What's Your "Trump Contingency Plan?"
I recently had a conversation with a very smart, very experienced financial advisor who happens to be both an attorney and an accountant. Our advisor partner (my client) wanted to know what my "Trump Contingency Plan" looked like. He informed me that a very bright and otherwise unflappable client had asked this question of him. The advisor said that if the question hadn't come from a constitutional law scholar he would have dismissed it outright. But since the client was dead serious about the issue at hand, he needed our help in crafting a response.
Specifically, the client had asked, "what criteria we would use to assess whether or not Trump's presidency is getting close to faltering... getting close to impeachable offense... or possibly getting closer to Trump getting fed up and walking away from the job." The client effectively wanted to know what the markets would do and how we would protect his assets in the event of a "Presidential crisis."
My first comment was to emphasize that we are not political analysts. And save the Watergate affair and the resignation of Richard Nixon back in the 1970's, I was not sure that being a political analyst had ever helped anyone manage money in the markets.
Cutting to the chase, I said simply, "We do not have a 'Trump Contingency Plan' per se. Nor do we have a 'Trump Success Plan'." I pointed out that we manage the markets, not our macro and/or political expectations.
I then argued that the key to this game is to understand what Ms. Market IS doing at any given point in time – as opposed to what one thinks the markets "should" be doing. For example, currently the market is busy discounting stronger economic growth and better earnings due to the Trump administration's policies. Note that Janet Yellen said as much last Wednesday on Capitol Hill. So... as long as we can stay on top of what the market is doing and why it is doing it, then we don't really need to try and predict what might happen if some strange event occurs – which in my experience, is a monumental waste of time and intellectual energy.
From my seat, the client was basically suggesting that we invest using a "macro view" approach to the markets. The idea here is to look around at the big-picture investing landscape, take a stand on what you "see," and invest accordingly. Such an approach gained popularity after the 2008 crisis – because AFTER the crisis, it was OBVIOUS what everyone SHOULD have done!
I've written on this topic many times since the crisis and have argued that very few investors are able to succeed with such an approach. I offered an article detailing the losses incurred by George Soros, who is one of the best known "macro" investors around, after he loaded up on shorts before the election as a key point in my argument.
Then there is the question of how the market will react to an event. I opined that even if you COULD predict the event the client is worrying about – can you seriously predict the market's reaction?
Exhibit A: BREXIT. Exhibit B: The U.S. Presidential election. 'Nuf said, right!
My big point was that even if you had a functioning crystal ball and were able to get the "call" on the expected big, bad event correct, could you also get the market reaction right? The answer is, Hmmm... maybe not!
In short, everybody who tried to predict what would happen after recent political events and then invested according to their predictions, got smoked. Yes, including Mr. Soros.
In summary, I told my advisor colleague that in all sincerity, there is simply no upside in trying to predict the markets or the outcomes of political events. In short, no one has ever been able to predict what will happen next in the market for any reasonable length of time. I noted that every great prognosticator over the years (Joe Granville, Robert Prechter, Elaine Garzarelli, etc.) eventually fell from Grace.
The advisor summed it nicely this way. "Dave, you bring the whole conversation back to the fundamental truth that political events can't truly be predicted nor can the market reaction to whichever event happens to surface. It is what the market IS doing that should inform our thinking rather that all of the hundreds of directions the market COULD do."
Perfect. And if had gone to law school, perhaps I too could have summarized the situation in 50 words instead of 500!
Publishing Note: I early committments the rest of the week and will publish reports as my schedule - and energy level - permits.
Thought For The Day:
If you want to go fast, go alone. If you want to go far, go with others. -African Proverb
Current Market Drivers
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of Trump Administration Policies
2. The State of the U.S. Economy
3. The State of Global Central Bank Policies
Wishing you green screens and all the best for a great day,
David D. Moenning
Chief Investment Officer
Sowell Management Services
Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.
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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.
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