This year’s presidential election reminds me so much of the run-up to the Brexit vote. Almost every academic scholar, political operative, and industrial leader is backing the establishment position, Hillary Clinton. And just like the stance to remain in the European Union, Hillary is ahead in the polls.
But will the establishment lose out again?
That is the question that has paralyzed U.S. markets. Stocks have moved but are flat this year. Bonds and gold have moved significantly and are up 22%. Bond values and yields run in opposite directions. See below.
Falling yields and rising gold values are indicators of economic weakness.
The establishment hates Trump, especially the political institution and Wall Street machine. The polls are tight but Hillary remains ahead, and according to some it appears that she is again pulling away.
Then why aren’t the markets raging with optimism?
Answer: Because no one truly believes the polls this time around – and because the Brexit vote is still fresh in the establishment’s memory.
The airwaves are filled with trading strategies revolving around the election results, and the one I’ve heard the most is to sell into a Hillary rally should she win, and buy into a Trump sell-off should he win.
To make an investment move strictly on election results is a silly thing to do.
Recall that the economy is weak – and yes, I know that the initial estimate for third quarter GDP growth came in at 2.9%. But that’s nothing to write home about. The growth rate has only averaged 1.7% this year – even with the supposed “robust” third quarter factored in. It is, after all, the worst recovery in 70 years.
Yet the stock market hasn’t cared. Stocks are now valued 31% higher than their twenty-year average relative to GDP and 19% higher than they were at the height of the housing boom, and 12% higher than at the top of the tech-boom.
That said, selling into a Hillary rally is a fine strategy if investors haven’t already acted and placed their portfolio on conservative footing – because we know what she will do once in office: more taxes, more regulation, and more big government. If the balloon hadn’t yet burst, it will; and when it does she will try to re-inflate with the same Obama template. And then it will replace the Obama recovery as the worst recovery in American history.
Can anyone say James Buchanan? (PS: Buchanan was the last Secretary of State to become president, and became possibly the worst president in history.)
So yes, selling into a Hillary rally is a good, albeit late, idea.
But to buy into a Trump dip is simply a blind gamble. Does anyone really know what Trump will in fact do should he win? He’s a self-proclaimed dealmaker and neither side likes him. What will he give up to get what?
The best strategy to employ if Trump wins is to wait and see what he gets done in his first 100 days. If he can get a good tax and spending plan through Congress and his administration is successful at cutting regulations and – pray to God – repealing Obamacare, then yes, there will be a good time to buy into a Trump presidency.
In SURVIVING THE NEXT CRASH I said that I would be shocked if Obama got out of office without a stock market correction taking place. Shockingly, it looks as if he will be that lucky. In addition, it looks as if President Obama will also have the fortune to duck recession. The reason for both of these resides at the very heart of this year’s election debate – corruption.
Quantitative easing (QE) and other easy money policies have funneled trillions of dollars into the Wall Street establishment that have enabled them to manipulate stock market activity to suit their needs – to facilitate their effort to lure skeptical capital off the sidelines. And there is no record of this kind activity, as programs like QE are not reflected in the official reports released by the Office of Budget and Management. It’s like it didn’t happen, and didn’t cost anything.
But it did, dearly.
President G.W. Bush spent $19 trillion over the course of his term, an amount Barak Obama called “unpatriotic” while running to replace him as president in 2008. Obama has spent more than $29 trillion and has added $10 trillion to the national debt – thanks to easy money policies like QE and a pathetic opposition party.
And for his epic central government spending and “investment” programs Obama has averaged only 1.5% real growth per year while GDP grew just $3.7 trillion in the eight years. Pitiful.
It appears then, that if you print enough money and throw it all around it is possible to avoid recession and stock market correction for one eight-year presidential term.
But there is no way to avoid it for two presidencies – or for another four years.
There is no way the next president, whomever it turns out to be, will be allowed to spend what President Obama has spent in his eight-year term. National debt is 105% of GDP and debt has persisted above the level of GDP longer than at any other time in American history. That’s way too much – and yes, it is unpatriotic because it will bankrupt this nation.
Central government spending must be cut.
For this fiscal year tax receipts are expected to be $3.3 trillion and spending is planned to be $3.9 trillion, a $600 billion deficit. If that shortfall is cut in half (as in total spending is cut to $3.6 trillion) the U.S. will effectively slide into recession.
That is how fragile the situation is.
But recessions are not always bad – especially if the recession is caused by the shrinkage of the federal government.
If Trump can cut spending, shrink the federal government, and cut all the bogus regulation, the economy will slide into recession and the stock market will sell-off. That’s a huge buying opportunity because the market will emerge much stronger than it has been, to a level not seen since the 1990’s.
So buying into an election dip if Trump wins in November is most certainly a premature investment move.
And if Hillary wins and Washington continues to act like it has for the last sixteen years then we as a country ought to go to the mattresses and wait for the war to end before making a significant investment move.
That is to say that the best strategies for this election cycle are a wait-and-see strategy for a Trump presidency and a hide-and-seek strategy for a Hillary administration.