Markets under pressure as ‘Trump bump’ falters

Global markets recede as the so-called ‘Trump bump’ runs out of steam Despite share prices climbing sharply on the back of last November’s surprise election victory by Donald Trump, the fabled ‘Trump bump’ appears to be running out of steam as Wall Street signals its disapproval over the president’s failure to secure support for his most prominent pre-election pledge. Trump’s disappointment over his inability to pass the repeal of Obamacare through Congress was mirrored by tumbling US shares, as the market wobbled over the prospect of the administration’s power to deliver on a raft of growth-boosting measures, including a comprehensive package of tax cuts. Read more…

How will Trumponomics impact the US economy in 2017?

How will the new presidency affect the US economy?With the ideological and political differences between the outgoing Obama administration and the incoming Trump regime a million miles apart, it looks as if barely a single policy will remain unaffected in the coming months – from public spending to international relations. So far, the markets have reacted positively to predictions of increased growth fuelled by pronouncements over deregulation, tax reforms and infrastructure spending. But, with Trumponomics set to remain a dominant influence in the coming months, observers will be closely monitoring whether Trump’s deeds match his words and forecasting how his administration will balance higher growth with spiralling inflation without plunging the country into a recession. Read more…

Will President Trump boost the US economy?

Will President Trump boost the US economy?It seems as if the US economy may be set for an unexpected upturn as Trump prepares for presidency. The new Republican administration has pledged to ‘make America great again’ by putting its resources into boosting the economy which, together with expected trade restrictions is almost certain to fuel inflation above the average 2.2% of Obama’s second term. The economy may also get a boost from the deregulation of labour and environmental legislation. If there’s scope for economic expansion, Trump’s policies could kick-start growth and output and productivity could rise sharply, but as the economy approaches full capacity, inflation will soar. Read more…

Brexit means Brexit – or does it?

The British public voted for Brexit, but when is it going to happen?The British public voted for Brexit, but when is it going to happen?

In June this year, a referendum was held in the UK over whether or not to remain part of the European Union (EU). The shock vote by the British public to leave the European Union caused a dramatic shift in sentiment and left a kingdom that seemed a long way from united. Despite assurances by the then government that wheels would be put in motion to trigger Article 50 of the Lisbon – and continued talk by the new prime minister that ‘Brexit means Brexit’, there’s seems no further clarity on what form Britain’s secession from the EU would take. Read more…

After Brexit, will other EU countries follow suit?

After Britons voted to leave the EU, will other countries follow their lead?After Britons voted to leave the EU, will other countries follow their lead?

Europe is in turmoil after the shock outcome of Britain’s referendum which saw a slim majority of is citizens vote in favour of Brexit. The imminent separation of the UK from the European Union has given voice to political parties in other countries, which are calling for people to be given a voice on their membership of the bloc. But, after the global reaction to the UK’s momentous decision, how likely are other members to push for referendum? Read more…

Brexit fallout – the likely outcomes

Britons have narrowly voted to leave the European Union but what are the consequences?Britons have narrowly voted to leave the European Union but what are the consequences?

There was plenty of anxiety in the run-up to the UK referendum on its membership of the European Union, but few could have predicted the full impact of the shock decision to leave. In the event, more than 17 million Britons voted to withdraw from Brussels which has brought into sharp focus a debate about some of the likely outcomes. With issues ranging from the problems of economic instability to the possibility of a break-up of the union itself, it appears that the Brexit result could have much wider implications than originally thought. Read more…

Is Greece on track for a Eurozone exit?

Greek crisis reaches turning point as bailout talks stallDon’t mention the war

German Chancellor, Angela Merkel didn’t become the most powerful leader in Europe by being a pushover. Merkel’s government is dominating European politics at the moment, so you might wonder what response Greek Prime Minister, Alex Tsipras, was expecting to his demands for Nazi war reparations at their meeting this week. One can only imagine that Frau Merkel delivered a frosty ‘Nein’, before going on to say that ‘in the view of the German government, the issue of reparations is politically and legally closed.’

Read more…

The Correction is Here so Mind your Vs and Ws

We wrote in January “any material pullback that could make 2012′s chart look like a V or W on renewed European default or earnings concerns is a buying opportunity.”  The correction is here, live and in person with global markets retracing 2012’s gains to date.  The V can certainly deepen further, but this is the time to begin putting some of the cash you have on the sidelines to work. 

