Friday, November 11, 2016

This Week's Message: Circus Trump

Make no mistake dear reader, this is not me being political, and it's certainly not me not intending to exploit the opportunities that lie ahead. In fact, the overall setup for stocks remains quite positive in my view. This is simply me pointing out the risks...


So how many times did you liken the campaign(s) to a circus act? Me? Too many to count. Now we have D.J. Trump. Hmm... 

So the market -- in the span of a few hours -- went from 'he's going to destroy the world', well, the economy, to, 'he's going to spend the economy onto smooth highways, sparkling bridges and beautiful airport runways at 4% speed'. Hence this week's rally in materials (think pavement), industrials (think earth movers), copper (think construction) and financials (think higher rates and lower regs).

Ah, wait a sec! What about the promises of 45% tariffs on everything Chinese? What about scrapping NAFTA? What about the wall? Hence this week's drubbing of emerging market equities and currencies (think relationship, think higher dollar, think capital outflow), utilities (think higher interest rates), bonds (think higher deficits, think higher interest rates), staples (think higher interest rates). Hmm....

Trust me, if Trump doesn't know it already, somebody on his team will tell him; should he stroke that pen under some cockamamie concoction of trade restrictions, I don't care what the chameleons --- who morphed from red as the results flowed in Tuesday night to green as visions of paragraph two above danced in their heads the next day --- say about how massive infrastructure spending will overcome a massive trade war, it simply ain't so my fellow four percent of Earth's population. The halting of the global flow of what has been the world's reserve currency will hit the markets in a manner that'll make 2008 feel like a casual stroll on a freshly paved inner city walkway.

So then, our leader will find his toes clenching the highest wire in the land, praying that whatever good he may bestow (from rerouting [onto roads and bridges] resources from where the market had otherwise intended) onto those who voted for walls and tariffs will more than compensate for the fact that there'll be no walls, and that there'll be no economy-killing tariffs. For if it doesn't, they'll not be suspending the proverbial political net beneath their famed funambulist.

Or, God help us, if he indeed makes good on the protectionist promises that some believe made him President, his safety net will for certain offer him no relief whatsoever, for it'll be flattened atop that fresh new concrete as its would-be attenders will be scrambling to locate ones of their own.

So, do we pull up our portfolio's stakes and head for cash hill? Only if you think Trump intends to leave a tattered legacy rivaled only by that of the notorious depression-era protectionist duo Senator Reed Smoot and Rep Willis Hawley:
The great majority of economists then and ever since view the Act, and the ensuing retaliatory tariffs by America's trading partners, as responsible for reducing American exports and imports by more than half.[4]The extent of Smoot-Hawley's negative effect on the Depression-era economy remains debated by economists. According to Ben Bernanke, "Economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression.
I don't suspect he does...

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