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May 23, 2016 | What?

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

So, the TV reporter with the nice hair asked the guy-in-the-street, why ya voting for Arnold Schwarzenegger?

The guy looked at him like that was the lamest question ever. “To see what’ll happen,” he said.

It was 2003 and the Hollywood actor with no political experience and ubiquitous name recognition went on to become the governor of California. Seven years later the state was spending $20 billion more than it took in, and technically bankrupt. Ultimately the Terminator was found to be a political failure who spent copious time with a second family, and paid his mistress ten grand a month.

So now the entire country looks like it might just trundle down the same path, to see what happens if Donald Trump becomes president. Against the odds and predictions (including mine) he’ll win the Republican nomination and currently is running neck-&-neck with a damaged Hilary Clinton in the polls. Her inability to bury that leftie nutbar Bernie Sanders has seriously assailed her image as unbeatable. She’s not. Now the woman looks like an Establishment shill, with the coming Trump-Clinton slugfest promising to be one of the ugliest in memory.

So what’s it mean?

First, yes, he could win. There may be an army of mouth-breathing rednecks behind him, but you don’t get to 40% in nationals just appealing to people who think their cousin’s hot. Politics is about communications, and he’s winning. Lots of Americans believe Clinton’s best-before date was sometime last Century, that her husband’s a dufus, and she’ll be a spend-and-tax, hopey-changey liberal at a time when the economy needs just the opposite

Okay, so what does this bode for us?

President Trump could be tough on the Canadian economy if he makes good on his promise to rip up the North American Free Trade Agreement. He’s a wall-building and tariff-imposing America-firster who wants the US to be energy independent, somewhat immigrant-free, cut taxes, and spend a trillion more a year on defence and other hard stuff. It’ll be war in terms of trade with China, Japan, Mexico and Korea. Tariffs as high as 45%. Trump says he thinks the American economy’s in a bubble that he expects to pop, leading to a recession, likely in 2017.

Sigh. Just when maple was looking more tasty again. This is a growing reason to be cautious, which means you should probably keep your Canadian content where it is (hopefully) – less than one-third of your growth assets.

Second, cutting US tax brackets and lowering the business rate (as Trump vows to do) would likely goose consumer spending, be bullish for car manufacturers, retailers and the real estate industry. This accounts for 70% of the American economy, so that recession he’s expecting might be a big non-starter. Stock markets will like that after, of course, they react with alarm and volatility to the events of Tuesday night, November 8th.

Third – but if history’s any guide, Clinton would be way better for investors than Trump. During the most recent 15 years when Republicans have been in office, the Dow went up 42%. But with Dems in office, markets soared 609% – more than fourteen times the advance. Over the last three decades, same pattern – Republicans 166% vs the Democrats’ 1,900%.


Fourth, markets hate surprises. Right now nobody seems to be seriously factoring in a Trump presidency because it’s too wingy and out there. That will change in two months after the nominating conventions, and when there’s just five months left until the general election. Combined with two Fed rate increases now expected during 2016 – one in June or July and the other in the autumn – that could make for a wild few months in the bond market. Ditto for commodities, since the US dollar will rally and the price of stuff like oil likely drop as a result.

So the only thing you really need to know about is uncertainty. It’s out there now and every week it stands a good chance of increasing. Keep an eye on the VIX, for example. The volatility index has been coasting along serenely lately, but seems unlikely to continue.

Because you (nor anyone else) have the faintest idea what will really happen when this summer ends, get ready now. The best defence is a balanced portfolio with 40% safe stuff (various bonds and preferreds) plus 60% growth assets (including some REITs) that are broadly diversified. Stick with ETFs, not individual stocks since some of them will be clobbered by Trump (if he wins) for offshoring their profits. If your portfolio’s big enough, have exposure to medium and small-cap companies as well as the large-cap guys. As mentioned, have twice as much US and international exposure as Canadian. Keep cash to 5% or less, for opportunities that arise.

Above all, never, ever underestimate the capriciousness of the voter. Hey, we got a weed-pushing, tat-embroidered, selfie-loving, deficit-happy, elbow-throwing pugilist. Just to see what would happen.

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May 23rd, 2016

Posted In: The Greater Fool

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