Writing in her weekly New York Times (NYT) Fair Game column, in a piece entitled “The Trump Effect: Time To Buckle Up”, Gretchen Morgenson noted, “investors are now scratching their heads trying to figure out what his presidency will really mean for their portfolios. The recent flurry of executive orders from the new president provides a taste of what may lie ahead. This much is clear to many strategists: Mr. Trump’s mercurial tendencies will bring heightened volatility to individual stocks as well as to the securities markets over all. Let’s just say that fastening your seatbelt is probably a smart move.” As Bette Davis might intone, it’s going to be a bumpy ride.
After the announcement of the Muslim refugee ban, the market rally, led by those who thought Trump might well be good for businesses, stopped dead in tracks. Moreover, stating the obvious, Morgenson wrote, “What makes this period especially difficult for investors is Mr. Trump’s apparent willingness to make big decisions without weighing the far-reaching and longer-term consequences.” Obviously the tech industry is very troubled by the visa ban and can clearly see the writing on the wall. I wrote earlier about the negative impact on the energy industry. The US travel industry could well be devastated if Trump moves his ban forward to other countries or religions and continues his verbal assaults on countries which send a large number of tourists to America.
Morgenson also wrote about other industries that could be negatively impacted by the ban and one not immediately apparent – higher learning. She said that it will impact not only those foreign students who want to come to the US to study but also US students as foreign students pay not only more than US students but they are becoming a larger part of the US collegiate student body. She said, “International students contribute mightily to the revenues at educational institutions; as such, they help subsidize other students who are unable to cover the cost of college, including those from the United States.”
These few examples and the stock market in general point to the chaos which will continue under the Trump administration. After all, he is running the Presidency exactly as he ran his campaign and exactly as he said he would do so. Do not expect any change.
Last week I wrote about forecasting as part of your compliance risk management strategy. While your business may not ever to be fully able to forecast the Trump effect on your company, there are steps you can engage in to prevent a catastrophe. Simon Kuper, writing in his Financial Times (FT) Open shot column, in a piece entitled “How to avert a catastrophe”, suggested that looking into the past to forecast a catastrophe can be fraught with peril. He cited to the well-known forecasting, done annually by Mr. Turkey who gets fed more and more through the summer and early fall, which leads the analysts to make the following forecast “based on past trends, he will keep getting fatter. Then, just before Thanksgiving…..”
Kuper looked to Nassim Taleb, author of “The Black Swan: The Impact of the Highly Improbable” for guidance on how to be better prepared for a catastrophe. Given the pronouncements via Twitter of Trump and his Executive Order, it may well serve you to incorporate these points into your forecasting and risk assessment going forward, which I have adapted for the business leader or Chief Compliance Officer (CCO). The first is the most straight forward: catastrophes will occur and they will be in different form to prior catastrophes. Be ready to mobilize. Next “don’t follow the noise” and “ignore banalities”; meaning some catastrophes unfold silently and are not covered as TV events or even stories. He advises “We now need to stretch and bore ourselves with important stuff.”
The next few suggestions are quite useful as they require the business leader, CCO or compliance practitioner to focus internally. The first is to focus on and strengthen the internal controls to give you an earlier warning that something is amiss. Review your corporate infrastructure, or as Kuper writes, “Strengthen the boring, neglected bits of the state that can either prevent or cause catastrophe.”
Kuper cited a chilling example from Eric Schlosser, author of Command and Control, who wrote that in 2013, “the general overseeing the Minuteman III intercontinental ballistic missiles “was removed from duty after going on a drunken bender” in Russia, where his exploits included “asking repeatedly if he could sing with a Beatles cover band at a Mexican restaurant in Moscow, and insulting his military hosts”. A year later, nearly 100 Minuteman launch officers were caught cheating on their proficiency exams. Then a launch officer was jailed for 25 years for running a violent street gang. These people have the keys to launch nukes. A check-up may be in order.”
If you are an international company doing business in a predominately Muslim country, now, rather later, should be the time to check your sales channels, supply chain and even such banalities as how you will move personnel safely in and out of the country in the age of Trump. What about the location of your primary customers? If it’s the EU, how do you plan to get your data out with the imminent death of Privacy Shield and Trump’s drumbeat against not only our largest trading partner bloc but some of the US’ closest allies? Have you focused your long-term growth strategy at China (in particular) or the Far East in general? You may want to take a look at how your company will continue to sustain growth with the death of TTP, the rise of China as the regional power in east Asia and a not-too-distant trade war in the offing with China.
Kuper ended his piece with two items of very good advice. His penultimate piece of advice is listen to folks who have gone through a catastrophe. While the potential catastrophes under Trump may well be of both a different quality and quantity; seek out their guidance for the process through which they weathered the catastrophe. For it is the process which determines your response. If you have a process in place and are ready to go, you at least have a fighting chance.
Finally, I will simply quote Kuper’s final thoughts in full as I found them to be powerful and, indeed, spot on. He wrote, “Be conservative. Many Americans hope Trump will “shake things up”. As Noam Chomsky says, the risk is that he will. Often it’s smarter to maintain a flawed status quo. In Taleb’s words: “Don’t mess with complex systems, because we don’t understand them.””
[View source.]
