Trump himself issued just one executive order on his first day in office in 2017. But this time around, Trump has issued 26 executive orders, 12 legally binding memoranda, and four presidential proclamations. And as of yesterday, the number of executive orders has risen to 32. In comparison, Trump has averaged 55 executive orders a year during his first term, and that was high compared to every president dating back to Ronald Reagan. Much of the media coverage has focused on the actions that Trump has taken on the domestic front, whether it was suspending birthright citizenship, ordering US troops to the US Mexico border, terminating the government’s DEI programs, or declaring a national energy emergency. He has also been busy on the foreign policy side of the House as well. To name a few, just quickly, some steps he has taken. He has initiated the U.S. withdrawal from the World Health Organization, which will become effective next January. He has ordered the U.S. withdrawal from the 2015 Paris Agreement on climate change. He has directed the Justice Department not to enforce the congressionally mandated ban on TikTok, which went into effect on Sunday for 75 days. And he has revoked security protection for his former secretary of state, Mike Pompeo, his former national security advisor, John Bolton, and his former Iran negotiator, Brian Hook, as well as a number of security clearances of 51 former senior officials in the US Intelligence Committee. And finally, he has cancelled the travel plans for as many as 10,000 refugees who had been authorized to come to the United States as refugees. He’s renamed the Gulf of Mexico, the Gulf of America, to recognize this flourishing economic resource and its importance to our nation’s economy and its people. But as of this morning, Google Maps has not changed its designation for the Gulf of Mexico. The AP says that it will continue to use that name. On the foreign policy side, Secretary of State Marco Rubio made his first overseas trip on Sunday as the US diplomat. He warned Panama’s President Molino that Washington will take measures necessary if Panama does not immediately take steps to end what President Donald Trump sees as China’s influence and control over the Panama Canal. Molino, after the talks with Rubio in Panama City, signalled he would review agreements involving China and Chinese businesses and announced further cooperation with the US on migration, but reiterated that his country’s sovereignty over the world’s second busiest waterway is not up for discussion. I will end with that in addition to these actions, which are several, Trump gave an inaugural address in which he pledged to pursue a policy that expands our territory. And he has already started to declare trade war actions. Trump’s rapid-fire moves have delighted his base and have made us wonder how this adventure will unfold over the next 100 days. Thank you.

Tim Rocks

Great. Thank you very much, Alexandra. That’s a very interesting perspective that you’ve got. So yes, as you say, it has been a whirlwind. It feels like there is some sense of excitement about that as measured by things like business confidence, even consumer confidence are higher. I was just wondering what you think that means for the economy this year. It feels like the economy was already on a pretty healthy position, but a bounce in confidence seems reasonably encouraging. What are your thoughts for how that might play out this year?

Peter Novak

I’m happy to jump in on that question. And it’s the right question to be asking, especially with everything that is unfolding real time right now. You’re right. The US economy has been grinding higher quite consistently over the past few years. Recession odds are quite low at around 20% in the US compared to Europe, which is about 40% for 2025. With everything that’s taking place currently around the tariffs conversation, I think it’s important to take a look at the potential impact of not only the tariff policies, but policies in general on one US economic growth in the form of GDP and inflation. Most economists at the moment are scrambling to put pen to paper to try and see what the impact of the latest wave of tariffs might be. So far, there are some economists that think that it will have a bigger impact on inflation than GDP. Others think that it will have a larger impact on GDP and not so much on inflation. What we do know at this stage, Tim, is that it will likely have an impact on both GDP and inflation. As far as GDP goes, I’d love to share a couple of stats that might help the conversation. So goods imports here in the US make up about 11% of US GDP. About 43% of US imports come from Canada, Mexico, and China. This means that potentially 5% of US GDP could be directly impacted by the higher tariffs on Canada, Mexico, and China. This is pretty meaningful when the annual GDP growth normally is about 2%. So most back of the envelope currently, Tim, point to potentially an impact on GDP of about half a percent, or six tenths of a percent and an inflation lift of about four tenths of a percent. So altogether, it’s something that the US economy as well as the broader US market, it can palette, especially with some of the other policies potentially offsetting the effects of tariffs, but that in a nutshell, airs the latest figures.

Tim Rocks

Okay, great. Thanks, Peter. Might just move on to some more specific investment topics here. The US equity markets obviously had a very strong run over the past couple of years. Are you or your clients thinking about now moving into other markets or asset classes and what role perhaps does some of this political sort of machinations play in all of that?

