Risk/Reward Vol. 332
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
And the beat goes on! Since Donald Trump's election, the Dow Jones Industrial Average is up a stunning 6.28% and the S&P 500 is up 4.5%. Year to date they are up 13.4% and 10.5% respectively. So, John, how does it feel to be on the sidelines? I am reminded of George Gobel's most famous line: "Did you ever get the feeling that the world was a tuxedo and you were a pair of brown shoes?" Well, that is how I feel. That said, this incredible run was predicted by no one. Indeed, as previously reported here, most financial mavens were predicting a market decline if Trump were elected. Is Mr. Market's reaction completely emotional or are there fundamental changes afoot which justify this upward move? I know that emotion plays some role in every human endeavor, but I would like to think Mr. Market is also rational. And I believe he is. Think about it. If you had invested several years and several billion dollars in a 1200 mile pipeline, consulted and reached agreement with 50 separate Indian tribes, been vetted and approved by several environmental agencies, overcome two major court challenges only to find that your President would not approve the last 1100 feet because a few hundred protestors objected to it crossing underneath a river that already has dozens of pipelines operating beneath it, wouldn't you think twice about building another? Well, that won't happen to ETP or any other company under Trump. Nor will a national minimum wage of $15, nor a Clean Air Act override of state air quality regulations. Maybe, just maybe "Making America Great Again" is not a white nationalist paen. Maybe it is intended to evoke images of a stronger Navy capable of maintaining order in the South China Sea. Maybe is about upgrading our roads and airports. Maybe it is about jawboning Carrier to keep jobs in America. Maybe the Department of Defense should be headed by a man whose nickname is "Mad Dog" instead of one named---what's that guy's name? Anyway, I am beginning to believe that Mr. Markets' enthusiasm is not only justified, but sustainable.
So why didn't American industrial leaders support Trump during the election? Well, this Dear Reader is the most underreported story of the post election stock boom. The reason is obvious to me. If you thought HRC was going to win and that Elizabeth Warren would control the Senate, you would have been a fool to support their opponents. What chance if any would the CEO of any major bank have to moderate the heavy regulations emanating from the Dodd-Frank Act if he/she supported a losing Trump? You think I am wrong? Check Fortune Magazine's report in October of this year. NOT ONE CEO OF A FORTUNE 100 COMPANY CONTRIBUTED TO TRUMP'S CAMPAIGN. NOT ONE. In 2012, Romney garnered the support of 33 of them. In 2016, HRC received contributions from more than twice the number that supported Obama in 2012. What do you think they think of Trump now? Freeing companies from the tyranny of regulation alone could be responsible for this tremendous gain. Who knew? More importantly, who reported it? Most importantly, why not? No wonder the main stream media is losing its influence.
The above notwithstanding, I am not going to chase Mr. Market. I remain resolute in my oft described strategy. It will not result in the spectacular return that equity index investors have seen these past four weeks, but it is predictable. And as so often written here, predictability is what I seek at this stage in my investing career. This is a big week for me. The Federal Reserve meets December 13 and 14 with a press release and news conference to follow. A rate increase is a virtual certainty. What I will be watching is the dot plot, the predictions of each FOMC member as to where interest rates will be over the next several months. In September (the last time the dot plot was published), the consensus was that there would only be two 25 basis point raises in 2017. I suspect this will be revised to 4 quarterly raises. Either way, I will await its announcement and then begin my re-entry. I have my selections picked and am anxious to return. I may even buy some oil related stocks as the price has stabilized above $50/bbl.
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