Donald Trump’s victory in the recent U.S. presidential election — and the subsequent stock market rally — has many in the mainstream media comparing President-elect Trump’s economic policies to those rolled out in the early years of the Reagan Revolution. Read on and I’ll explain why the odds are stacked against a repeat of economic history and what it means for you and your money.
Yes, Trump’s defeat of Hillary Clinton was seismic in many ways. And the world’s financial markets are still trying to figure out what it all means …
It’s a process which will likely take a while and, in my view, be characterized by sharp moves (20% or more) in BOTH directions (up and down) for the near future.
But for now, the global equity markets see nothing but positives in Trump’s policies and have, in the short term, repriced risk in a way that has sent the U.S. stock market soaring.
Indeed, U.S. equites, as measured by the benchmark S&P 500 index, have risen approximately 6% since Election Day, reaching new highs a number of times over the past month or so.
Obviously, this kind of shift from one side of the boat to the other doesn’t come without turbulence …
On one hand, we have equities surging to record-high valuation levels. But on the other, we see a similar sized decline in the bond market as an increase in interest rates has caused a significant reduction in bond valuations.
This violent see-saw action in the world’s two major asset classes has many everyday investors asking, “What should I do?”
Well, in my opinion, what you don’t do is go piling into the equity market as it hovers around record high levels.
40% gain after the jobs report … And we predict even GREATER gains after the Fed announcement
In just four days after the December 2 jobs report, the trade we designed to capitalize on this event SOARED 40%. We exceeded even our own expectations.
And now, we’re prepared to release our “Fed trade” and we predict a 50% gain in just a matter of days.
Skeptical? Click this link to see EXACTLY how we plan to do it. but don’t wait … you only have until December 13 at 5:00 PM Eastern to get on board.
– Boris and Kathy
Recall, it was the iconic investment advisor Warren Buffett who said: “Price is what you pay and value is what you get.” And currently, stock market value has diminished as prices have moved higher.
For now, the right move is to use this market rally as an opportunity to reduce your overall equity exposure. And if you’ve missed the move, don’t jump in now for fear of missing out. Reason: You are likely going to get another chance to buy in at lower levels and better valuations.
Here’s why …
Proponents of President-elect Trump’s policies say his pledge to scale back business regulations on various industries, especially financial services and pharmaceuticals, will provide a big boost to business. What’s more, his supporters say that his vow to increase infrastructure and military spending is an undeniable plus for manufacturers and contractors.
But the big explanation most often given for the post-election stock market rally is that the almost certain business and personal tax-rate cuts that will occur over the next year will ignite economic activity in the same way Ronald Reagan’s tax policies unleashed America’s economic might.
However, at the risk of throwing a wet blanket on the current market euphoria, let’s take a look at a few key differences between then and now:
As this chart shows, Reagan inherited a stock market which was priced at levels that made it hard to lose if you invested in equities (7.4 times earnings in 1980, compared to the current level of 20.3 times earnings). In 1980, the S&P 500 offered a 5.7% dividend yield compared to a current dividend yield of 2.1%. And with inflation running at 12.5% and the 10-year U.S. Treasury rate sitting at 12%, borrowing costs had no place to go but down, causing an extraordinary secular bond market rally never experienced before in modern financial times.
After considering the chart above, even the most optimistic among us would say that Trump and his economic team face some strong head winds. And I haven’t even touched on the BIG macro problem facing the U.S economy which is an avalanche of global debt.
Making things even far more difficult for a Trump administration is that in the last 100 years there has never been a two-term presidency end that wasn’t followed, within 12 months, by a recession.
But we do live in interesting times. And it’s possible that the world’s central banks will make good on their promises to double down on their experimental economic policies in a way that will kick the can down the road on a recession.
Well, some people have built a little cabin in the woods. They’ve stocked it with food, guns, and ammunition. They call it a “bolt hole.” You know what? It’s not such a bad idea! But it’s not for everyone. I’ve got a better way to protect myself. And you do, too.
The answer is to get rich. Rich enough to weather the storm and keep your assets out of danger. The best defense, in other words, is a good offense. And guess what? The K Wave itself will give you the perfect way to do that. -Make sure to click here to download my new free report Stock Marker Tsunami! -Larry Edelson
So let’s say that Trump’s policies work. The U.S. economy is still a big ship to steer: It doesn’t just turn on a dime. Large government-funded infrastructure projects take time to get started. Time for the funding to come in. Time for the projects to be planned. And time for the equipment to be delivered.
That’s why sometime in the next several months, I expect the uncertainty factor that the President-elect and his policies bring, to “trump” the recent market euphoria. And in the financial markets, uncertainty equates to volatility.
With increased volatility, I anticipate the current stock market rally to reverse and the recent sell-off in bonds to be temporary. A heightened level of uncertainty should send investors scrambling for safety, specifically to U.S. treasuries.
Look, I’m not Mr. Gloom and Doom. But as a long-term Wall Street veteran and private trustee, I only want to invest the precious investment capital that’s under my care when the odds are with me. I just don’t see the odds on my side in equities. And it’s too early to begin aggressively establishing core intermediate or long-term bond positions.
That means — for now — it’s not time to be filling up your boots with risk. And if you do own equities, make sure they are high quality, dividend paying, highly liquid and have a global distribution platform that can power forward in a slow growth world. And for your bond portfolio, make sure your holdings are high quality too, with a short duration.
Keep an eye out for my future articles in which I’ll reveal and explain the REALLY BIG global macro-factor affecting the financial markets. Plus, I’ll give you my inside scoop on how the world’s central banks’ primary monetary policy is based on a scheme borrowed from a popular, yet dangerous, wagering strategy that professional gamblers have been using for years.