Josephine Linden

When you think of the market capitalization of stock markets, clearly the United States has dominated, not only has it dominated, but continues to. And so we have been very strong advocates for investing in the United States. The Federal Reserve, think, good when you start thinking about the key driver of markets. It’s clearly going to be interest rates. It’s clearly going to have a lot of volatility. And so you want to sort of take a step back. I think that the Federal Reserve will definitely be a source of volatility. You saw last weekend’s events and you also saw last week’s events when power kept the interest rates where they were. And so I think that what happened over the weekend in terms of tariffs somewhat justified the Fed’s cautious approach to rate cuts. Markets remain fragile to economic data post the 2024 summer recession scare and investors are clearly awaiting details as to what else will happen. What will the next shoe to drop be? So while we’re not expecting a third 20% plus year in US equities, we still expect a positive yet more muted investment returns going forward. Those expectations are in line with the historical return profile of equities, of course, barring any surprises from the new administration. And sort of mid to high single digit types of returns and equities. There’s obviously risks and those risks we would say would be one that stocks are expensive compared to interest rates. Secondly, inflation is at risk of increasing due to policy changes and tariffs. Thirdly, you really have tremendous geopolitical risks, whether it’s from the Middle East, Russia and Ukraine conflict, or US-China relations, which obviously Australia also shares. And then, of course, you have the surprises that you had last week. The recent DeepSeek AI announcements potentially derail optimism around AI’s impact on the US equity markets. Peter, let me turn it over to you for some more specifics.

Peter Novak

Yeah, thank you, Josephine. So getting even more specific with what we’re doing in client portfolios, as well as what we’re advising on, which is that we continue to prefer the US over other developed markets. And we prefer developed markets over emerging markets in this environment. As I mentioned earlier, the US recession odds are fairly low, especially when compared to recession odds that we’re seeing in Europe. But let us turn to corporate earnings, because at the end of the day, the market will usually follow the trajectory of how corporate America does. So far, as we’re reporting this podcast, nearly 40% of the S &P 500 companies have reported. 77% of those companies have reported a positive earnings per share surprise. If earnings season were to stop right now, another way to look at it would be that year over year earnings growth rate would be at just over 13%, which would be the highest since 2021. So when you’re looking through and you’re looking at various different forecasts for 2025, it is important to look at corporate earnings. And we are in the middle of earnings season currently. And so far, knock on wood, so good. Also, let us not forget that there is a lot of activity and optimism happening here in the US, whether it’s in the form of innovation, capital markets activity, potentially opening up even more so, and then deregulation. All of this helps us support our preference for the US. In terms of other investment asset classes, we continue to like our credit managers, which are providing excess returns over what can be earned in risk-free assets here in the US and elsewhere. And we do believe that 2025 will continue to be a year where the investment mix will be crucial in determining the overall performance of portfolios.

Tim Rocks

Great, that’s very insightful, thank you. But then the other area would be broadly alternative assets, private equity, private credit. They’ve obviously seen huge growth in recent years. Are you investing heavily here and do you see ongoing opportunities there?

Peter Novak

Tim, it’s incredible to see the explosion of semi-liquid evergreen investment structures offering retail clients access to private equity. Private equity was usually off limits for a big portion of the investment community unless you were a large institutional investor. So there’s a lot of excitement, of course, around private equity, getting private equity exposure into portfolios. For us, when we work with larger clients, and on the more sophisticated end of the spectrum, we do oversee a fairly substantial platform of private equity investments. However, more broadly speaking, given the illiquidity, the lockups and the administrative burden for non-institutional investors, we tend to focus and continue to focus our time on the more liquid side of the investment offering in markets. However, after the recent soft period that we’ve seen in private equity, we do think that private equity is well positioned to have and is due for a handful of good years ahead of us, especially with the M&A and IPO activity expected to pick up in 2025.

Tim Rocks

Great, okay, interesting, thank you. And then any other particular areas that look interesting as we enter this kind of the new year? If you had to nominate your one or two sort of really sort of favourite opportunities.

Peter Novak

Yeah, so Tim, it’s in this environment in 2025, we continue to like public equity investment strategies, but with a bit of a twist. We like investment strategies that take a very selective and or concentrated approach to hand picking the highest quality companies and or industries that are available to those investment managers. These strategies already this year are off to a strong start despite a lot of the market volatility that we’re seeing. It’s important to keep in mind that it’s a part of our philosophy to keep things simple. So we do believe that interest rates will drive that push and pull that will determine equities versus credit, equities versus traditional fixed income and equities versus other asset classes. And by investing into higher quality public equity companies through active investment strategies, those managers can be at the front lines willing and able to adjust their portfolios into opportunities where they can capitalize the portfolios. And then we can act as an additional backstop to adjust our exposure to those underlying investment strategies to continue to capitalize on opportunities that might be out there in the market.

