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June 18, 2017 | The Donald

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.

“It’s just because you hate Trump,” Tom said. “And I’m not doing it. The Dow is gonna double.”

So Tom’s a retired Airbus captain who spends at least half his time in Arizona and the rest in the Okanagan. He wisely took a lump-sum pension payment instead of fully-taxable monthly distributions, and is sitting on seven figures in a nicely diversified and balanced portfolio which churns out a sweet monthly paycheque. Tom loves Trump. Got the red MAGA ball cap. Fox News on the cable all day. Hates lefties with a passion. Every day is a new Morning in America. Shining City on the Hill. “And don’t you be saying anything about Melania. Or Jared.”

So explaining to Tom that his portfolio should be tweaked to harvest some US stock gains, reducing the American weighting a little and adding a few points to Europe and Canada, was painful. There were words. And emotion. Thus, Tom remains overweight America. Risk on.

If nothing else, Trump stirs the loins of a lot of people. A masterful influencer of opinion, he inspires this kind of comment on a certain pathetic blog: “Garth has a sick obsession with Trump that emanates from jealousy most probably. He mentions him in every post.”

Emotion is the enemy of investing. We’ve seen that with real estate, where fear of missing out created panic buying which has been followed by fear of buying – even as choice expands and prices fall. Same with stocks and mutual funds – people bail out at the worst possible moment, maximizing losses (witness March, 2009), instead of pouring in when prices fall. Over and again we repeat the pattern – buy high and sell low. It is always, 100%, based on emotion.

In fact, one US study showed over a 20-year period, emotional behaviour cost investors more than $120 billion. They invested with their pants. Not their heads. Trump’s personality seems to accentuate that. Those who hate the guy and sat out missed an historic rally. Those who adore him have trouble seeing the risk now accumulating.

Anyone who feared this unexpected presidency and dumped US stocks missed a post-election run-up which has the Dow and the S&P oscillating at record-high levels. Anyone envious of the big gains, wanting to jump in – like buying a Toronto house at current levels – faces buying into a market which may disappoint. It’s the job of an advisor – dispassionately – to adjust weightings in a tactical way to reduce volatility and risk while maintaining acceptable returns. It has nothing to do with Trump as a leader. But everything to do with the outcome of his leadership.

Why was there a Trump Bump?

Simple. He’s a business guy with a cabinet full of business guys and has a pro-business agenda. Markets figured that would mean big tax cuts (especially for corporations), a slashing of anti-business regulations, greater pro-America protectionist measures, an enhanced GDP leading to increased inflation and massive stimulus spending. Just as he promised. So, up she went.

In the six months since the new presidency has begun, none of the above has happened. While corporate profits are robust, economic growth’s been lacklustre, inflation has barely budged, no trade treaties have been abrogated, no taxes cut, no red tape eliminated, no budget passed and no infrastructure program begun. So investors have been patient and some of them may start to believe current valuations are unsustainable. Meanwhile Trump has seen his travel ban repelled, his health care bill shelved, his budget ignored, plus he’s become mired in controversy over the firing of the FBI director, allegations of obstruction of justice and a probe into his Russia ties.

Whether any of that sticks or not is irrelevant. What matters to markets, ultimately, is his agenda. If getting massively bogged down with political issues impairs his ability to deliver economic growth, equities will correct to reflect that. And this looks increasing possible. Besides, if the point of investing is to make money, why wouldn’t smart investors take some money off that table at a moment of record values?

Nobody knows where this will end. Trump may survive four (or eight) years and make America great again. Or he might quit, be impeached, blow up. The US economy will survive whatever happens and no investor should be without exposure to it. But that’s just one hunk of an overall portfolio strategy, and right now there’s growth potential elsewhere where assets are cheaper and conditions improving.

Love the guy. Or hate him. Just don’t bet on him.

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June 18th, 2017

Posted In: The Greater Fool

One Comment

  • Avatar holly hallston says:

    Don’t bet on him? Aren’t you the guy who already had a Hillary bobblehead on his dashboard three months before the election and were telling EVERYONE that Trump didn’t have a Canuckistan snowball’s chance in hell right up until the minute the corporate media crybabies caved in the wee hours of the the next day’s morning. Glad you aren’t my bookie

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