This Member-only private article was written Nov 6, 2016. It is posted now for purposes of review. And for caution as we approach Samantha’s price target of ~$2500 in $SPX, referenced below as well as in her 2017 Guideposts.
WARNING: Anti-Trump sentiment ahead. Fish at your own risk.
I’m going to make this short and sour:
I have rarely posted/tweeted anything about my kids, my favorite foods, sporting events I watch or politicians I favor. I just like Twitter Finance for all things financial. So imagine how hard it has been to abstain from the diss-cussing of both candidates leading up to the election. Only selectively did I retweet an article related to capitalism, factoid about democratic process or provocative late-night humor. I have not called candidate Trump out for his racist, xenophobic, homophobic and misogynistic behavior. Clearly, I have my bias but instead of debating/defending/projecting on you, I simply want to document my Investment and Trading Thesis in case the man-who-should-remain-nameless takes power, and by taking power I mean abuses his position of power.
Long Thesis Watch List:
- Long Healthcare: Actually, I think $XLV, the healthcare SPY ETF and its components, are very oversold and due a bounce. I also think either candidate would end up working with Congress to fix Obamacare, although Trump threatens to appeal. I am less sure about the resumption of the biotech bonanza as these are still overbought/overvalued. When/if speculation enters into the market again, then these can really re-gnite, but in a market characterized with risk and uncertainty, these become dash-for-trash plays that few can trade safely.
- Long Gun Stocks: Trump may not be endorsed by the NRA but he will enable them through looser background checks on people buying guns and fear-mongering to arm citizens against terrorists in our back yard. As racial and religious tensions escalate, gun sales will too.
- Long Defense Stocks: Trump will be sword-rattling and button-happy. He may not actually increase the DOD budget to support military action but his rhetoric will fan the perception that he is.
- Long Commodities: Although predicted Inflation is already on it’s way, Trump will be good for commodities, save oil + gas if/when he reopens the Keystone Pipeline access which spurs supply and puts pressure on oil pricing. But besides oil, he will vow to place high tariffs on commodities coming into the US and that can drive US commodity pricing higher, for a while.
- Long Volatility: Trump will increase risk and uncertainty at the very least, and create global financial and military crisis by some accounts. Either way, US companies may likely freeze plans while they try to figure out what he will do. Market hates uncertainty but can continue higher with it. My point: be prepared for occasional market rug-pulls as this mercurial new leader disappoints.
Short Thesis Watch List:
- Short US car and auto parts companies that manufacture and sell goods and services outside US: Trump has loudly telegraphed his position of high tariffs on imports and penalties for US-based companies manufacturing outside of the US. His policies of protectionism include renegotiating NAFTA and other key US trade agreements as well as suspending potential participation in the Trans-Pacific Partnership. This is the stuff of economic contraction not expansion.
- Short Non-US Commodity companies: Trump will opine high tariffs on imported commodities.
- Short US industries with large percentage of alien workers: Will Trump’s tougher immigration stance restrict foreign workers, many of whom are Resident Aliens and/or have Employer Sponsors, into High Tech?
- Short Treasuries: The Fed is already leveraged 77:1. If Trump proposes $1 trillion of new spending on US infrastructure without revenues to make up the difference, he will contribute to exploding Federal debt. Further, it is expected he will propose tax cuts for the rich which will not stimulate growth because it is the middle class who needs spending power to spend. Personal and Government debt could then drive the USD higher.
- Short the Stock Market if/when immigration and protectionist policies take hold as Buy the Rumor, Sell the News will likely result in an economy that will constrict, prompting a potential recession. The market will pullback substantially, but not likely until an initial rally to a technical target ~$2500.
Short term our market should rally before the premature exuberance crashes. From posturing toward or actual trade wars, to the reduction in spending from the middle-class all the while building up a distrust in his ability to gently grow inflation, the economy while mitigating job loss and ballooning debt, Trump appears unlikely to provide stability or engender trust. Short-term the market may appear to love the regulation-free happy-talk but eventually the reality of structural problems in our economy and in his leadership will more likely lead to credit contraction, geopolitical conflict and domestic policy disputes that are bad for business and that is ultimately bad for the American stock market.