With uncertainty the new normal, old havens appeal

Is uncertainty now the new normal for investors? It's probably about the only thing we can be certain about at the moment.

With global stock markets still hovering around record highs, even the most casual observer would have to agree this seems a little odd with the arrival of the unpredictable Donald Trump in the White House and the disruptive Brexit decision to take the UK out of Europe.
However, seasoned market professionals have seen this sort of thing before. Markets are always on a high in terms of investor confidence and prices before they take a tumble. Remember how stocks held up well before the global financial crisis and then ended up in a bloodbath?
Of course nobody gets this right all the time. Hedge fund veteran billionaire George Soros is said to have lost US$1 billion in bearish bets against a Trump presidency. So far Wall Street has decided that a pro-business, tax-cutting Republican administration is good news for profits and share prices.
But the cracks are beginning to appear in the shaky edifice. The new president's first days of rapid-fire erratic and unexpected announcements shocked many people.
He even met the British prime minister Theresa May as his first encounter with a foreign leader, aligning his administration with the equally upsetting Brexit to take the UK out of the EU, the world's largest free trade zone. Mr Trump also ripped up his own North American Free Trade Agreement in his first week of office and proposed a 20 per cent tax on Mexican imports to pay for a new wall to keep illegal immigrants out.
Is such uncertainty now the "new normal" for investors? I think that is probably about the only thing we can be certain about at the moment.
What we crucially don't know, and may not for several years, is how global trade will be disrupted by the renewed "special relationship" between the US and UK.
What we do know is that global trade has been slowing down for the past 18 months, and that this trend looks likely to accelerate as unpredictable and uncertain policy changes emerge this year. We also know that the US dollar has fallen in recent weeks. Is this the start of a weak dollar policy by the new administration, perhaps another alignment with the UK that has followed a weak pound policy since the Brexit referendum last June?
If you follow the technical charts, then the dollar put in a double-top around ?1.05. A weaker currency is surely the other side of a trade war to put America first, and far more effective than tariffs that invite instant retribution. Can the new administration force a weaker dollar by executive order against the wishes of the Federal Reserve? Well who can really say no to president Trump?
For the Gulf states this would not be so bad. Oil prices would go up as the dollar weakens, while the weaker dollar makes tourism more competitive in the Gulf unless travel bans become so universal that global travel is affected significantly.
What we also do not know at the moment is how far the reflationary Trump promises of spending on infrastructure like airports, tunnels and bridges, will prove to be.
At first glance talk, of a $1 trillion programme over the next 10 years sounds impressive, but try to see this in the context of the roughly $1.5tn China spent last year alone. This is not enough to reflate the US economy, and absent taxes will have to be paid for by printing money.
So what should the cautious investor do? Be careful. Even doing nothing is unwise if the US dollar is going to fall and your savings are in a dollar-pegged currency like the dirham.
Perhaps it is time to look at the euro or the pound as alternatives, although the Brexit makes the pound a risky bet. Or maybe it will be another great year for gold, last year's best performing currency, which was beaten only by its fellow monetary metal silver.
With interest rates already in or close to negative territory in many parts of the world, this is surely a time for the yellow metal as a safe haven, and yet it has not been immune from volatility recently either.
My hunch is that Mr Trump will prove inflationary and drag the rest of the world with him. That might well mean a return to the investment conditions of the 1970s when stocks and bonds were beaten by cash, and gold, oil and silver reigned supreme.
Peter Cooper has been a financial writer in the Gulf for two decades.
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