Investing in the Age of Trump, 6-Month Review

It has now been 12 months since the election of Donald Trump as president, and almost 9 months since his inauguration. In May, I posted an article by a friend, which was originally written to advise me on how to invest in these “interesting times”. Well, it turned out to be the most visited page on my site—much to my dismay, of course, to think that that was more interesting than my own writing!

So, my friend and I decided to do the responsible thing and actually hold up the investment advice up to scrutiny. Something all investment advisors should do, that is.

If you knew my friend, you would not be surprised at all by the massive, thorough, and detailed tome that arrived yesterday, full of triumphs, mea culpas, caveats, and solicited and unsolicited advice. Investment advice is only as good as its performance, so you be the judge!


Investing in the Age of Trump, 6-Month Review

by Anonymous

First off, if I am now going to be a pundit, I need to do some disclosures. 1) I do not follow my own advice, and neither should you, because it would be unwise to do everything someone tells you to do. 2) Relatedly, this analysis/advice is specifically geared toward Jennifer’s financial situation, as a person who will be retiring in a few years and has modest retirement savings to complement a decent Social Security income, and has some serious medical expenses coming up. Your situation is likely different.

I am using the publication date of the original article, 5/11/17, as the baseline for the 6-month review, and the closing price on Friday, 11/10/17, as the 6-month mark. For the baseline for Trump Trade in general, I am using the closing price as of 11/9/2016, the day of the 2016 general election. I could use 11/10/2016 as starting point, to make it a neat 12-month comparison, or 11/9/2017 as the end point—and sidestep the embarrassing gold crash yesterday—but these dates were picked a few weeks ago, and probably will not make a huge difference in the end.

I am also ignoring dividends, mainly because I am feeling lazy. I don’t think it will make a huge difference in whether I was right or wrong; if it does, someone else can do the work to prove it, but, if anything, my figures will probably look better, since my advice leans toward value stocks anyway.



As you can see in the accompanying spreadsheet, I’ve made some good calls and blown some big calls.

My “Trump Success” portfolio, as you can see, did not do so well during the last 6 months. Among my buy, compared to SPY’s 8% gain, only financials did well (XLF up 10%; IYF up 11%). The other sectors did not do so well. Energy stocks are in the doldrums (XLE up 2.5%; IYE up 0.2%), as are consumer discretionary stocks (XLY up 2.5%; CNDF up 0.8%).

Among the hold calls, real estate is up a surprising amount (VNQ up 4%), so that’s a consolation, and healthcare (IYH up 8%) is a very pleasant surprise. Bear in mind, of course, the reason why healthcare is up: Trump has in fact failed to repeal Obamacare. So, this stock really should have been in the “Trump failure” discussion, but as of May, it seemed likely that some sort of healthcare industry chaos was imminent. Good for America, good for the hypothetical portfolio, bad for my stock-picking creds. Same could be said for the disappointments in consumer discretionary and energy, which depended on upper-middle-class tax cuts and catastrophic deregulation, which have yet to materialize. There has been a lot of deregulation, but they were mostly things that were not yet in effect. More will be coming, but none of them will be terribly dramatic.

Where I really blew it is the bearish call on automobiles. There is no neat ETF for the domestic auto industry, but international auto ETF CARZ’s rise of 13.8% mirrors the spectacular rise of GM and Fiat-Chrysler (FCAU), despite the lousy performance of Ford (F) and recent crash in Tesla (TSLA). Again, it should be noted that, as of May, Trump had made a lot of promises that were going to wreak havoc with the auto industry. With the renegotiation of NAFTA stalled, this also reflects a “Trump failure” scenario.

On the other hand, I was right about consumer staples stalling. (XLP down 1.7%)

All in all, my pro-Trump portfolio rose about 6.5% over the last six months. Not too terrible, but embarrassing nonetheless for what was purported to be a high-risk, all-in strategy. Who would have thought that Trump would actually fail to deliver on his promises? Well…

My “Trump failure” portfolio, in fact, did surprisingly well. The “safe haven” holdings that were supposed to stay flat, such as gold (GLD up 4%), silver (SLV up 3%), and bonds (TLT up 3%; VCLT up 3%) have actually gone up. The “no matter what” holdings in defense (ITA up 16.6) was up, and “what would Warren Buffet buy” (in other words, what has he already bought for Berkshire Hathaway, BRK.B, up 12.5%) have handily beaten the market.

