Donald Trump and Vladimir Putin could destroy each other
Supporting the US president may yet backfire on the Kremlin
by: Gideon Rachman
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If Vladimir Putin did help to put Donald Trump in the White House, it would be the ultimate intelligence coup. Yet, it might also prove to be the ultimate own goal. An operation designed to ease the pressure on Mr Putin’s government by installing a friendly face in the White House has instead led to a tightening of sanctions on Russia, and a dangerous increase in the domestic political pressure on the Russian president.
As for Mr Trump, his campaign’s alleged collusion with Russia may have aided his electoral victory at the risk of destroying his presidency. It would be a strange irony if the intimacy of the Putin and Trump camps ultimately ended both presidents’ political careers.
Of course, the Russian government and Mr Trump’s diehard defenders still deny that any such collusion took place. But the US intelligence services are certain that Russia was behind the hacking of Democratic party emails.
It seems likely that the hack influenced the course of a tight election. I was in Philadelphia on the eve of the Democratic convention in July 2016 when the first leaked emails were released.
The revelation that Debbie Wasserman Schultz, the co-chair of the Democratic National Committee, had been privately disparaging the Bernie Sanders campaign forced her resignation, and ensured that the convention got off to a chaotic start.
Mr Sanders’ supporters were convinced that their man had been robbed. And Sanders voters who switched to the Republicans, were crucial to Mr Trump’s victories in the vital states of Pennsylvania, Michigan and Wisconsin. We now also know that Russian operators used Facebook and Twitter to spread anti-Clinton messages.
Throughout the campaign, Mr Trump was consistently sympathetic to the Kremlin. Whether he was motivated by ideology, investment or some embarrassing secret has yet to emerge.
But the Russian connection set off the chain of events that may ultimately unravel his presidency. Alarmed by the Federal Bureau of Investigation’s probe into his Russian contacts, Mr Trump sacked James Comey, the head of the FBI.
The backlash against the Comey sacking led to the appointment of Robert Mueller, a former head of the Bureau, as a special prosecutor to look into the Trump-Russia connection. And the remorseless progress of the Mueller inquiry is likely to spark indictments and resignations.
That, in turn, could lead to the impeachment of Mr Trump — and the destruction of his presidency.
As for Mr Putin, the moment it became clear that his gamble might backfire was when Mr Trump was forced to sack General Michael Flynn, his first national security adviser, for not disclosing contacts with the Russian government. From that point on, it became politically impossible for Mr Trump to help Russia by easing sanctions. On the contrary, the backlash against Russian interference in the US election has led to the intensification of sanctions, with a distrustful Congress ensuring that Mr Trump cannot lift these measures unilaterally.
Indeed, for the Republican Congress getting tough on Russia seems to have become a surrogate for getting tough on Mr Trump. The sanctions added over the summer were aimed specifically at the Russian mining and oil industries, In response, Dmitry Medvedev, the Russian prime minister, accused the US of “a declaration of full-fledged economic warfare on Russia”.
So far from improving under Mr Trump, US-Russian relations are now as bitter as at any time since the height of the cold war. Realising that the Trump administration will not be able to lift sanctions, the Kremlin resorted to a mass expulsion of US diplomats in response to an earlier expulsion of Russians by the Obama administration. The prospect that the US might supply arms to Ukraine has become much more real. And Russia is about to embark on some major military exercises in eastern Europe, which will heighten US fears.
The irony for Mr Putin is that, if he had simply let events take their course, sanctions on Russia could have been eased in the natural run of events — even with Hillary Clinton in the White House. Mrs Clinton had already tried one “reset” with Russia as secretary of state, and might have been prepared to try another. Many in Europe were also tiring of sanctions on Russia.
When the Mueller inquiry reports, there is likely to be a renewed spike in American outrage towards Russia. The most obvious threat is posed to Mr Trump. But the Mueller inquiry also poses an indirect threat to Mr Putin. He will contest a presidential election in March and faces a re-energised opposition, led by the popular and daring Alexei Navalny, and a deteriorating economy that has hit Russian consumers hard. Even though very few people expect Mr Putin to lose the election, the pro-Putin euphoria of a couple of years ago is clearly fading. Articles about the post-Putin era have begun to appear in the Russian media.
Above all, the most powerful economic interests in Russia now know that there is no longer any light at the end of the sanctions tunnel. In fact, things are likely to get worse. Something radical will have to change to get sanctions lifted. And that change might be the removal of Mr Putin from the Kremlin. Indeed, it is only when Mr Trump and Mr Putin both go that it may truly be possible to reset US-Russian relations.

