Source: Barron's Chinese Author: Nicholas Jaskinski Evan Greenberg, CEO of Chubb Ltd, has a highly influential fan - Warren Buffet, CEO of Berkshire Hathaway. Berkshire Hathaway disclosed last month that it held 6% of the shares in Chubb, one of the world's largest insurance companies, by the end of 2023. Berkshire itself is a major participant in the insurance industry, but it is not the only buyer. In the past year, Chubb's stock return, including dividends, was about 40%, surpassing the S&P 500 index's total return of 25%, and making the company's market capitalization reach $110 billion. This increase in market capitalization reflects Chubb's outstanding performance, which is attributed to its prudent underwriting practices and conservative management of its investment portfolio of about $140 billion. The company's earnings per share increased by 48% in 2023 and its book value per share increased by 21%. Greenberg is the son of Maurice "Hank" Greenberg, the former CEO of American International Group (AIG). Greenberg worked at AIG for 25 years, rising through the ranks. He left the insurance company in 2000 and took over Ace Limited in 2004. The company merged with Chubb in 2016, the largest M&A in the property and casualty insurance industry at the time. Today, Chubb is the largest commercial insurance provider in the United States, and the company is also known for its high-end homeowner insurance for the wealthy. However, about half of the company's premiums last year came from outside the United States. Asia has always been a growth area where the company is bullish: Although Asia accounts for 40% of global GDP, the insurance industry accounts for only 26% of the global insurance market share. This gap is expected to narrow over time. Greenberg sits on the board of several nonprofits that focus on international and Asian affairs. Barron's recently interviewed Greenberg about his underwriting philosophy, the challenges of dealing with increasingly frequent climate disasters, and US-China relations. Following are the edited excerpts of the conversation.
Author: Matt Peterson.

On the evening of July 18th, the four-day Republican National Convention in Milwaukee, Wisconsin came to an end. Former US President Trump accepted the nomination of the Republican Presidential candidate. In his opening and closing remarks, Trump emphasized the idea of unity, but attacked his political enemies several times during his 92-minute speech, painting a terrifying picture of what he described as a declining country. Trump said, "In less than four years, our opponents have turned incredible success into unprecedented tragedy and failure."

Trump promised to restore a world in chaos, saying, "I can stop a war with one phone call."

Sounds a bit grandiose, doesn't it? That's the effect that is desired. Populism is a hallmark of Trump's political movement, which has also sparked enthusiasm among his supporters, many of whom, under his leadership, believe that America is heading for decline. Trump attracted voters by promoting his success in the American economy during his presidency, including non-traditional policy combinations such as tax cuts, deficit spending, and economic nationalism. However, he and his new allies now support a more centralist vision, which means that America, particularly its economy, will undergo bigger changes than Trump's 2017-2021 term. "Trump 2.0" won't just be an evolution version, it will bring about a revolution.

If Trump wins the election on November 5th, what may follow is the Republican's control of both houses of Congress and the support of the Supreme Court. However, as indicated by his selection of Ohio Senator J.D. Vance as his running mate, Trump is willing to accept views on how to manage the American economy that conflict with the Republican Party's long-standing principles of free markets.

Short-term economic cycles are favorable to Trump: The Federal Reserve may open a rate-cut cycle because of a cooling labor market, which will last throughout his presidency; Trump's economic agenda, focused on tax cuts, has a stimulating effect on the economy, and the stock market may react positively to his prospects of winning, especially at a time of economic slowdown. To some extent, the stock market has already reacted in this way.

On the other hand, the bond market may have difficulty absorbing the new bonds the Treasury Department needs to issue under Trump's leadership. One of the purposes of issuing new bonds is to offset the impact of new tax cuts, which may push up long-term government debt rates. Since Trump first became president, US debt has grown significantly, and long-term inflationary pressures have emerged. Policies aimed at eliminating "Bidenism" could land Trump in the same predicament as current President Biden.

Trump's economic legacy

"Trump 2.0" could bring stock market gains and economic growth.

Since Trump and Biden took office, US debt has been expanding, and the bond market may have difficulty digesting new government bonds.

Source: Bloomberg

Trump's firm control of the Republican Party can be seen in his choice of Vance as his running mate. Vance, who is 39 years old and has been a senator for less than two years, brings with him a sense of "convert enthusiasm." He has sharply criticized Trump in the past, describing him in 2016 as a "cultural heroin."

Vance said his opinion of Trump changed by the end of the latter's presidency. "I really wish his memory was as bad as Joe Biden's, so he could forget what I said to him in 2016," Vance joked in a speech at the National Conservative Conference earlier this month.

"I realized that I became a convert in the latter half of Trump's presidency, when Trump had not yet secured full Republican support, but now I think that situation has ended," Vance said.