My advice to avoid mining (XME up 7%) and manufacturing (tricky sector, but IYJ is up 9%) were duds, of course. But, my advice to avoid agriculture was spot on (DBA down 3.2%), although commodities had a surprising positive run (DBC up 12%), which is probably a random blip.

All in all, my anti-Trump portfolio rose about 4.8% over the last six months. Interestingly, in the chaos of the last week, 6-month performance of the pro-Trump portfolio went up from 6.3% to 6.5%, but the anti-Trump portfolio went down from 5.6% to a smashing 4.8%. Yikes! So, it is good to set the analysis points beforehand. Keeps us honest.

My “Trump tweet” portfolio is hard to calculate. I basically counted the number of times the three major indices dropped more than 0.5% in a day, and credited it as a 0.5% gain each time, since each dip has recovered so far. I could have chosen 1%, but that has happened so rarely that you would have made very little. Now, the 0.5% drop in the last week has not been recovered. Is it the beginning of the end? More on this later, but for now I just did not count it. The theoretical amount you could have made with this strategy is about 5.5%.

It should come as a shock to you that this dumb strategy is basically even with the (woefully inadequate) pro-Trump and the (surprisingly robust) anti-Trump portfolios. This really makes solid my repeated statement that the last six months represent a period of complete inaction on the part of Trump.

Even more interesting is to look at the first six months of the Trump trade. The pro-Trump portfolio was up about 9%, and the anti-Trump was basically flat. The one-year gain of the pro-Trump portfolio is 16%, still behind SPY’s 19% gain, but not as embarrassingly so, which means that the pro-Trump portfolio is 1) actually pro-Trump, not just a stupid guess, which means 2) it is starting to lose its luster, from 9% to 6%. Automobiles rose 10% in the first 6 months and 14% in the second 6 months, whereas consumer discretionary went from 14% rise in the first 6 months to 2.5% rise in the second 6 months. This is the opposite direction of what would be predicted by a “Trump success” narrative.

Add to this the considerable reversal of fortune in safe havens. In fact, the current bullish run on safe havens began just before Trump’s inauguration. There is even increasing talk that gold and bonds are overbought, which means safe havens are attracting a lot of attention despite a spectacular equity bull market.

I think this all means that Trump Trade is losing steam. As I’ve argued before, Trump Trade really is the last gasp of the Obama bull market. One year since the election, this is now Trump’s economy, and he has not done much. The economy is still humming along at a decent pace, but will it continue to do so?

Actually, the correct question is not whether there will be an economic crash—a real recession is at least a year away, and Trump’s inaction is, in fact, good for the economy, as it keeps the regulatory and tax framework stable and predictable—but a stock market crash. More on this later.

Now, the grand total performance of my hypothetical portfolio is 5.6% for the last six months, and 10% for the last 12 months. About half of SPY’s 11.2% and 19% rise, respectively, but, remember, this is a diversified portfolio meant to preserve Jennifer’s retirement savings, rather than an all-in bet. 10% annual gain is nothing to scoff at, in fact, especially for a defensive portfolio, so, yay.


Why diversify?

No doubt about it: this has been a terrible year for hedge fund managers and short sellers. That is par for the course during a bull market, since all of these strategies are meant to manage risk, rather than beat the market.

My real portfolio (and Jennifer’s portfolio) actually did better than the hypothetical portfolio over the last year, because it started out as a Hillary Trade portfolio, which, if you think about it, is not too different from the Trump Trade portfolio. I was already bullish on financials and healthcare, and held a variety of broad-market ETFs. Only after inauguration did I seriously start to cash in growth stocks and move to safe havens. So, yay.