- As climate change has become increasingly problematic for the world, the investment community is starting to pay attention to the investment risks it poses. In this paper, however, we focus on the exciting opportunities in companies involved in combating climate change (i.e., the climate change sector), either through climate change mitigation or helping the world adapt to climate change.
- As costs have fallen for solar, wind, batteries, etc., we are approaching an inflection point where clean energy solutions will be cheaper than conventional alternatives, even in the absence of subsidies. We believe the improving economics for clean energy combined with a growing global awareness of the magnitude of the problem we’re up against will support secular growth in the climate change sector for decades to come.
- We think current growth projections are likely to dramatically understate realized growth as the world continues to mobilize to address climate change and costs continue to fall for clean energy solutions.
- Liquidity, cost, and the ability to diversify are advantages to investing in the climate change sector via the public equity market rather than via private investment.
- We don’t believe that you have to sacrifice returns in order to invest in companies helping the world address climate change; on the contrary, we believe there will be many opportunities to generate strong returns.
- Despite strong growth projections, the climate change sector has generally been trading in line with the broad equity market from a valuation perspective.
- We believe that the climate change sector is likely to be a particularly inefficient sector and that a disciplined value orientation will be key to harvesting strong returns.
- Though there are risks to investing in the climate change sector, the risks we worry about are the same risks investors face in other sectors: getting caught up in hype and stories, paying the wrong price, and investing in industries with poor competitive dynamics.
- Mitigation
- Adaptation





There’s also still a fair amount of uncertainty about US federal policy with regards to climate change. Climate change is a multi-decade problem. In that context, the effects of any one administration’s policies are limited, and, as the abandonment of the Clean Power Plan demonstrates, policies aren’t permanent.
President Trump has also indicated that he’s “okay” with the federal tax credits incentivizing solar and wind development, and the tax credits are perhaps the most important support for US renewable energy efforts.
Additionally, with the renewables industry growing jobs at almost 10 times the pace of the broad job market coupled with the administration’s focus on job growth, it’s hard to imagine the government endangering the 200,000 jobs that are expected to be added to the booming renewable energy industry by 2020. Even now, Mr. Trump himself is talking about putting solar panels on his proposed wall at the US-Mexico border!
More importantly, climate change is a global problem, not a US one, and rather than wavering on their promises, other countries have instead rallied together to reaffirm their commitments in the wake of President Trump’s decision. China, India, and others are champing at the bit to take a leadership position on climate change and to reap the potential rewards. Germany, France, China, India, and others are setting goals to eliminate internal combustion engine vehicle sales within the next two decades or so, and many countries are targeting dramatic increases in renewable energy capacity. If anything, the global community seems to be accelerating efforts to address the challenges posed by climate change.
While public policy support has been critical for clean energy in the past, it’s not obvious that it will be a necessity going forward. As renewables, electric vehicles, etc., become cheaper than conventional alternatives, public policy will be icing on the cake. We believe the combination of global public policy support, the profit-seeking private market, and the continually increasing competitiveness of clean energy solutions will support growth for many years to come. We are in the very early stages of a massive transition to clean energy, and in a world struggling to find growth, climate change-related industries should truly stand out.
Public equities provide exposure to more mature, proven technologies, while start-ups offer the chance at a game-changer and the associated windfall, as well as the much more frequent disappointments and bankruptcies. These seem like differences, not necessarily advantages or disadvantages. However, while this doesn’t seem like an “either/or” question, there are some advantages to the public equities.
Perhaps most importantly, the public equity markets offer a relatively easy avenue for diversification, and we think diversification is important in the climate change sector. There will be a fair amount of uncertainty about the precise growth rates of various segments of the climate change sector, and we believe that it will be important to invest in a variety of business models that stand to benefit from efforts to address climate change. It would be extremely difficult and expensive to pull together a basket of private investments spanning wind, solar, geothermal, smart grid, storage, seeds, fertilizer, and water, just to pick a few relevant industries. Getting this type of diversification via the public equity markets is much more achievable.
Liquidity also obviously favors the public equity markets, and while this is always the case, we believe it’s particularly important in the climate change sector where there is the potential for a large amount of technological disruption. It would be painful to sit on a 10-year lock-up in a technology that has been rendered obsolete due to a technological breakthrough.
Finally, let’s not overlook the cost advantages of public equities over private equity or the difficulty getting access to the few private equity managers with identifiable skill. We’ve chosen to focus our efforts on opportunities in the public equity markets, but public and private equity investments can certainly complement each other.
- Risk and returns

