Did you notice how quickly markets recovered their mojo when Donald Trump told the media at one of the G7 press conferences in Biarritz that China had called to make a deal?
He said China desperately wants to make a deal. He embellished it generously with his usual hyperbole that China is hurting, China s stealing billions of dollars from America, China is losing millions of jobs and that China is paying billions in US-imposed tariffs.
Every man and his dog who was watching probably knew that no such phone call had either been made or received. Nor was China desperate about doing a deal. If anything, China is quite happy to sit on its hands….
…. but that didn’t stop traders from pushing up stock market index futures. Like Pavlov’s dog, they react with utmost predictability to any White House comments.
As it turned out, China has said that it knew of no such phone call. What a surprise!
The event in Biarritz tells us an awful lot about what is going on in the world today. What does it say when we are more likely to believe the word of an autocratic Chinese government than the utterances of one of the world’s leading free-market democracies?
It’s sad but true. America, under the current leadership, has become untrustworthy.
The president flounced when Denmark refused to sell him Greenland. And his comments that the First Lady has “gotten to know” Kim Jong-un turns out to be as true as his assertions that his inauguration crowd was bigger than Barrack Obama’s.
So, does it matter that the US President can’t be trusted? From an investor’s perspective, it is an unequivocal “no”.
Capitalism, or the efficient allocation of capital, does not succeed or fail because of a country’s leader. It happens despite a country’s leader.
As investors, our jobs are to identify the companies that can allocate shareholder funds effectively to generate a good return on that money. So, stay focussed on the things that matter, such as companies that can generate high return on equity, quick asset turnover and robust profit margins.
In other words, look for good companies that will work hard at making your money work harder, regardless of who is temporarily occupying 1600 Pennsylvania Avenue.
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