Still, even during the go-go Obama years, during which SPY turned in spectacular 11% gains on average, I held a good amount in safe havens and cash, and increasingly so as the election day neared. Why? Because what goes up does come down.

If you had put all your money into SPY in November, 2009, you would have more than doubled it by now. Even if you put it all in just before the market crash, you would have turned in a pretty good performance.

But, you should not have. Why not, you ask?

First off, if Bear Stearns, Lehman Brothers, and General Motors can go bankrupt and even face liquidation, so can Vanguard, BlackRock, and State Street. Do you know who they are? They manage your favorite ETFs. Did you keep all your money in Washington Mutual savings accounts? I hope not. So, you should not deposit all money in State Street accounts, either. That is what you are doing if you go all in on SPY.

Second of all, although it is possible to ride out a 50% drop in stocks by doing nothing and waiting for several years, those may be the very times when you need to take money out of your investments. There is this thing called unemployment that tends to happen a lot during economic and stock market downturns. You can easily blow your investment savings during those tough times, so losing 25%, instead of 50%, during a downturn will make a difference in your long-term financial health. Same with major medical events. And retirement, too; if your first few years of retirement—during which people often relocate, splurge, and/or burn a lot of money adjusting to their lower income—coincides with a market downturn, you will have a lot less to count on for the rest of your life.

So, if you are young and healthy, sure, go all in. Even if you blow it all on a car accident, you will have time to make it back. If you are old and feeble like us, however, be safe and thoughtful, and be happy with steady 5-7% annual returns. The real winning strategy is not just putting your money into winning ETFs, but to keep putting money into your accounts. If you have enough investment to live on with 5% returns, you are probably good to go no matter what, so it’s pointless to risk more to gain more.

It should also be noted that investing in other countries can pay off. Germany has turned in a 28% gain the last 12 months, for instance, and have proven to be more recession-proof than the US during the last downturn; they have problems of their own, but not always at the same time as we do. Japan seems to run on its own economic cycle. Various emerging markets offer opportunities as well, although which ones are going up varies over time. In fact, global stock market has done better (VT up 20.4%) than the US over the last 12 months. So, if you are thinking that buying and holding an all-sector ETF is a great thing to do, it may very well be that buying and holding stocks globally is better.

Which leads to another question: why is SPY the benchmark, when it is basically only the 500 largest companies by market capitalization? What about the Russell 3000? Would that not be a better representation of the economy, and a more diversified portfolio? Or is DIA better, with only 30 companies? What about QQQ? Even when you are buying and holding, you still need to pick, and it may still be better to hold a variety of ETFs even if you are sticking with stocks. Better, not as in your returns will be better, but better as in it is less likely to crash. Small caps, for instance, tend to crash sooner than large caps but also rise more quickly during recoveries (although starting a little later), which will even out the loss a little bit.

Thank about it.


The State of the Market

There are a lot of alarm bells going on about the investment market now, and a lot of calls to calm down. Who is right?

The price per earning ratio (P/E) for S&P 500 currently stands at 24 on a trailing basis (last 12 months’s profits) and 19 on a forward basis (next 12 month’s profits as estimated by analysts). The historical average P/E typically used as a comparator is 15, or about 7% return on investment. This means that the large cap stocks are trading about 30% too expensive; this translates to an expectation that, not only will the profits of all of the companies in S&P 500, combined, meet what the analysts think they are going to make over the next year, but will also rise about 10% over the year after that, and continue to grow afterward.

On the face of it, that should give you some pause. 500 companies, all meeting expectations and growing by 10%? It is not completely implausible; even if the economy, and hence the revenue, grows by just a few percent, the profits can grow spectacularly. Still, that seems tad bit optimistic.

The picture is even more dramatic with Russell 2000, with trailing P/E of 100 and forward P/E of 20. So, these 2,000 companies, who barely managed to turn in a profit over the last year, are going to not only quintuple or sextuple their profits, but also grow 10% after that. Right. Not implausible, but a bit of a stretch.

