Alex Chappell

27th January, 2017

Blog, Hot Topics

The Jägerbomb Moment…

Economic cycles come and go. Expansion, boom, bust, recovery… expansion, boom, bust, recovery… repeat. Each stage of this familiar cycle bear certain characteristics. A “recovery phase” for example, usually features high but improving unemployment, with low interest rates to try to stimulate growth. Next comes the expansion phase where things are improving, inflation is rising, growth is good, lots of people are in work and interest rates are being increased to try to ‘cool’ the economy to prevent a return to boom and bust.

A lot has been written about Trump, and the potential effects of his change in policy on the US and even the world economy. Maybe he will push growth into a boom phase, or will his protectionist stance increase prices and squeeze income levels? Our regular readers will know that we invite views from four chief economists in the UK. Such views help us shape our view of the path ahead. At one such meeting earlier this week we stumbled across a humorous metaphor (well we think so….) to describe Trumpism, and its possible effects on the US economy, implications from which will spill over into investment returns – so we thought it was worth sharing our Jägerbomb moment with you.

Imagine you are going out for an evening with some friends. You start with some steady beers or a couple of glasses of wine at a local bar, the customary group joker is pulling out all the stops early and the conversation is flowing. As the evening progresses you move on to the G&Ts and then hit the dance floor. The joker’s retreated to perform a half-hearted shuffle, and the quiet one has exploded into stints of Michael Jackson. As the night progresses even Michael Jackson is  starting to flag, that’s when you find that Jägerbomb moment… a short boost of energy and optimism that will get you back out there and push you on beyond the early hours!

Our economist colleagues concur. In their view Mr Trump is that Jägerbomb moment. More than 8 years on from the last financial crisis, it is no surprise that the US economy is towards the end of a cycle. Its expanding at a solid rate and the Federal Reserve (US Central Bank) are increasing interest rates. However Trumps expansionary plans (corporate tax cuts and more fiscal spending) could be the sugar rush that the US economy needs, but only time will tell if it has the legs to get us through the night. Trump’s shot of Jäger in our view will extend the dancing, perhaps as far as 2019, though it’s too early to tell if a hangover will be avoided, or if he will crash and burn. Until then we will continue to assess the quality of the dancing to ensure our portfolios are prepared for the morning after.