worldThe historic U.S. election result now confirms the shift underway in the developed western world from liberalism to populism.  The age of collective responsibility for social advancement, tolerance, application of scientific principles, and general prosperity is decisively shifting to a new one driven by individual pursuit, narrow self-interest, dogma, and generally unequal wealth distribution.  As you would expect, this material shift in political orientation will feed through to material shifts in economic and social systems.

The shift has been underway for a few years now (witness Brexit, but even before the 2008 financial crisis), though it seems to be catching many off-guard.  Why has the shift caught so many unawares?  As well, why is everyone so surprised that results belie predictions relevant to this shift?  Firstly, because populism is rooted in individual belief and behaviour, and often what one says publicly (via polls, for example) can be in stark contrast to what one actually does privately (via the ballot box).  Secondly, because the power of social media in individual hands empowers those individuals to convey messages that are a distortion of reality (such messages being based on emotion (dogma) rather than fact and knowledge (science)), leading to incorrect conclusions.  Traditional media is bearing the full backlash from this latter change.

In this new environment, there will be winners and losers.  In terms of investment policy, place more emphasis on investing in hard assets (such as metals and mining) and less on services (such as technology – yes, you read that right).  Minority groups will be under significant attack – the LGBTQ community, black community, women, Hispanics, Islamists and other religious minorities, and so on.  The top 1% will continue to be winners (the rich), while the remaining will be left to their own devices.

In geographic terms, Canada stands to be on the winning side – it remains one of the few bastions of collective responsibility for social progress, at least in the short term.  The notion that Canada’s population could rise to 100 million in a relatively short period of time does not seem too far-fetched now – there will be intense pressure for immigration by minorities.

Protections on social issues in this new world will be in retreat to the local community level.  No longer will minorities be able to rely on institutions at the macro level (such as the Supreme Court or the federal government) to protect them.  Rather, minorities will have to erect their barricades and ensure they are equipped with sufficient resources to withstand significant opposing forces.

Empowering the individual is not necessarily a bad thing, especially in terms of economic progress, creativity, innovaton and invention.  The challenge is that it often comes with social upheaval based, again, on sentiment and dogma.  This latter challenge is particularly magnified when there is such a wide disparity in ownership of economic wealth and access to economic opportunity.  As well, there is a good risk – though not certainty – that populism can reach such intensity that fascism becomes a real possibility, especially if the rule and respect of law (which can run counter to the empowerment of the individual) is repeatedly ignored or arbitrarily overruled.

Many expect the historic U.S. election result to cause an immediate and significant decline in investment markets.  What is more likely to happen is that investors are going to face a very long period of declining investment returns rather than a short, sharp decline followed by an upward move to new peaks.  This is because the uncertainty associated with this political shift is going to be around for a long time – it is not business as usual.  In this environment, active investment management based on measureable value criteria (cash flow, valuation, management expertise, etc.) will outperform.