If we consider the 10-year past performance of stocks, known as Cyclically Adjusted Price per Earning, or CAPE, we get something above 30 for S&P 500, and rising, compared to historical average of 17. Not as scary high as 45 that preceded the dot-com bubble, but pretty darn high; in fact, during the dot-com bubble was the only time during which CAPE was higher.

Now, it is also true that corporate profits this year has been much higher than last year’s, so a lot of the rise in stock prices is totally justified. The P/E for S&P 500 was only about 1 point lower about a year ago, which means that we have not really entered a scary bubble territory.

Still, it is important to remember that the P/E is not a measure of performance, but a measure of market sentiment. Investors are very optimistic. They could be right. They could be wrong. What is certain is that, if they are right, that’s already been priced in, but, if they are wrong, there is a potential for a 25% crash, just from the P/E returning to normal. This was already an overvalued market at the time of the 2016 election; it is just even more overvalued now.

The concerning part is that CAPE has skyrocketed over the last year, but forward P/E has not. This suggests the possibility that it is not just the investors who are overly optimistic, but also the analysts who are writing these profit predictions. Although analysts, as a species, are less emotional and more objective than investors in general, they are subject to the same human frailties. First, there is the momentum fallacy: if things keep going well, it is assumed that things will continue to go well. Second, there is the busy-person effect. If you look at all the analyst estimates, you will notice that a lot of them are pretty darn old, with only a quarter to half of them having been revised since the previous quarterly report. Even if the analysts have doubts, they won’t be able to tell us in time.

This is not to say that a crash is imminent, but that the condition necessary for at least a small crash is already present. Not an economic downturn, but a downturn in sentiment.


How to Call the Market Top

You can’t. I won’t. But, here are the warning signs that we should pay attention to. Especially those of you who just bought the most recent market dip might be wondering when you should sell and cut your losses.

Here are some factors to consider.


1) the mystery of unemployment and inflation

The unemployment rate is, usually, a lagging indicator. People don’t get hired or laid off in large numbers until the companies are sure that things are going well or badly. However, an unusually low employment rate, such as the current 4.1%, and news of “full employment”, usually precedes an economic downturn. It is just the nature of how capitalism works.

Part of the economic cycle process is inflation, which usually goes up as unemployment goes down. The more people work, the more they make, and the more they spend, which then drives up the prices. Higher prices at first lead to higher profits, but soon lead to higher cost, less profit, and eventually rise in unemployment. And the cycle continues.

For some reason, despite full employment, inflation has been unnaturally low, only just having reached 2%. This has been a puzzler, although there are some reasonable explanations. Most obvious is that, despite full employment, and despite high corporate profits, people’s wages are not rising. This is partly because of underemployment, or proportion of people who have jobs but are not working full time or are working below their capacity. Underemployment stands at 13%, which is pretty high relative to the employment rate. Before the Great Recession of 2008-9, unemployment was similar to now, but underemployment was much lower, at 11%. So, even though we have 4% unemployment, the wages are behaving as if we are still at 5-6% unemployment.

Another reason is the declining strength of unions, which historically played the role of squeezing the profit out of the corporations, sometimes overly so, even leading to bankruptcies and such. No unions, no raises. The fact that a lot of corporate cash is parked outside the US also makes it out of reach, and the rise of the technology sector, where there is high worker mobility, makes it difficult to unionize. Rise in corporate profits have therefore been slow to translate into more hiring and higher wages.

Finally, there is an unexamined inflation in investment. People with money are buying stocks, bonds, real estate, and even precious metals, rather than spend them on luxury goods. This is the reason for the unreasonably high CAPE. At some point, people will realize investment instruments are too expensive, and find other ways to spend it. Or, they will see that their portfolio is way up, and start to use it for fun. Then we will start to see some real inflation.

When inflation starts to show up, then we can be sure that there will be more of a return to a normal rhythm of economic cycles, and a realistic possibility of an economic slowdown. There is nothing Trump can do about this; what goes up will go down.

Still, until then, the economy as a whole will chug along.

