Reinhard Panse's Perspectives
Reinhard Panse's Perspectives
Podcast
30.9.2024
Trump is relying on an economic strategy that, while addressing "ordinary people" in his rhetoric, is more likely to weaken the US economy in reality. At first glance, his plan to cut corporate taxes and impose tariffs sounds like it will strengthen the domestic economy - in practice, however, it will lead to the exact opposite: higher tariffs will make imports more expensive, weakening the purchasing power of Americans. At the same time, US companies are put under pressure in international trade.
His plan to abolish the independence of the US central bank poses a further risk. A politically controlled central bank could put short-term interests above stable economic decisions, which would further fuel inflation.
For investors, this means that US equities, which are already heavily overvalued, are likely to come under increasing pressure under a second Trump administration. In the past, interest rate cuts in the US have almost always been linked to recessions, and although many are currently hoping for a "soft landing", i.e. a slowdown without a recession, the leading indicators for the global economy show a clear downward trend.
An alternative could be residential real estate, which historically has a very high correlation to inflation. However, US real estate is currently also highly valued, so caution is advised here.
Gold is a clear winner in these uncertain times. Despite recent highs, the precious metal remains relatively cheap compared to US equities and offers a proven hedge against inflation. For over two centuries, the price of gold has correlated strongly with consumer prices and, unlike real estate, gold does not appear to be overvalued at present.
The outlook for the US equity market is therefore not very rosy in view of a possible second Trump presidency and the associated economic risks. The following applies to the portfolio: diversification remains the key and with a forward-looking strategy, opportunities can be exploited even in a volatile environment - regardless of how the political cards are reshuffled in the US.
Reinhard Panse's Perspectives
30.9.2024
Reinhard Panse
In the run-up to the US presidential elections in 2024, questions about the economic future of the USA are dominating the capital markets. With Donald Trump as the new candidate, a political decision is imminent that is also likely to have far-reaching effects on the capital markets.
Trump is relying on an economic strategy that, while addressing "ordinary people" in his rhetoric, is more likely to weaken the US economy in reality. At first glance, his plan to cut corporate taxes and impose tariffs sounds like it will strengthen the domestic economy - in practice, however, it will lead to the exact opposite: higher tariffs will make imports more expensive, weakening the purchasing power of Americans. At the same time, US companies are put under pressure in international trade.
His plan to abolish the independence of the US central bank poses a further risk. A politically controlled central bank could put short-term interests above stable economic decisions, which would further fuel inflation.
For investors, this means that US equities, which are already heavily overvalued, are likely to come under increasing pressure under a second Trump administration. In the past, interest rate cuts in the US have almost always been linked to recessions, and although many are currently hoping for a "soft landing", i.e. a slowdown without a recession, the leading indicators for the global economy show a clear downward trend.
An alternative could be residential real estate, which historically has a very high correlation to inflation. However, US real estate is currently also highly valued, so caution is advised here.
Gold is a clear winner in these uncertain times. Despite recent highs, the precious metal remains relatively cheap compared to US equities and offers a proven hedge against inflation. For over two centuries, the price of gold has correlated strongly with consumer prices and, unlike real estate, gold does not appear to be overvalued at present.
The outlook for the US equity market is therefore not very rosy in view of a possible second Trump presidency and the associated economic risks. The following applies to the portfolio: diversification remains the key and with a forward-looking strategy, opportunities can be exploited even in a volatile environment - regardless of how the political cards are reshuffled in the US.
About the author
Reinhard Panse
Reinhard Panse is Chief Investment Officer and co-founder of FINVIA Family Office GmbH. Until February 2020, Reinhard Panse was a member of the Management Board and Chief Investment Officer for HQ Trust GmbH, which is owned by the Harald Quandt family. From 2004 until joining HQ Trust GmbH in 2011, Reinhard Panse was Chief Investment Officer of the UBS Sauerborn business unit created within UBS Deutschland AG. From 2001, Reinhard Panse was a member of the Management Board of Sauerborn Trust AG and its legal predecessors. He was responsible for the investment strategy and played a leading role in the holistic asset management and administration of large private assets. Reinhard Panse began his career by taking over capital market and client support activities at Feri GmbH in 1989, after having founded and managed his own wealth management as managing director.