The timing of the bottom of this correction is irrelevant and don’t expect to get it right.  Just start putting 10-20% of your cash to work on days when the market is down over 2%.  If we fall just another 5-7% from here, I will advise swapping out your boring, broad ETFs for something more fun like 2x or 3x leveraged ETFs and emerging markets exposure with more upside. 

Corrections are psychological animals and we are definitely in the midst of a Euro-led psychosis.  The faster Greece is resolved (stay with Germany’s austerity plan or leave the Euro) and Spain performs an Italian-esque political and economic turnabout, the better.  But since the timing of this correction is identical to those we saw in 2010 and 2011, we are in no big hurry to get overexcited that the worst is behind us.  The US economy is in a rough patch driven by the confidence-killing psychosis across the Atlantic.  Notice nobody is worried about France’s new left-leaning leader or the actual Euro currency which is still far from parity with the US Dollar.  All this negativity will pass and the stock market will show its strong hand again as we get closer to the Presidential election.  Markets cheer political deadlock so bet on Republican gains in Congress and another four years for President Obama.

Portfolio Checkup and Facebook Musings

It’s February and the weather in Southern California is reminiscent of spring.  Birds are singing, the ocean is glassy, and the sky is blue – it’s a nice feeling.  This is appropriate given the spring awakening stocks enjoyed so far in 2012.  Luckily there remain many negative headlines and bearish doubters out there, so we may have some room to run with this rally before an inevitable correction a.k.a gut check. 

My timing isn’t always great, so if you’re just now diving into stocks, it may be wise to hold off for a meaningful correction.  The fears that caused me to reduce equity exposure last fall perfectly coincided with the bottom in global equities so I still feel a little pain from that error.  But I followed my gut that if things didn’t play out as I expected by the end of 2011, I had to admit error and return to a more bullish positioning.  Now 2011’s tiny gain in the S&P 500 Index is followed up so far year-to-date with a 7% pop , but beaten-down European shares are up a few extra percentage points over US stocks, the tech-heavy Nasdaq 100 is up 11% along with small cap US stocks (Russell 2000 Index), and risky emerging markets are up over 15% (MSCI Emerging Markets Index).  Gold is mostly keeping up with the broad stock indices much to my chagrin.

The news is chalk full of headlines about individual investors sitting on the sidelines, waiting.  I love that.  If you wait for your neighbor to tell you how great his portfolio is doing, you missed the boat or at least part of it.  I also enjoy reading about how February is a bad month for stocks over 50% of the time.  Pay no mind – this is no different than the sucker bet on black in a game of roulette after three or four red bets pay off.  Summer of 2011 is starting to fade into history much like the summer of 2010’s 20% drop.  That one took six months to fade from memory and make new highs.  This time shouldn’t be much different from the smell of it. 
 
Is a Eurozone financial panic and debt default still a risk?  Sure and it’s enough to keep my nose mostly out of their stock market.  But the economic picture is getting brighter in the US with steadily rising output and employment.  A slowdown in corporate earnings may well be in effect, but the powerful leverage achieved via massive layoffs during the recession can only last so long. 
 
Stay the course with your equity investments.  When meaningful pullbacks occur, I use leveraged ETFs (exchange traded funds) to add a little pop to the portfolio.  I like TQQQ (3x leveraged daily Nasdaq 100) and EDC (3x leveraged daily Emerging Markets).  These 3x ETFs should not be used as the basis of a portfolio, but rather to add some juice to returns after a 4-5%+ pullback occurs at any given time.  When this happens you can swap out a 10-15% position in a boring index fund like SPY or IWM for one of these little rockets and see how you do.  Don’t hold them over 30-60 days as leverage can be very painful when the index moves in the opposite direction of where you need it to go.  These ETFs even have inverse brethren so you can profit when markets slide.  I am a terrible short seller and I avoid these like the plague.  Use them at your own risk.
 
Republican primary coverage is constantly on television.  Obama was smiling during the debates, but now has reason to giggle a little.  The financial wizards at the Fed are helping make sure he wins a fresh 48 months in the White House.  The Fed is helping Europe push off implosion to never or at least 2013 with quasi-QE3.  Don’t worry about what that means, just know they are pumping tons of liquidity to European banks.  Employment and GDP numbers smell like roses and Bernanke promised Wall Street near-zero interest rates through 2014.  Love or hate Newt and Mitt, their whining about the economy may start to sound like a broken record in a little bit.  Is all this action artificially inflating stock prices?  Let’s not worry about that and enjoy the ride.  We can revisit this issue at year-end. 
 