Ironically, consumer credit has returned to the level similar to where it was just before the Great Recession. That means that people are going into debt to spend money, despite their low wages, but still not enough to drive the prices up. This is a bit of a bizarre situation, and I’m not sure what it means, but it is certainly not good news. It does mean there is a debt problem, and this problem will continue to to grow unless the wages rise or underemployment falls. It can also be interpreted to mean that people are going into debt while putting more money into investments; probably not the same person doing both, but that is what we are doing collectively, with some of us going into debt a lot and some of us investing a lot. Do you remember the last time people took out loans to buy stocks? The dot-com bubble. Not the same thing, sure, but concerning nonetheless.


2) quantitative easing

Part of the frothiness (not quite a bubble) of the stock market is the financial stimulus provided by the Federal Reserve and other central banks over the last several years. Now, central banks can usually only control the rate at which they lend money, but during the last recession they took a step further by aggressively buying and holding bonds, which drove down the interest rate market-wide. This created an environment in which corporations could freely borrow money, which meant more capital spending, and, theoretically, eventually, more hiring.

There have been two unfortunate consequences of this. One is that more of the money went into capital spending than into more employment. Cheap capital has led companies to pursue profit through automation and improved information technology, so they need to hire fewer people to make the same amount of profit. This has resulted in a lasting changes in the labor market.

The other is that not all the money floating around had places to go. With the economy growing slowly, and finding little room for major investments, the money basically flowed into the investment market. Again, this has driven up the prices of not only stocks, but also real estate and safe havens as well.

The Federal Reserve is taking the lead in winding down the quantitative easing program. They are doing this slowly, and other central banks are following suit, also slowly. Still, this does represent a significant withdrawal of money from the capital market, and will be reflected in asset prices. Watch out for sudden rises in interest rates, or sudden drop in bond prices.

In fact, this may already be happening, with a recent, dramatic drop in junk bond prices. JNK and HYG have fallen below their 200-day moving average, which is the first sign of trouble. In fact, this is the second time it has done so in the last three months, and the really concerning part is that, after the first dip, the price had failed to return to the previous recent high. This is called a “head and shoulders” pattern, and is a measure of investor sentiment. It means that people tried to buy the dip, but could not quite muster the courage to overcome the dip. And the head-and-shoulders theory delivered, with the second crash being a lot more dramatic than the first. If the junk bond prices stay below the 200-day moving average, or if the shoulder cannot be overcome, the dip may very well be here to stay. The key moment is when the 20-day moving average falls below the 200-day average, which has not happened, yet.


3) head and shoulders, knees, and toes

In other words, junk bond is a canary in the coal mine. When things are well, junk bond prices keep pace with the overall market. When it suddenly drops dead…

The head and shoulders pattern may be showing up in other canaries as well. The most ominous is the dip of the Dow Jones Transportation Index, which has broken through the 50-day average and is diving toward the 200-day average. Also ominous is the Russell 2000 index, which is sitting right at its 50-day average. Both of these averages have had dips below the 200-day average—around the same times as the junk bond dip in August—but had successfully recovered and hit a new record high in early October. So, this is their new head. It will be a few weeks or months before we know if there will be a shoulder.

Head-and-shoulders is not necessarily a sign of the apocalypse. Real estate, for instance, has been pretty much stalled and growing slowly, but goes up and down a lot, so there have been a lot of heads and shoulders. Neither does it always occur before a crash. GE’s calamitous drop this year pretty much started without warning, when earning disappointments started to pour in; I suppose you could count the peak in early 2016 as the “head”, but it is really too long ago.

Still, the pattern matters. Transportation stocks and small-cap stocks are leading indicators of a market drop (but trailing indicators of a market rise), because 1) they are not very good at weathering economic downturns, and feel the pain as soon as things sour, and 2) because of this, their investors are more quick to flee to safer, larger companies that can tough things out.

