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Under Trump, the 'Unexpected' May Be the New Normal

Under Trump, the 'Unexpected' May Be the New Normal

(Getty/Chip Somodevilla)

Thursday, 26 January 2017 07:23 AM Current | Bio | Archive

President Trump signed the executive order to start a wall along the 3,000 km or 1,900 miles of the US Mexican border.

To put this into somewhat of an historical context, there are only a few examples in history of really big walls that have been constructed:

We had of course the 5,500 miles or 8.850 km long Great Wall of China of which the majority of the still existing wall is from the Ming Dynasty (1368-1644) and that was built over several centuries across the northern borders of China to protect it against invasions of various nomadic groups of the Eurasian Steppe, but that had also among its purposes border controls that allowed the imposition of duties on goods transported along the Silk Road, regulation and even encouragement of trade and the control of immigration and emigration.

We had also the Romans that started building their 73 miles or 117 km long wall (Latin: Vallum Aelium) in the province of Britannia (England today) under the reign of the emperor Hadrian in 122 AD and that was designed to keep the barbarous tribes of the North out of the civilized South and that took 3 legions 6 years to construct it and has remained the largest Roman artifact anywhere.

And most recently we have had the construction of the 155 km or 96 miles long infamous Berlin Wall that was constructed by the German Democratic Republic (GDR) starting on August 12, 1961 and that was reopened in November 1989. An interesting detail about that wall is that the Berlin Wall was officially erected to stop illegal immigration from West Germany (!), but that was in fact used to prevent East Germans fleeing to the West from the repressive communist regime of the GDR.

Coming back to the Mexican wall, most independent assessments of the cost of the wall put it at somewhere between $20- and $25 billion US dollars, which is of course higher than official estimates.

Now, the cost will not necessarily be the main economic consequence in the near term.

The project is estimated to be 3 times the size of the Hoover dam (constructed between 1931 and 1936 during the Great Depression) and that in terms of resources would require diverting resources from other construction projects.

By the way, at its peak, the Hoover dam employed over 5,000 workers.

Extrapolating from that, the Mexican wall could occupy around 2 percent of the infrastructure work force.

Steel and cement would also need to be diverted to the Mexican wall, away from other projects while all this is set to occur at a moment that the labor market in the United States is at full employment and unless imports are allowed to substitute for diverted steel production, the project is likely to increase price pressures.

Of course, building the wall can be seen as stimulus if more skewed to inflation and growth, but it’s a stimulus that is likely to increase the Federal government deficit and a larger budget deficit, all things equal, means a larger current account deficit, which will not be helpful for the dollar.

Besides all that, there also is another issue at work here.

The build the wall pledge by candidate Trump was never really taken seriously by markets, but is now being followed through.

And this is very important for investors that may have to take it also seriously, which is obviously not the case at the moment, other of President Trump’s campaign pledges on, for example, trade with China or immigration.

If those campaign pledges are met, then the support for the US currency and for US assets that will be offered by Chinese and Middle East investors may, at the very least, be called into question.

Unexpected reactions in the markets should better be taken into account while managing/planning your investments, which means, at least that’s how I think about it, and certainly try not to follow the actual herd mentality that reigns in the markets.

In Europe, the Italian courts have ruled on the electoral law, which makes it possible now to allow elections to take place earlier than at the end of the parliamentary term next year.

Political uncertainty in Italy is not unheard of. However, in the context of the broader electoral calendar in Europe, this may still be relevant for investors.

Again, I think, as an investor, it will probably be better to be prepared for the unexpected because, it’s very simple, the unexpected will happen not before too long.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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As an investor, it will probably be better to be prepared for the unexpected because, it’s very simple, the unexpected will happen not before too long.
trump, economy, money, investors
Thursday, 26 January 2017 07:23 AM
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