This Week's Message: I'm not feeling late- '90s euphoria right about now -- And -- The Prudence in Political Agnosticism...

It's interesting, I keep hearing "experts" suggest that investors are way too giddy about the stock market these days. But, honestly, that's not my observation. While, sure, folks have to be feeling good about the present state of affairs, I'm certainly not sensing giddiness in our clients as we conduct our semi-annual reviews. Again, not that they're not liking their results these days, but nobody's threatening to mortgage the farm and throw it all at the stock market. I'm definitely not feeling the late-'90s right about now.

Of course we can't have a meeting without mention of the presently most recognized name on the planet. Clearly, in the minds of many, President Trump has much to do with the current trend in stocks. Which, by itself, has our clients revealing their emotional tendencies (glass half-full or half-empty) when it comes to the market. I find that folks who sympathize politically with the new administration firmly believe that tax and regulatory reform, along with infrastructure and repatriation, will soon have the economy trending in robust fashion, the likes of which we haven't seen in years. Those who are anything but sympathetic have suddenly become experts on the ills of protectionism and how a growing population (read immigration) is essential to the long-term health of an economy. Of course that begs the question; all things the same, replace the R with a D and would we have conservatives screaming free trade and immigration while liberals trumpet the virtues of tax/regulatory reform, infrastructure and repatriation? Just sayin :)

Politics aside, the tax/regulatory reforms, etc., are highly likely to -- measurably -- move the needle on economic growth. And, no, there's nothing good for the consumer at large -- this is a consumer-driven economy, mind you -- about taking from him/her (the proposed "border adjustment" tax) and dividing the spoils among U.S. steel and motorcycle producers. Long-time readers know this to be my steadfast position regardless of the party in power -- as, in one subtle form or another, taking from the consumer and giving to politically-powered interests has been a practice of every administration since I've been old enough to pay attention.

Note: I know some of you struggle with my seeming political agnosticism, but, I promise you (you clients out there, that is), it's to your benefit! You can't have your adviser all bleary-eyed over the party in power. You can't have me seeing the world through politically-colored glasses...

So here's the thing, successful investing, which is what we're all about here at PWA (and why you suffer through my weekly messages), is about recognizing trends and adhering to a discipline that has us riding them, regardless of the political environment. The market, via the movement of prices, points out the prevailing trends and, in the process, signals to what extent (on behalf of our portfolios) we should discount the present state of political/economic affairs.

On that note, John W. Henry -- quoted in Michael Covel's enlightening book Trend following -- speaks to why a bit of deafness to political wrangling is necessary if one's to stick to ones discipline:

Even if we knew all the linkages between fundamentals and prices, unclear policy comments would limit our ability to generate returns. Trying to interpret the tea leaves in Humphrey Hawkins testimony (where the Fed chair addresses Congress) or the minds of Japanese policy authorities does not lend itself to disciplined systematic investing. 

As for the prevailing trends, take another look at my video commentary from two weeks ago (feel free to fast forward to where I segue from the economic cycle to present market signals [3:10 in]. If you missed it the first time, please watch the whole thing):

Click the icon in the lower right corner for full screen. It'll come into focus after a few seconds:


Have a great weekend!
Marty