Right now, investing profitably is getting riskier and investors would do well to look out for developments that could cause major upsets. Avoiding them or limiting the damage to others from them might be called (h/t George Bernard Shaw) ‘Applecart Investing’.

Here I touch on two political developments that have the potential to cause major but not necessarily bad upsets: Trumpian Diplomacy and the new Italian Government. However, there are plenty more to fret over, including questionable global growth, FOMC over-zealousness, a strengthening dollar and levels of corporate and private debt just about everywhere.

Some weeks ago, I had the temerity to write that the rest of the world would sooner rather than later work out ways of dealing with the blustering, playing to the gallery and, above all, the self-proclaimed preference for chaos over strategy. Of course, the US remains way out on its own in terms of military and economic strength but on its own could well be where it is heading in global realpolitik. History shows that empires do not stay still for long: they rise, wax and wane before eventually falling. Moreover, enemies must be ‘conquered’ by extirpation or otherwise they will re-group and link up with other challengers. As President/Emperor Mr Trump has the capacity to do enormous military and economic harm and appears to be pursuing classic imperial objectives:

Neutralising hostile rivals: e.g. North Korea, Iran and Russia
Exacting tribute in the form of financing domestic tax cuts and military spending via foreign investment in US Treasuries
Discriminating in favour of US goods and services

It is not clear how far he intends to go and most informed commentators believe it is to put on a big show domestically while making inroads into some of the more justified grievances. Indeed, China seems to be open to making some concessions. Imposing tariffs on all the US’s closest allies (Canada, Mexico, Japan and the EU) has come as a surprise but still looks like a negotiating ploy. The major upset will be if the US escalates the quarrels by retaliating against the inevitable retaliations from those allies, which could inflict severe damage on all economies, including vicariously China and the Developing World. Ultimately, the worst affected would be the multinationals who generate sales and profits outside their home countries. The US has many more such companies than most and the current enthusiasm for Mr Trump’s tax cuts and deregulation could quickly turn sour.

It is far from clear how serious the Italian Coalition is about leaving the EA but there is no doubt that the leaders have concluded that joining has turned out to have been a costly mistake. On balance, the evidence supports this conclusion, which seems very widely shared by voters, but that is very different from wanting to leave now. Much more likely, is that the Coalition is angling for concessions in return for remaining or some sort of golden handshake if the Germans really were unwilling to budge. Understandably, faced with the re-emergence of its fundamental EA dilemma at a time of possible trade dispute with the US and Brexit, the German Government reacted with alarm. As it happens, the financial markets also became sufficiently alarmed as to cause the would-be Coalition to blink over the choice of Finance Minister. However, it is not going to get any easier for Germany: Italy is a sovereign nation with, unlike Greece, a proper if somewhat dysfunctional economy and its new leaders did not get elected by promising unquestioning obedience to Brussels, Berlin and Paris.

The Coalition will expect at the very least tacit support for tough action against mercenary operators on both sides of the Mediterranean as well as large-scale expulsions of migrants already in Italy. Sympathetic acceptance of fiscal stimulus will be expected, backed by special EU grants for deprived regions, together with long-term wavers of the strictures of the Stability and Growth Pact. Funding on favourable terms will be demanded from various EA and EU agencies and reinvestment by the ECB of the proceeds from maturing Italian bonds. Brussels, Berlin and Paris will have to try to meet most if not all of these demands or Italy really will leave the EA. Ultimately the decision will rest with the German Government, which may have to choose between a domestic crisis from ever more legal challenges in the Constitutional Court and electoral challenges from the populist Europhobic AfD Party and reluctantly pulling the plug on the EA.