FYI | Jan 31 2017
By Peter Switzer, Switzer Super Report
To prove that I’m not always a so-called perma-bull (as some like to describe me) and that I do read the tea leaves to let my followers know if I think a pending doom or boom lies ahead, I reflected on the people and the issues — positive and negative — that we should be noting as investors.
I have to admit that I’ve designed my own portfolio of assets so if I miss picking a crash, the flow of income from my shares is likely to be pretty damn good. And if I were retired, it would be good enough to keep life enjoyable, until the market starts its recovery.
In a perfect world, a lot of us would like to keep investing in the bull market and then sell up everything — despite the potential capital gains bill — a few weeks or days before it all goes to ‘you know what’!
In a good but imperfect world, I’d be happy to be out of stocks six months before a crash and be in term deposits and cashed up to buy the likes of CBA at $30 or $40, when the world is panicking. Getting out early can be short-term worrying but longer-term rewarding.
In the absence of knowing I will get the timing of the next big slump right (though I will be trying to do so), I like to know I invest to make bad market times easy to cope with. That said, I still watch for telltale signs that things aren’t right.
I also think about emails with subject headings such as “A four-minute video to save your financial life!” I wonder who could leave themselves so exposed that they need rescuing? The answer is: too many. And that’s why speculative emails meant to drive business and make money out of poor investors’ anxieties work!
I caught up with a subscriber, Paul, in Melbourne last week when I was there for the tennis. He is a former schoolteacher who invests like I do and he thanked me for giving him the guidance to get his financial act together. He also noted the lessons from my old mate Peter Thornhill, who also is a big lover of dividend-paying companies.
I also bumped into someone who I’d never met before but he introduced himself as a regular watcher of my TV show. He explained how he had sold a business and effectively gone on the punt with stocks and admitted that his prodigious losses had nothing to do with me! In fact, he said he wished he’d listened to you. He was a victim of Bellamy’s demise, among others!
Right now, the doomsday merchants are telling us beware of a big sell off and because of the recent post-election win to Donald Trump in the USA, even I think a pullback in February is on the cards. However, I would simply see that as another buying opportunity as our index marches towards 6000 this year. By the way, if Donald proves to be an over-achiever we could even see 6300 by year’s end! (I did say “could”.)
Let me survey some of the pundits out there who can create a bit anxiety at times for someone with an exposed portfolio of stocks. Fortunately, not all are anti-Trump and his potential effect on stocks.
Legendary speculator player, George Soros, miscalculated on the Trump-effect and his hedge fund lost close to $1 billion on getting his future guess wrong!
Stanley Druckenmiller, who once was a lieutenant of Soros, gambled the other way and remains a bull. “I have a large bet on economic growth … I like the sectors of the equity market that respond to growth [like] value and materials, not things like staples or traditional growth stocks.”
One of America’s scariest activist shareholders, billionaire Carl Icahn, is on board the Trump train and has not only made a fortune backing his mate, Donald, he is actually advising the President on regulation!
Jim Chanos, of New York-based Kynikos Associates, who spotted Macquarie’s exposure before the GFC and was on record picking a big market problem before 2008, has been fiercely shorting China since then and has hardly come up trumps!
Rooster one day, feather duster the next!
He’s seen reactions to Presidents — both positive and negative — turn on a dime after a few months.
“I wouldn’t read a lot into the first month or two,” said Chanos.
An AFR article pointed out that Chanos questioned whether investors were becoming too enthusiastic about bank stocks.
“It could be that banks are anticipating deregulation, but so what?” he said. “They’re still going to have the capital requirements, which are international. Putting capital standards on them is the biggest way in which they were regulated.”
Chanos thinks you have to assess Trump on whether he ushers in a unique period in economic history like the New Deal and the Keynesian policies of big government spending in the Great Depression.
Ronald Reagan and Margaret Thatcher gave capitalism a shot in the arm and it led to globalisation, free trade, deregulation and an explosion of asset values.
He thinks Brexit, the Italian referendum and the Trump victory might be better for wages than profits but with the US President, I’d argue, he might be more a capitalist than a champion of the working class.
Time will tell.
I’m betting with Stanley Druckenmiller that Trump brings growth, business investment and higher stocks prices.
On the other hand, bond king Bill Gross wonders if the Trump effect has taken stocks prices too high and bond prices too low? “Are risk markets overpriced and Treasuries over-yielded? That is a critical question for 2017.” Gross, who created the biggest bond manager in the world — PIMCO — but is now at Janus Capital, says this stock market optimism is based on the belief that Trump will get US economic growth up and over the 2% average we’ve seen for the past decade.
The higher growth rate is hugely important for US corporate profits, which historically have advanced strongly at 3%. In contrast, Gross notes that “2% or less typically has smothered corporate profits”. (AFR)
Gross doesn’t think Trump can change the US growth story and that’s my big watch for 2017 and 2018.
Note on Friday that US growth came in at a disappointing 1.9%, after being 3.5% in the previous September quarter. However, business spending did pick up and experts think it will power more economic activity over 2017.
Interestingly, Gross does give a good reason to punt on US growth for a couple of years, and therefore making share investing OK for the foreseeable future.
“Trump’s policies may grant a temporary acceleration over the next few years, but a 2% longer term standard is likely in place that will stunt corporate profit growth and slow down risk asset appreciation,” he said.
I’ll run with that.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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