Aventine Asset Management Inc.

Good Morning,

As dawn rose this morning, the news that Donald Trump had indeed been elected as the new President of the United States was beginning to set in.  Global financial markets, which had initially reacted very poorly overnight to the prospect of a Trump victory, have been slowly digesting the broad implications of a republican sweep of the electoral map.  As of mid-morning, the large overnight losses experienced in stocks (and many currencies) have been fully recovered, although it’s fair to say that we expect a bit of volatility to persist over the coming days and weeks.

The major fear that an extremely bitter and divisive election season would translate into an aggressive and spiteful post-election political environment was allayed somewhat by the gracious, fence-mending tone of Trump’s acceptance speech.  While there remain many questions about the future policy path of the new US government, the answers will start to become clear as Trump’s Cabinet and a discrete policy agenda take shape.  The bar for Trump is relatively low and we are off to as good a start as one could hope for.  We will of course continue to keep a close eye on all of these developments.

Our job in these situations is not to have a horse in the race, but to understand the implications of many different outcomes and to make investment decisions accordingly.  Based on the republican platform, we know that we are moving from a higher tax, higher regulation regime to one that will be decidedly lower tax and lower regulation.  This is particularly relevant to the financial, energy and healthcare sectors, all of which are reacting positively today.  Additionally, the path should be clear for increases in infrastructure and defense spending.  On balance these will be positive for investors.

On the negative side, any new or revised US trade policies are expected to reflect a protectionist agenda which could impair longer term growth prospects.  Also, a likely change in foreign policy approach may see the US become less willing to compromise in diplomatic conflicts internationally, or create new entanglements in areas like the Middle East (Iran, Saudi Arabia) and China.

What is Canada’s role in all of this?  How much will the dynamic between our two nations change? Will new trade barriers restrict our access to the US market?  Will the US try and bully us into changing aspects of our industry, government policy or foreign relations?  It’s difficult to say with any certainty at this point.  We do know that the path forward is going to involve both positives and negatives for Canadian citizens and investors, we just don’t know the extent to which one will offset the other.  To pretend that we did would be irresponsible.

We can’t allow our fear of the unknown to cloud our judgement in financial matters.  Consumers will still consume, manufacturers will still manufacture, banks will still lend, resource extractors will still extract and the world will go on.   As we arrived in the office this morning we were excited to try and take advantage of some of the bargains in blue chip stocks we saw appear overnight.  Unfortunately stocks didn’t stay down and we didn’t get the chance to do as much as we would have liked, but we are making small adjustments in all portfolios today to take advantage of opportunities we do see.

We’ll be sending out our fund commentary in the coming days with a continuation of our evolving thoughts on the post-election world.  Keep an eye out also for a late year overview on our broad portfolio strategy and positioning.

In the meantime, please call or email if you have any questions at all.  We are here to help.

Warm regards,