I Need New Glasses–That Black Swan Was White!

I also need to ignore the emotion of the political arena, not allowing it to color my thought process on investing.  This was clearly a problem for many investors after the election of President Obama in 2008. The fear that he would not have the experience, intellect or chops to deal with the financial crises kept many investors away from the market then and for many years after, even though (in hindsight) a great secular bull market began just weeks after his inauguration … a bull that has seen all the major stock indices eclipse their former all-time highs.

My knee-jerk reaction, late election night November 8, was to assume that a Trump victory would be a bad thing for the market because it would create uncertainty (“Ladies and Gentlemen, We have a Black Swan”). We did not know which or how many of the things he had promised he might actually  try to do; but, Trump the candidate appeared erratic and unpredictable. I believed uncertainty about the candidate would create market weakness. Was I ever Wrong!

Au contraire mes amis

It did create weakness early Wednesday morning, about two hour’s worth, down no more than about 250 Dow points before it turned and roared upward, finishing the week at a new all-time high for the Dow. Clearly the market participants have taken the president elect at his word on promises, believing that certain of his economic proposals are going to happen — tax reform, corporate repatriation of $2+ trillion in cash held overseas (taxed at very modest rate), major infrastructure spending, decreased regulatory burden (no more Dodd-Frank) and an end to the Affordable Care Act. The street seems not to believe that trade barriers will be erected. Oh yes, and all of the bad things that might happen had Mrs. Clinton been elected would be avoided (pharma took off, as did financials).  The way the market acted last week all of this appears to be a fait accompli (not).

Of course, no one really knows how all of this will evolve in that great sausage factory known as Washington D.C. However, we might just be getting a glimmer from from Seeking Alpha quoting a Wall Street Journal article on bank regulation (Trump team tempers expectation on Dodd-Frank) or this item from The New York Times, “Donald Tump Says He May Keep Parts of Obama Health Care Act.” Here’s one more from Sunday’s New York Times that might help explain last week’s rally: “Calamity to Charm: Trump Rally Explained.”

Finally, for those of you fretting about the impact of Federal Reserve rate increases (a subject we’ve dealt with many times in this Blog), the yield on the ten-year U.S. Treasury note ballooned 32 basis points last week (up 17.6%) closing at 2.138%. The low was 1.37% and was hit after the Brexit vote, just four months ago.  Last week the Dow Jones Industrials had their best week since 2011. Obviously, the market believes Mr. Trump equals accelerating growth for the U.S. economy and growth trumps higher rates.

Whether or not the acceleration comes at the pace forecasted by the Trump people, I am not going to argue with the market, nor am I going to let my political biases get in the way of making money.

What is your take?

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