Tim Rocks

Yeah. And what about small caps? Is that a particular area of focus for you?

Peter Novack

Yeah, so in second half of last year, we started to look through all of the client portfolios and make sure that there was sufficient, not an overweight, but sufficient exposure to the small and mid-sized companies in the US markets, given how overlooked they have been over the past handful of years. That is a investment strategy and a trade that has yet to have the catalyst come to fruition. And it is one that we are closely monitoring, but we do think will be well positioned for 2025 and beyond, especially some of the policies coming down the pipeline.

Tim Rocks

Yeah. I might just finish with one other question back on Trump. One of the real surprises has been this attack on DEI, you know, diversity, equity, inclusion, I think that means. Well, I was just wondering, and I mean, it’s a real surprise, but does this have implications for investing? know, the investing equivalent is ESG type investing. Do you see that kind of attack from the top on DEI filtering through to any investing implications?

Josephine Linden

Let’s take a little bit of a step back. Clearly, Trump has been very strong about the DEI and the fact that he does not support that. And you’re seeing in government positions already and his comments over the weekend. You’ll find that executives of many companies are actually fairly supportive of rolling back these initiatives, rightly or wrongly. Even before the new administration, the SEC had started coming down very strongly on this kind of area, including ESG investment strategies. But let me turn it to Alexandra for her comments here.

Alexandra Linden

Thank you so much. So just to quickly add some more background on President Trump and DEI. President Trump has taken swift and significant actions against DEI programs since returning to the White House. On his first day in office, January 20th, Trump signed an executive order titled Ending Radical and Wasteful Government DEI Programs and Preferencing. This order directed all federal DEI staff to be placed on paid leave and eventually laid off. As a result, a number of companies have recently rolled back their DEI programs. This includes companies such as Meta, McDonald’s, Walmart, Ford, Harley-Davidson, John Deere, Amazon, and Boeing. These companies have either announced changes or have taken steps to eliminate or reframe their DEI efforts, often in response to conservative criticism and a shifting legal landscape. Still, there are several major companies that continue to support DEI policies despite some trends towards scaling back. These companies include Kroger, Ulta, Disney, NBC Universal, Macy’s, Old Navy, Nordstrom, TJ Maxx, and Costco. They have been listed as maintaining their commitment to DEI. Other companies that we have seen maintain their commitment include Apple, which has urged shareholders to reject proposals aimed at restricting these initiatives. Delta Airlines, which has publicly committed to DEI, highlighting its importance to their business operations and Microsoft, which continues to publish DEI reports showing their ongoing commitment. I will now turn it back to Josephine or Peter to talk about the implications.

Peter Novak

Yeah, Tim, you’re asking an important question with what it might mean for those listening to this call that have ESG strategies or are looking at new ESG strategies. As Alexandra and Josephine pointed out, even before the new administration, there was additional layer of scrutiny on ESG labelled investment products, whether it was ESG or sustainable or impact, whatever it might have been. And a lot of large investment managers are starting to shy away from labelling their products as ESG, SRI or impact focused. We believe that a lot of the philosophy of ESG, SRI and impact are still expressed through these strategies, but because of that additional regulatory scrutiny, they’re no longer labelled as such. We would not be surprised if there is less of those ESG, ETS and SRI and impact strategies out there in the market, just given what a burden it is to register those products and make sure to be adherent to them.

Tim Rocks

Yeah, yeah. Okay, that’s interesting, thanks. Great, look, thank you for your time. We should end it there. Really appreciate such a wide range in discussions on a range of topics. And I’m sure we’ll have to get you on again once we know a little bit more about how this administration is gonna play out and what it means. But anyway, thanks again for your time.

Josephine Linden

A pleasure and thanks very much for thinking about us. Good luck to you too.

Disclaimer

This podcast was prepared by Evans and Partners Proprietary Limited AFSL number 318075. Any advice is general advice only and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Where this presentation refers to a particular financial product, you should obtain a copy of the relevant PDS, TMD or offer document before making any investment decisions. Past investment performance is not a reliable indicator of future investment performance. Directors, employees and officers at Evans & Partners and its related entities may have holdings in securities listed. Any taxation information is general and should only be used as a guide.