US President Donald Trump.
Photo: AFP / Andrew Caballero-Reynolds
The United States has long been held up as the peak of the free-market economy, but several factors including political interference in institutions are giving it the speed wobbles.
American exceptionalism is a concept that has been around since the Pilgrims, when the country was described as a ‘City upon a Hill’, a model for the rest of the world.
That reputation was cemented in the post-World War II and Cold War eras based on its supremacy, particularly in the military, but also in technology and global political heft.
But recent developments in the United States have investors looking at where else their money could go, as the US dollar loses its gloss.
Mark Brighouse, the chief investment strategist at Fisher Funds, is one of those asking if American exceptionalism has peaked.
“American exceptionalism is a term that’s been used for quite a while to describe the aspects about the United States that are unique, but unique in a way that’s favourable,” he says.
“The good things about the United States – the things that it possesses that nobody else has.
“They’re widely thought to be the fact that it’s the strongest military power on the planet; that it’s an easy place to do business; it has powerful technology; deep capital markets; and has had astounding economic growth and returns to investors over many, many years.”
A strong democracy is another factor, along with the concept of freedom, flexible labour laws, and strong independent institutions such as the Federal Reserve, the Food and Drug Administration, and universities.
The American dollar is the world’s de-facto reserve currency, and you likely don’t realise how much you personally have invested in it.
“The average New Zealand household probably has about $65,000 in KiwiSaver between a couple. Of that, about $28,000 would be in US shares and US bonds. And it’s probably about the same amount again when you consider the New Zealand Super Fund and ACC and other government financial agencies.”
So what’s happened lately to shake that faith in America?
There’s a long list.
President Trump is being seen as abandoning America’s role as leader of the free world, as he encourages Europe to look after its own issues. America’s execution of foreign policy has become haphazard. The random introduction and removal of tariffs is destabilising and inflationary. Federal debt sits at $37.4 trillion (NZ$63t) and is climbing rapidly. The country’s infrastructure is ageing and economic inequality is growing. Trusted institutions are being undermined by political interference. It’s the only country in the developed world where life expectancy is going down. And ‘diseases of despair’ – violence, suicide, drug and alcohol abuse – are high.
“For a country that has a strong rule of law and spends a lot on healthcare, American people are likely to die from things that they shouldn’t really,” says Brighouse.
“So there’s definitely social areas that don’t support ongoing American exceptionalism.
“But we contrast that with a business environment that still is an attractive place for people like us to look for investment opportunities.”
Brighouse admits that as he travels to the US on business there are amazing contrasts. He’ll sit in an office high above New York’s Central Park hearing about incredible investment opportunities, business that are doing exciting new things and that have massive pools of capital to support them.
“But then you leave that meeting and you catch the subway. And you realise that the homeless crisis has been dumped in the lap of the transit agencies. And then you go to the airport and there’s a two hour delay because the systems that air traffic controllers use are dated from the 1990s.
“And then when you do get on the plane you’re reminded that 40 percent of US adults are obese. And life expectancy in the US is going the wrong way.
“But you have to be careful not to conflate those social and political issues with the business outlook and conclude you don’t want to invest there.
“I think you need to remember when you’re investing that you’re not voting. You’re weighing things up, and it’s not that clear-cut.”
Brighouse says if you’re worried, have a look at your KiwiSaver quarterly update to see what US companies are listed on the top 10 holdings, and if that worries you, call your KiwiSaver provider for an explanation of the rationale behind it.
“And if you’re happy with the explanation they give you … stop worrying.”
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