Mike’s Moves to Make
Buy: Defense stocks, infrastructure plays, gold, U.S. metals producers, drug stocks
Sell: Real estate and auto shares, long-term government bonds, emerging market bonds and shares, hospital companies
This week, a Magnitude 9 “Trump-Quake” rocked markets around the world after the polarizing Republican won the race to become the 45th president of the United States.
First, Trump’s victory is bullish as all get out for defense stocks. They are far and away the biggest likely winners, given Trump’s stated desire to spend billions to strengthen America’s military. Since Republicans also maintained control of both the Senate and the House, it’s not just talk, either. Trump will have a much easier time putting his defense plans into action.
|Defense stocks will probably soar under President Donald Trump’s administration|
One of my favorite defense stocks is in the Safe Money Report portfolio, and it surged in value this week. You can get that name, as well as several other recommendations for a Trump presidency, by clicking here. You can also check out this article I wrote about the sector several weeks ago.
Second, the Trump win will have a mixed impact on healthcare. Why? Trump and the Republicans in Congress are likely to radically remake or scrap Obamacare. That’s bad for hospital operators because they saw a huge influx of customers under Obamacare. Those customers’ bills were being paid by Uncle Sam, too, reducing bad debt and collections expenses.
On the flip side, Hillary Clinton’s defeat will likely end the verbal bashing of big pharmaceutical and biotech companies in Washington. Since they’re going to face less political pressure over drug price hikes, they could rally and rally hard from deeply oversold levels.
Third, this looks like yet another bearish development for the auto sector, which is already struggling due to the credit-cycle factors I’ve discussed many times.
Think about it: Trump has slammed the NAFTA trade agreement, vowing to tear it up or replace it. He has also pressured companies to move more jobs and factories back to America.
Your insurance company is hoping you make them–and they’re banking on it–because it allows them to rip thousands of dollars out of your pocket each year.
Extra money you should NEVER have to pay …
So they work hard to make sure you never find out about these all-too-common Medicare mistakes most Americans make.
We’re going to fix that, and protect you from their schemes and tactics, by revealing these mistakes and showing you how to avoid making them, here …
Regardless of whether you think that’s a good development for American workers or the U.S. economy, it’s bad for the profits of auto and auto-parts companies. They love the cheap labor and lax environmental rules they can find in places like Mexico because they pad their bottom line. Investors are now going to worry about that going away, giving them even more reason to dump these lousy stocks than they already did.
Fourth, the election should be bearish for emerging market bonds and stocks. After all, Trump has said he wants to renegotiate a lot of the trade agreements made over the past several years, and pursue an “America First” strategy when it comes to dealing with foreign leaders on economic issues.
Trump-like leaders and anti-trade movements are also gaining momentum in Europe. Just look at Marine Le Pen’s ascendance in France or the success of the Brexit campaign in the U.K.
That means protectionist impulses could spread to other major economic blocs on the world stage. It means the dollar should gain ground. And it means foreign stocks are going to look riskier to many investors.
Fifth, it should lead to increased investment in gold and rising volatility over time. I say that because Trump is a much more unpredictable, volatile president-elect than a known quantity like Clinton would have been. I believe we’re going to see bigger swings in stocks, bonds, and commodities over time as a result. That means chaos/volatility plays, like gold and mining shares, should prosper in the days, weeks, and months ahead.
But what is the single biggest “loser” investment in this environment? What have I been telling you to avoid for some time anyway, and is now getting crushed? Long-term bonds!
Just look at what’s happening in Treasuries. Long bond futures have plunged more than 20 points in price since July alone. That’s a decline of more than 11% in an investment many people wrongly perceive as perfectly safe. Yields move in the opposite direction of prices. So, on Wednesday, the yield on the 10-year Treasury soared 21 basis points. Then it jumped as much as five more points on Thursday.
It’s not just Treasury bonds getting clocked, either. ETFs that track emerging market bonds, such as the iShares JP Morgan USD Emerging Markets Bond ETF (EMB) … high-yield municipal bonds, such as the VanEck Vectors High-Yield Municipal Index ETF (HYD) (See chart below) … and mortgage bonds, such as the iShares MBS ETF (MBB) … all plunged in value this week. All told, global bonds lost a whopping $330 billion in value on Wednesday alone, according to Bloomberg.
One reason for the carnage is that the era of mindless QE and endless monetary policy interference is dead and buried. Trump has already called out Fed Chairman Janet Yellen for creating a “false economy” and an “artificial stock market” by keeping rates too low and by working hand-in-glove with the Obama administration. That increases the chance she could be “encouraged” to resign, or step down, before her term ends in a few years. Anti-QE movements are gaining ground in Japan and Europe, too, putting the Bank of Japan and the European Central Bank on the defensive.
I have repeatedly lambasted QE as utterly ineffective, not to mention responsible for creating out-of-control asset bubbles in all kinds of asset classes. If we no longer have price-insensitive, manipulative central banks buying boatloads of government and corporate bonds day in and day out, it’s going to help prick those “Everything Bubbles”.
Another problem for bonds? China’s yuan currency is collapsing, forcing that country to liquidate tens of billions of dollars in assets (including boatloads of U.S. bonds) to defend it. The yuan just dropped to a six-year low against the dollar. China’s foreign-exchange reserves plunged by $45.7 billion in October, the fourth monthly decline in a row and the biggest since January. At $3.12 trillion, they’re now the lowest since March 2011.
Lastly, Trump is advocating for as much as $500 billion in infrastructure spending. He’s promising tax cuts and other deficit-boosting programs. One non-partisan group estimates his plans could boost the nation’s debt load by $5.3 trillion. That means an avalanche of Treasury supply is poised to rumble through the capital markets.
So, if you’re going to own bonds or fixed-income ETFs and mutual funds, stick with short-term ones. That means average maturities or average durations (a measure of interest rate risk) of two-to-three years or less. Less than one year is preferable.
Also, stay the heck away from stocks like Real Estate Investment Trusts (REITs), home builders, and other rate-sensitive names. They’ve been disastrous investments for the past few months, just like I predicted they would be, and I don’t see better times for them in a rising-rate regime.
Finally, understand that in this new era, the whole “buy an index fund and forget it” approach simply won’t work. The divergence between market winners and losers was already increasing in the past few months, and it’s only going to get wider in 2017 and beyond.
You’re going to need guidance and you’re going to need to stay nimble. So, I encourage you focus on the advice you get here in Money and Markets, and in my Safe Money Report. No matter your political bent or your thoughts on Trump’s policies, there is no question they’ll impact the investment markets. That creates both major risks and huge opportunities.
Now, I’d love to hear from you. What are you buying or selling post-Trump? Any stocks and sectors you really like, or really hate, here? Share your opinions in the comment section here at the website.
Until next time,