Overall, no need to panic, yet. If you have already bought the dip, hold on to it for now. You should not have put in more than 10% of your money into this dip, anyway. So, even if the market drops 10% or 20%, your loss will be a paltry 1 or 2%. The key inflection point is when DIA, SPY, or QQQ drops below their 200-day average, or about 10% below current price; I would sell then, and don’t buy until the prices of canaries return to the top of the recent “head”, indicating return to a normal bullish mood. You will miss out on the 1-2%, of course, but better than riding the rollercoaster down.

If you have some cash sitting around, don’t buy anything, yet. Wait until the sentiment returns to normal/bullish in the canaries.


4) crowd effect

Now, all analysts know about heads and shoulders, and will be making their moves accordingly. This usually has the effect of evening out the market, as a good way to make money is to do the opposite of what everyone else is doing. During market tops, everyone is buying. During market bottoms, everyone is selling. Do the opposite, and you win. Or, so think the people called “contrarians”. That includes me, and, as we’ve seen, we’ve had terrible 12 months. So there are a lot fewer contrarians now.

But contrarians still made a decent amount because we have a point. Doing what everyone is doing is, generally speaking, a bad idea. Consider what happens when everyone knows what a head-and-shoulders pattern is. Contrarians have already backed off the market, or even bet against the market, so we’ll be fine. The rest of the investors will see the head-and-shoulders, and they will think, well, I should sell before the rest of the market sees this and reacts. The price then drops. And more people will start to realize that there is a head-and-shoulders thing going on. Before long, everyone will know it’s coming down and panic. This is how crashes happen. Not just because people are ignorant of the “patterns”, but because these “patterns” become self-fulfilling prophecies.

The passive investment revolution complicates things a bit here. Passive investors believe that they should buy broad-market index ETFs and hold on to them no matter what. On the one hand, this will help put a break on the self-fulfilling prophecy, and will keep the curves from reaching the toe. So, yay, passive investing.

On the other hand, what happens if passive investors lose their courage? They say that when contrarians lose the courage to stay contrarian, that is the sign of a market top. And, to be honest, I’ve come pretty close many times this year. Passive investors, by nature, won’t lose their courage until there is a seriously prolonged downturn. They’ve seen the historical curves overcoming 50% drops, so they know they’ll be fine if they just stay put. Still, they are human. Every stock market downturn is riddled with stories of stock brokers desperately trying to talk their clients into staying put. Because passive investing is a fad like every other fad, people will start to freak out as soon as the inevitable stories of “new reality” start to crop up.

So, we’re counting on you, passive investors, to stay strong, for all of us.

However, there is a reverse problem to consider. There is some credence to the theory that the current level of inflated stock prices is fanned by passive investors who are indiscriminately putting money into all stocks equally, at all times. More money in the market means higher prices, period. Prices are not set by passive investors, but by those rapid-fire traders selling and buying thousands or millions of times a second. They now have inflated expectations of the market now thanks to the capital inflow from consumer debt, quantitative easing, and passive investing. When those active traders lose their courage, passive investors can do nothing to stop the fall, and, what is more, the fall will be more precipitous because the current prices are a bit too high.

When the drop comes, it will be a dramatic drop. We don’t know how dramatic, because we don’t know yet exactly what the masses of passive investors will do during a downturn. The next downturn will be our first test.

I, for one, am not going to take my chances. I am a contrarian, and I do the opposite of what everyone is doing. I am staying off of passive investment, because that’s what everyone is doing.


The Next Six Months

Or, will I?

Should you?

It seems obvious that the probability of “Trump does nothing” is much higher now, probably more at 50%. I believe that we are back to a more normal investment environment. That means no more guessing which sector will benefit from which policy. That means—gasp!—broad-market investment, i.e., passive investment!

