January 28, 2017 Wow

Risk/Reward Vol. 378
 
THIS IS NOT INVESTMENT OR TAX ADVICE.  IT IS A PERSONAL REFLECTION ON INVESTING.  RELY ON NOTHING STATED HEREIN.

Wow.  All I can say is wow.  Another record breaking week and no end in sight.  Not even Friday's disappointing GDP number could derail the market.  To quote noted hedge fund manager Ray Dalio "We are in a Goldilocks period right now.  Growth is good, everything is pretty good with a big jolt coming from changes in tax laws."   He sees the market in the late part of a bull cycle with a market blow off rally fueled by cash from banks, corporations and individuals yet to be experienced.  Add to such sentiment a report this week from the International Monetary Fund that the global economy is enjoying its broadest expansion since 2010, and a column in Friday's Wall Street Journal that tax reform may have an even broader positive impact than at first calculated, and it's no wonder Mr. Market is ecstatic.

Did you catch President Trump's speech at Davos?  Look, I know The Donald is often tough to take.  But that speech was a very articulate explanation of "America First".  And frankly, I don't know how any American could take exception to it.  Unambiguous in touting America's advantages (due of course to his leadership in tax reform and deregulation), the President also noted that America First is not America alone.  He is right.  American innovation is good for everyone worldwide.  That speech made me wish that he could stay "presidential" (read, give up Twitter).  But, then again, I didn't take on 16 Republicans and a shoe-in Democrat to become President against all odds.

So when, where and how will it all end?  I don't see the cheap dollar hurting the stock market.  If anything it makes America more competitive, a fact that was lamented by the ECB's Mario Draghi this week.  He even accused the US of beggaring its neighbors via currency manipulation.  Inflation?  Maybe, but it hasn't hit yet.  Interest rates?  I doubt it.  The world is still awash in negative yields thanks to the ECB and the Bank of Japan's continued bond buying programs (quantitative easing).  Moreover, the Fed has announced its intentions for 2018 (three, maybe four small rate hikes and a slow reduction in its balance sheet) which presumably are priced into the markets.  Jim Paulsen, the former head of equities at Wells Fargo, sees a 10-15% correction sometime this year borne of nothing other than exhaustion.  He then hastened to add that it should be viewed as a buying opportunity.  Noted investor Howard Marks published another letter to investors this week in which he counseled caution.  At the same time however he did not advise leaving the market.  To me the biggest threat is non economic.  It is political.  There is no doubt that a finding of an impeachable offense by the Special Prosecutor would send this country into a tailspin.  Why would any investor want that?