The momentum of Trump's expansion may carry the entire Republican Party to new heights. From the first presidential debate on June 27th to the shooting of Trump on July 13th, political polling agencies and Wall Street analysts greatly increased their predictions of Republican victories on election day, and many now believe that Trump becoming president and the Republican Party gaining control of the two houses of Congress is the most likely outcome.

Matt Gertken, chief strategist for geopolitical and American political strategies at investment consultancy BCA Research, believes that the market will react more significantly to Trump's plan solely on this basis. "Normally, the market can ignore a certain view, but if party discipline is guaranteed by votes, the market must treat that view as a possible event. Where is the balance of power? It's outside the political system, so the market must play the role of 'vigilante.'"

There have been signs in the financial markets of an evaluation of Trump and Pence's economic plan. Since the presidential debate on June 27, the difference in yields between short-term and long-term US Treasury bonds has widened, indicating that bond traders are digesting the expectation that the US Federal Reserve will adjust monetary policy due to economic cooling, and that short-term interest rates will fall; they are also digesting the expectation that the long-term nominal economic growth rate and inflation will rise.

These expectations come from several sources, one of which is Trump's plan to extend the implementation of the 2017 tax cuts, part of which will expire next year. According to the Congressional Budget Office (CBO), an independent body of Congress's budget office, the extension of the tax cut plan will cost $4.6 trillion over ten years. The tax cut proposed by Trump and the Republican National Committee platform passed last week are larger than the CBO estimate. Trump stated, "We want to see economic growth so we can pay down debt."

There are also Trump's immigration and tariff plans. Trump hopes to expel the 20 million people who illegally entered the US and raise import tariffs on all US goods to 10%, and raise tariffs on Chinese goods to 50-60%. Independent economists believe that these policies may increase labor costs, make foreign goods more expensive, and trigger inflation. These policies may come at the cost of sacrificing corporate profits and affect stock returns.

Pence has given a clear explanation of the reasons behind these policies. Pence said in an interview with The New York Times in June: "Trade issues and immigration issues are two sides of the same coin. Trade issues are cheap labor overseas, while immigration issues are cheap labor in the United States, which puts upward pressure on the cost of services ranging from hospital services to housing."

From the market trend, there is almost no sign that traders believe these policies will reduce inflation as Pence said, although many non-political factors affect investor behavior, and the effects of these policies have yet to come.

However, this does not mean that these plans are not worth paying attention to. Elliott Hentov, Director of Macro Policy Research at State Street Global Advisors, believes that these policies represent a long-term repositioning of the relationship between the two major political parties in the United States and the financial markets. He said: "Neither party wants to reduce the deficit, but suddenly I think the bond market will worry more about the Republicans than the Democrats, which is a huge change compared to what we saw in the 1980s and 1990s."

In his first term, Trump was committed to changing the relationship between the US economy and other countries and regions in the world. If Pence were to become vice president and receive support from advisers such as Robert Lighthizer, a former US trade representative who has a close relationship with Trump, the policies in Trump's second term could go even further.

Investor concerns are mainly focused on the US dollar. Trump recently said in an interview with Bloomberg Businessweek: "The US dollar exchange rate is a big problem."

Driven by rising US interest rates and stock market prosperity driven by artificial intelligence, major currencies such as the US dollar against the yen and the renminbi are appreciating. Pence also recently questioned the strong US dollar during a congressional hearing with Fed Chairman Powell, calling the dollar a "sacred cow."

Overall, increased tariffs, rising deficits, and resulting high-interest debt often push up the value of the US dollar, raising questions about what Trump can do to lower the value of the dollar as president. In the short term, restraining the rise of the US dollar will be a challenge without the acquiescence of the Fed, and Powell has said he is not interested in managing the dollar exchange rate.

Members of Trump's circle have proposed some more radical ideas. Lighthizer explores the possibility of imposing adjustable fees on investment funds entering the US in his recent memoirs, writing: "Essentially, this is equivalent to imposing market access fees on foreign capital entering the United States. Such capital controls would depreciate the US dollar."

Trump's campaign team did not respond to questions about whether choosing Pence as a campaign partner meant his support for a plan to depreciate the US dollar. Campaign officials have consistently emphasized that the only important policy is the policy Trump speaks of himself.

Trump has called himself a 'warrior' for US workers-'waitresses, caddies, drivers and everyone,' he said in Milwaukee. According to Pence, these people are the victims of choosing to let market forces dominate and put pressure on the US economy from countries such as China. From this perspective, the revival of the United States is not only an economic need, but also a national security need.

If Trump wins, he will begin to rewrite long-standing economic rules. It is unclear what this change will mean, but what we do know is that "Trump 2.0" has a vision and it is almost certain that he will have the power to execute this vision.

Editor / jayden