Well, no. As I mentioned earlier, I would not buy anything in this market. I would in fact “stay the course” with what I have now. If you really feel like doing something, move the money out of growth stocks and put them toward value stocks. Value stocks—stocks that pay healthy dividends, but whose prices are unlikely to rise very far—have lagged behind growth stocks for the last 12 months—in fact, for the last 8-9 years—but still have had a healthy gain. If the economy and the market continue to chug along, you will not lose out, but you have less risk of suffering in a bubble pop. At the beginning of a downturn, there may even be some flight to value. The most likely scenario, of course, is a modest market growth, in which case you will benefit from the dividends. (This does mean I need to take account of dividends next time…)

If your stomach is made of steel, you could pick up some bargains, i.e., value stocks with healthy dividends and profit estimates higher than the dividends, but with below-market P/E of 10-20. Beware that many of these stocks have dropped recently because of poor outlook and poor management, and may drop another 5-10% before coming back up.

And I would still keep about 30% in safe havens and Buffet trades (for Jennifer, probably more like 40-50%). Certainly, any new money going into your investment accounts should be in cash or safe havens. I like long-term treasury funds because the interest/dividends tend to stay the same even if the price drops; a true buy-and-hold instrument everyone should have. Gold is also nice because in the long run it keeps up with inflation. However, these assets, and Buffet trades, may also be overpriced right now, so I wouldn’t recommend buying much more.

As for the remaining 20%, that goes to the possibility that the Trump corporate tax cut will pass. The corporate tax cuts will be good for the bubble, and therefore growth stocks. As for infrastructure, I assume it is not happening; still, if the corporate tax cut passes, we should give it a 20% chance, taken away from the value stocks and safe havens. On the other hand, if Roy Moore loses the December special election, then, as of next January, the Trump agenda is good as dead. Yay.

I would stop playing volatility; there will be more ups and downs, but the probability of a lasting downturn is much higher now.

So, a much simpler recommendation now. 50% value (IVE, VTV, SPYV), 30% safe havens and Buffets (cash, GLD, TLT, BRK.B), and 20% growth (IVW, VUG, SPYG). But, mostly, leave things alone, unless you have a lot of growth stocks already. (Of these tickers, I personally only own GLD and TLT. Along with cash, I am 30% safe haven, 30% speculative, options, and growth, and about 30% value. I also have about 10% in real estate; I had bought these to be a growth option, but it has been behaving more like a value stock, and they are a neutral/hold for now.)

This all changes, of course, if a true head-and-shoulders develop in, say DJT and RUT. In that case, go to 40% value, 50% safe haven, and 10% growth. If Trump tax passes, go to 30% value, 30% safe haven, 20% growth, and 20% infrastructure. If both happens? I don’t know… split the difference? Maybe. I personally would prioritize the danger signal. I am thinking there will be some signal in January, during the next earning season and when the new Alabama Senator arrives. If not, then beware the ides of April.

It also depends on whether there is a real capital gains tax cut. Right now, I use my IRA for riskier, short-term, stock-picking plays and my regular individual account for broader-market, longer-term plays, in order to minimize capital gains liability. In a stall market of the kind I am predicting, it is best not to make too many trades, since the taxes can wipe out what little gains you make, which is another reason to stay put rather than shift things around. If the capital gains tax is minimized, or if you fall into a lower bracket, or if the difference between short-term and long-term capital gains taxes disappear, there is more permission to shift things around.



When Trump was first elected, it was reasonable to believe that he was going to be able to enact every one of his agenda. It was also feasible to believe that he could pull a Schwarznegger, and become a bipartisan consensus builder. It was plausible to believe that he was personally inspiring the market, and would be able to inspire the economy, just by being a Reagan-esque, Obama-esque inspiration.

All of these dreams are dead now. It is clear that Trump is someone everyone has to work around, rather than a leader that can forge a future. It may not have been a future we leftists liked, but it could have been a good future at least for the American economy. Now, whatever future there could be is in the hands of Republican congressional leaders; unfortunately, they aspire a lot, but are also far from inspiring.

So, I am hereby calling for an investment strategy centering around the same-old, same-old. If you are a buy-and-hold broad-market die-hard, that should be fine in the long run. If you are a stock picker or a hedger, or a contrarian, you can breathe a sigh of relief. It will be back to a boring old stable market, give or take a minor recession or two in the next four years. The economy will chug along despite Trump.

Well, there is the geopolitical crap…

I will see you in May, 2018.