This is not a political site nor a stock touting site, but a higher level educational and conceptual site where we try to give you key macro-political insights. A crucial one in order to understand markets going forward is the genius of Trump’s concept of capital. Now you can politically love or hate what Trump is doing as President, but you definitely if you are going to understand the broader geopolitical landscape need to understand this key concept. In earlier posts I talked about Trump’s genius in using tariffs against the globalist system in Feurbachian terms of completely reversing their usual meaning and turning the ideal of tariffs under globalism back in a brilliant real-politique direction against the globalist system. This is a similar idea in its own way.
If you don’t know the meaning of economic capital look it up. It is the key to the idea of capitalism where businesses deploy money to expand their businesses and hire workers who then increase productivity, etc in turn expanding the business. Capitalists use capital to work for them and they hate it sitting around doing nothing . Now if you are a Marxist you will look at it slightly differently and Marx wrote as everyone knows a book on this entitled surprise, surprise Capital. But since I am not a Marxist we’ll stick with the more standard definition here. It is the use of capital that allows the economy to prosper over time.
But Trump is not sticking with this usual framework, his concept of capital is much more expansive and he is expanding it into the very foundation of politics itself . To get at this deeper concept we need to abandon temporarily the standard economic texts and definitions and talk in slightly different psychological terms. Most people view capital at a personal level as something they wish to take only so far and then convert to security and a conventional world of things. If you think about it if one were really fully a capitalist at a personal level one would want as much liquidity as possible to use for various opportunities that came up. If the entire purpose of capital is to use it to get more capital than liquidity is king or queen so to speak.
Yet people do not do this and this includes even very wealthy people. Instead they use it for houses and cars and countless things that do not really generate capital. Those things give them a sense of security and permanence. A significant amount of their personal capital and even sometimes business capital gets deployed this way. Quit a few CEO’s have even bankrupted their businesses or hurt their businesses this way by expanding in a foolhardily way their empire of things ever further and destroying necessary liquidity. Now I am not judging this tendency personally by people and maybe for most people it even makes sense and increases their quality of life in a significant way.
The fact that this is the case, however, is shown by a statistic I always find fascinating which is people’s net worth versus liquidity. The average household has something like 70 per cent of their wealth in their home and only 30 per cent in liquid assets. The number goes down for rich people, but is still pretty high. I believe, and its been a while since I looked at the statistics, it’s like 40-50 per cent in their homes. When one considers wealth a fair number of Americans have 1.5 to several million dollars in household net worth. But when one looks at liquid assets those numbers plummet for those amounts. In fact that number in liquid assets is a mere fraction of 1 per cent. Here’s the deeper point I’m getting at: most people rightly or wrongly view capital as a means to security and owning a house is a key part of that once they get some money. And yet as a capitalist investment a house is not a particularly good use of capital. The Nobel prize winner Shiller has shown, and he is the expert on property prices and created the Case-Shiller Home Index, that over longer periods of time houses don’t make money they simply maintain their price in the face of inflation. That’s okay, but from a capitalists standpoint not the best use of capital. But from a psychological standpoint that does not matter. Houses make people feel wealthy and secure, they have a taken for granted quality many people need.
Now we could go into this psychology more and things like the fear of death or how property in a home is a cultural signifier, but lets get back to Trump. Most politicians are not true capitalists nor even most capitalists for that matter. Like most people they value a sense of security above all else. They hate political volatility and if they have a big political win they tend to stop and then use that capital to only consolidate and secure their position. They hate change and always try to keep their political capital as safe as possible. This is true of most Republicans and Democrats. What If Trump lacked that need for security, if he was a 100 per cent a capitalist and even expanded the definition of capital into the political realm in this manner? Now, obviously, I know he owns property but we are talking about psychology here. He did however only pay something like 11 million for Mar Lago at the bottom of the real estate market collapse and that included all the high priced furniture worth at least half that, and then turned it into a highly profitable club. The property is probably worth 20-25x or more what he paid for it now.
Trump does not view like most people or politicians his capital as something aiming at security but as something entirely to be leveraged and used. He is that older model of capitalist less often found these days who seeks a different path. This is shown in the recent events of the past two weeks perfectly. He successfully launched a preemptive strike against Iran’s nuclear arsenal and got his tax bill through Congress. He used up a lot of potential political capital to do these things and won. Now most politicians would at that point so to speak “buy a house”. They would convert those two huge wins to security. They would not view that political capital as liquid capital to be redeployed and expanded. They would be picking out the new wallpaper and the couch, metaphorically speaking. Instead it is reported the very next day after getting his bill passed letters on reinstating the temporarily postponed tariffs went out and it seems even likely they are about to be reinstated on many countries who have not yet made a deal. That liquid political capital gained by those two wins is being redeployed immediately.
Will this lead to market volatility again. In all probability, yes. But the genius of Trump is he does not care. If you have capital you keep it liquid and right away redeploy it. He is redefining the way politicians think of political capital. Not as something that is about security like a house but as something entirely liquid to be made full use of at all times. In so doing he is completely redefining an earlier Country club style Republican party that used to value no volatility and security above all else. Like I said I know he has a very beautiful house in Washington right now and all of those other properties he actually owns are quite beautiful including his many hotels, but from a psychological standpoint he’s the capitalist or trader you sometimes read about, you know the guy living in the 1 bedroom rental condo deploying all his liquid assets investing not the guy resting on his wealth in the big house. And he’s President of the most powerful country on earth which is to say he has an awful lot of capital he can use and deploy. As far as he’s concerned politicians seeking security have not fully used that capital for many decades. Whatever you think about Trump its going to be an interesting three and half years. If you are going to understand the macro-political landscape going forward you need to understand this concept.
But most 30 somethings in markets only know of a world dedicated to the security of the construction of a globalist predictable international organization “house” to continue the metaphor. They are completely unprepared for this alternative perspective where the goal is not ever the taken for granted security of things but instead the deployment of capital to its maximum potential use.
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