Election 2016 a major negative surprise for investors?
Initially, I thought it would be. Early the morning of the day after I posted, Ladies and gentlemen we have a Black Swan (11/9/2016).
I mean based on the polling, which turned out to be dead wrong, there looked to be little chance that we’d ever see a President Trump. Obviously, I was also dead wrong in my assessment. My take at the time was that this would be a big negative event for stocks but we would survive to find better times.
Those better times just happened to show up the very next morning in a rip-roaring market advance. It seemed that a guaranteed big tax cut and scaling back business regulation trumped (pardon the pun) any fears and trepidation that I personally held about the president’s experience, ability to actually do the job and character. The bare-knuckle, free market stock market didn’t care because its participants were getting what they wanted. “Greed is Good.” I quickly admitted my mistake and posted I need new glasses–That was a White Swan! (11/13/2016)
Are the chickens coming home to roast?
With the President’s latest escalation of our trade conflict with China we may be starting to see some cracks in the enthusiasm for all things Trump. The market was willing to overlook all other potential problems on the experience and policy side, again, because it got what it wanted. I am beginning to believe that the President’s acts on the trade front are beginning to wear thin on his investor constituency. The 10-year US Treasury note trading below a 1.6% yield is evidence that real fear has settled into the market. What we are seeing is a huge flight to safety at a time when economic growth may be slowing but is not in decline. Gold, another flight-to-safety trade, started the year at about $1320/oz. and is currently trading at $1515.00. We are talking about a 5-year high for this commodity.
I’m speculating that the following tweet/CNBC note may have helped send the market down nearly 600 Dow points and the 10-year to the sub 1.6% level–“CNBC: Trump: Fed must cut rates ‘bigger and faster,’ China isn’t the problem.” In typical Trump fashion the blame always lies somewhere else. Maybe this time the street isn’t buying. This just out on Huawei, “CNBC: White House to unveil rule that bans equipment or services purchases from Huawei,” probably exacerbates the situation.
So, it’s the Fed’s fault … hmmm
I don’t think so. I believe that what we are seeing now is the (Black Swanish) downside of the Trump Presidency … the unpredictable, not-well-thought-out nature of Mr. Trump, that creates uncertainty and roils markets. Only now there are no more sweet treats to be had on the regulatory or tax/fiscal fronts. Knowing that the president views the stock market as important barometer of his success is of some comfort here. Maybe he will be able to rein in his tendency to stir the pot on trade and other issues.
I believe that his desire to win re-election will win out over his baser instincts on trade wars and tariffs. Still, in the interim those tendencies could give us a pretty rough ride in the market. The advice remains the same, despite the scary markets … the secular bull market continues … stay the coarse.
What do you think?
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2 thoughts on ““Ladies and gentlemen we have a ‘Black Swan'” — Revisited”
Good thoughts. I must disagree slightly however. World wide growth is slowing. And all central banks are lowering rates internally. Gold follows rates and the dollar and the fed must remain in some parity with other central bank action even if reason for reduction may not be clear from outside looking in. Many countries have negative rates, we are long way from there. The tariff war needs to happen and of the 40 presidential candidates we have seen in last 4 years he is the only one who would undertake the war.in the first place. I call that leadership. Short term pain for long term gain. He is betting his reelection on it. More power to him. The markets at all time highs and a bit frothy were looking for a reason to correct and as of tonight it does not amount to much. 8000 points in 2 years. I will take the 8 year version of that as I am sure we all would. Dems in my view if they take over will destroy his efforts and markets will punish them severely for that as they should. I was not a fan at first and at times he makes me gasp, but I love what he is doing. Whether it be the economy or foreign policy.he is doing many many things that must be done. If not him it will be no one.
By the way I work in the metals space full time and have been a silver bug for few years. Precious metals should trend up a long way for many reasons. THOUGH FOR THE DAY: BUY SILVER. All the best!
Buzz, thank you for checking in and thank you for your comment. I hope all goes well for you and your family. My contention in this article is that there is a huge amount of fear in the market causing people to run to safe Haven investments, gold and the 10 year US treasury note being two of those investments.
To your point about gold following rates the lowest level I saw on the 10 year US treasury note was 1.37% in June 2016. That was another moment where in the market was in flight to fear mode. At the time Gold was trading at $1363 an ounce. Today the 10 year closed somewhere north of 1.7% with gold trading at $1513 an ounce. The fear based read on the 10 year is currently 33 basis points higher than the panic rate of June 2016 signifying to me that that market is not as panicked as it was three years ago yet Gold is trading at a higher level than three years ago. Gould did peek out and over $1400 an ounce two months later in August 2016. So I guess there is a correlation, not perfect but a correlation.
I believe that fear is good in that it is a sign that the wall of worry the wall worry that market is built on is very much intact.
Again, my read is these are both flight-To-safety-assets. That is what we are seeing now. If we could get some real inflation going which may be the result of your favorite political party’s deficit spending, tax cutting/ without concomitant spending cuts and more deficits from the new spending deal, Gold should really shine, Bonds should tank as a result of the bond vigilantes demanding a higher inflation adjusted return. At this point their prices will be moving in opposite directions. Whatever happened to the tea party?
As I have previously stated and continue to believe we are in a secular bull market that began in March 2009 and continues to this day. It is unlikely to end in a period of extreme fear and pessimism. It will more likely end in extraordinary optimism. When it does it will end badly. They always do. I wish I could tell you when that will happen but euphoria will be a tip off. My only advice is you don’t want to be too early with the sack cloth and ashes and hanging crêpe.
Anyway, thanks for checking in. Please give me a buzz (pardon the pun) if you would like to chat further.
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