The positive spin would be that the HSBC Climate Change Index delivered equity-like returns during a period in which the economics weren’t favorable for many of the constituents (e.g., wind, solar, electric vehicles). As discussed, the economics for clean energy have improved considerably and we believe will continue to improve in the future, opening the door for better returns going forward. We don’t think there’s a tax associated with investing in the climate change sector. On the contrary, we believe a pragmatic, disciplined, value-oriented approach to the climate change sector can lead to impressive returns.
- The valuation of the climate change sector
Buying at a good price is always the tricky part when investing in a secular growth story, so how is the climate change sector valued today? In recent months, our internal Climate Change Universe has generally traded in line with or at a slight discount to the broad equity market; as a sanity check, the valuation of the MSCI Global Environment Index, though an imperfect proxy for how we define the climate change sector, paints a similar picture. This may seem a bit incongruous; there’s a great growth opportunity, but investors don’t have to pay a premium to access that growth. This is in stark contrast to the Tech Bubble, where investors paid 50, 100, or much higher earnings multiples to get exposure to expected growth. Why aren’t investors paying a premium for companies expected to grow faster than the market? Well, the most obvious answer we can see is that while it may be almost certain that companies in the climate change sector will grow their top-line revenues faster than the broad market, it’s much less certain that they’ll be able to convert that top-line growth to bottom-line earnings and profits. Obviously, sales growth, in and of itself, doesn’t do much good for equity investors.
The market may be particularly worried about this considering the spotty history of alternative energy investments. Two solar ETFs that launched in 2008, the Guggenheim Solar and the VanEck Vectors Solar Energy ETF, are down more than 90% since inception despite strong growth in solar installed capacity (see Exhibit 7). While 2008 was a particularly inopportune time to launch a solar ETF due to the impending collapse in energy prices, it’s clear that the solar industry has been more effective at electricity generation than earnings generation. The competitive dynamics of the industry haven’t favored profitability: relatively simple technology, lots of competitors, very little product differentiation, and almost no barriers to entry.
Throw the dumping of cheap Chinese solar panels into the mix, and you have a problem on your hands.

- The importance of a value orientation
To underscore the importance of value, let’s look at wind turbine manufacturers going back a bit further than we looked at the solar ETFs (see Exhibit 8). The major wind companies, operating in an industry with much better competitive dynamics than the solar industry, delivered almost 16% per annum from 2000 through June of this year, a healthy outperformance of around 11% per annum relative to MSCI ACWI. Yet, investors who bought into wind at the energy peak in 2007-08 had a very different experience; this shouldn’t be too surprising given that wind companies were trading at around 100 times normalized earnings and 8 times book value at the end of 2007. Very few investments end up justifying such lofty valuations. In contrast, those brave enough to invest in the out-of-favor wind industry in 2012, when wind companies traded at 6 times normalized earnings and half book value, have been rewarded with returns of more than 50% per annum over the last 5 years.

- The climate change sector is likely to be particularly inefficient
Additionally, the climate change sector, at least as we’ve defined it, is a small to mid cap universe at this point. The biggest company in our Climate Change Universe has a market cap of around $50 billion. The biggest solar companies in the world are a few billion dollars in market cap, trivial compared to the behemoths in the oil and gas industry.
The climate change sector is also a relatively new, poorly understood sector; in fact, we more or less made it up! Understanding the big picture, global policies, the details of changing technologies, and the companies themselves is a tall order. The uncertainty about how things will play out leads to large swings in sentiment and wide dispersions in expectations, all things that breed opportunities. Yet, value managers are unlikely to frequent the climate change sector precisely because of the uncertainties and the inability to identify a comfortable margin of safety. To the extent that value managers aren’t fishing in this pond, we expect to see bigger fish.
All in all, we expect the climate change sector to be fertile ground for stock selection.
Grantham co-founded GMO in 1977 and is a member of GMO’s Asset Allocation team, serving as the firm’s chief investment strategist. White is a member of GMO’s Focused Equity team.