Obama’s dinner buddy Mark Zuckerberg (Facebook CEO worth $20+ billion) is about to make thousands of new millionaires via their IPO.  They will buy toys, homes and pay taxes on their very public earnings.  That’s great.  Should you buy the stock when it finally trades?  Sure, why not, just don’t go crazy with the actual amount of stock you buy relative to your net worth.  A more interesting play is to figure out what public firms Facebook will buy after it gets that multi-billion-dollar cash infusion. Zynga is an obvious choice and its stock is already shooting higher.  I like LinkedIn (LNKD) as a takeover idea.  I’m not crazy about the site and its business model, but I have an account and I don’t belong to the cult of Facebook.  Mark will have to buy me and my ilk to earn our eye balls and dollars.  And I think he will do just that.

Q4 2011 Summary and 2012 Outlook

I know, I know, I have been quiet.  But for good reason.  The market is behaving like a roller coaster and investors have indigestion from the volatility.  Talking heads only add to it.  My September 12, 2011 call for a significant easing off the investment accelerator pedal has felt right, wrong and anywhere in-between so many times I should feel dizzy.  That day I said “The market may be giving a signal that a sharp drop is ahead and risky assets could drop 1.5-3x more than the broad market.”  We have had three valleys, two peaks and lots of up and down in little more than three months.  Europe and the global banks underperformed at first, but are now outperforming other sectors and countries.  One bright spot has been my gold call: “Another theory is that gold is reflecting future relative dollar strength to a basket of global currencies.  Either way, it probably makes sense to get out of its way.”  Avoiding it or being short one of the gold ETFs has been profitable and offset pain elsewhere.  The issue at hand is what to do now and we shall get to that.

While the broad US stock market will end 2011 darn near flat to up a little, most investments that outperformed in the bounce since the bear market bottom performed poorly.  Emerging markets and developed markets outside the US fell 15-20%. Europe and its euro currency were the worst offenders.  Technology stocks lagged the broad market.  The volatility since August has been so potent I heard a man in his sixties complain about it to a clerk at my local grocery store.  Buy and hold investors with a mostly US-focused portfolio have done just fine so far, but the traders among us are just about ready to throw up.  Hedge funds are feeling the pain the most as they are whipsawed from low to high, to subsequent low, to the next high.  They are at the mercy of psychology and trend-following no less than the average investor/trader.

If you followed my advice, you should have ~25% cash to burn at this point.  Stop day trading (you know who you are) and add a bit to those broad, large and small cap US index funds you own and keep your now reduced exposure to emerging markets and non-US developed markets in case a bounce happens.  As I said in September, “Poor stock market performance in the fourth year of a President’s term is rare as can be.”  Please don’t think for a second the volatility is over.  A plausible scenario for 2012 is a W shaped year with one or two shocks causing steep drops in the first and second quarters, followed by a nice rally into the election and an overall 10-20% S&P 500 return.  I expect the market to trick us into believing 2012 is like awful 2008, an anomaly for a fourth year in the election cycle, at least a few times in the near future.  But 2012 will buck the trend because stocks hate the uncertainty that goes along with legislation which creates winners and losers.  Losers hate losing more than winners like winning – this keeps stocks from rising when the prospect of big legislative change is at hand.  Election years like 2012 yield little in the way of change and President Obama has no real competition at this point.  Regardless of your political leanings, Romney is no more a contender for President than John Kerry two elections ago. Fourth years for lame ducks are even better historically.  There is good reason to believe Obama is essentially a  lame duck to his own second term, especially if you watched the Republican debates so far.

Europe could throw a monkey wrench into our plans for a good year and help create a W chart, but the US should continue to do better than foreign markets if for no other reason than the strength of the US Dollar.  Our economy is also recovering nicely from the recession, but not fantastically.  Beating expectations is a win even if your wallet doesn’t feel as high and mighty as it did in 2005-06.  Hedge funders like SAC Capital are even betting on a real estate stock rebound in 2012 which seems a tad premature.  Tech stocks should gain leadership once again as risk appetites return, but don’t bet on that in the first half of next year.  A strengthening USD should keep gold prices falling as speculators exit their long-held positions to lock in profits.  If some brainy solution to European banks’ sovereign debt problems arises out of the blue, we could see things reverse with the US lagging again and gold moving up.  Until then, maintain an 80-90% allocation to stocks with the remainder short gold or in cash.

Good Luck and Happy New Year!!!