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The Trump trend is not your friend

This week, those in the capital markets showed it’s not just electorates that can deliver surprises. Investors got one back — by making markets rise on a shock Donald Trump election victory.

But if 47.5% of US voters, on those counted so far, voting for Trump (fractionally less than Hillary Clinton’s 47.7%) were irrational, as many think, so is the S&P 500 going up.

Capital markets specialists may be feeling blasé. New issuance resumed on Wednesday and Thursday in equities and in bonds from all stripes of issuer: public sector, financial, corporate and emerging market.

Market participants seem willing to overlook Trump’s outrageous campaign promises because of his conciliatory acceptance speech and hopes that he will deregulate banks and industry, and splash the government cash around. 

But while presidents usually have to compromise their wilder ambitions, none has proposed policies as incoherent and extreme as Trump. Kicking out immigrants, banning Muslims, walling off Mexico, bashing China, rewriting Nafta, packing the Supreme Court, bullying the Fed — how many of these promises can he break before his angry voters turn angry with him?

Most vital of all, because least reversible, is what he does on climate change. Any delay in cutting carbon emissions by a large economy is highly dangerous. If Trump decides to reject the Paris Agreement, that could even scupper it, if other countries cannot find it in themselves to play the grown-ups.

This week’s rally may have been useful for printing, but don’t count on it lasting. Markets have soothed themselves with blissful ignorance. An ugly reality — and prices that reflect it — are not far away.

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