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July 20, 2017 | The Implosion

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.

Some months ago the fancy, trophy wife-owning, Porsche-driving, gay sock-wearing, omniscient portfolio manager dudes I work with (who are allowed to blog here occasionally, just to keep them real) had a message.

“We want to scale back on our US weighting,” they said. “Trump scares us.”

“But,” I said, waving the Amazons away from oiling my chiseled torso for a few moments, “the deplorables hanging out at GreaterFool love him. How can he be scary?”

“Risk,” they said. “We’re increasingly disconstructive on the realistic potential for his pro-growth, inflationary and GDP-enhancing expansionist fiscal agenda to actually be effected.”

“So, he’s screwing up?”


And they disappeared back into their trading mosh pit, gold cufflinks glinting in the shards of light piercing the bank tower windows. The Amazons returned to peel grapes and buff toes.

So, exposure to American assets in our model portfolio was trimmed a few points, weighting to Europe was bumped up a little (“valuations are very tasty,” said Ryan) as was the ownership of maple (“relative strength analysis,” said Doug, “indicates a breakout.”). Of course this is not all about Trump, but he looms increasingly large in the minds of portfolio managers everywhere. In fact there’s a growing cadre of PMs who have recently reduced their US exposure to zero.

The reason is simple. After the 2016 election that shocked markets, stuffing Washington with Republicans and thrusting the unelectable billionaire into office, it looked like US public policy would turn on a dime. Trump was seen immediately as the Inflation President, goosing public spending, launching giant infrastructure projects, slashing corporate taxes, slicing through regulation and adopting an expensive, cost-goosing protectionist agenda of America-first. That looked bullish for corporations and profits, so markets rallied to record highs. Valuations went soaring. Investors rocked. And now markets are worth about 20% more than they should be.

Meanwhile, the president has choked – at least as far as many investors see it. No major legislation has passed. Even repealing and replacing Obamacare has proven impossible for a leader who can’t build coalitions. No budget has been enacted. No tax reform bill even drafted, let alone passed. No new bridges or airports built. And Trump has irritated key allies by walking out of the Paris Accord, the Trans-Pacific Partnership and, maybe, NAFTA.

All that is making people wonder if the post-election Trump rally was fueled by expectation and may be dashed by news.

In the past few days, concerns have swelled. The investigation into the relationship between Russia and the Presidential campaign has widened to include Trump’s past business dealings with oligarchs and Russian corporations. His family members will be probed over allegations they embraced shady Ruskies claiming to have dirt on Hillary. The president fired the FBI director investigating him. He just dissed his Attorney-General who refused to stop the Russia probe. And speculation is mounting he may ape Richard Nixon’s suicidal moves and fire the special counsel leading the Congressional inquiry.

“I think,” says Ryan, “there’s now a 50-50 chance he doesn’t finish his term. So, how good is it that we’ve sold off our American small-cap position, and reduced our US weighing by 5%?”

Does this cautious stance mean everybody should run screaming for the exits? Are those professional traders who have opted for a 0% US weighting the smart ones? If Trump blows up, will be take the S&P with him?

Nope. Of course not. Donald Trump is not the USA. He does not run the economy. The data points coming out of America are solid and strong. Corporate profits have been robust and rebounding, with significant future growth forecast. Job creation has been on a multi-year marathon, with most economists now proclaiming the country has full employment. Expansion has been sufficient to withstand three interest rate hikes in the past seven months. The real estate market is stable and expanding. Consumer confidence is near record levels.

Of course (like in Canada) debt is vast and the wealth gap is growing fast. Trump was elected for a reason, and his base remains steadfast.  Should the Donald implode and America polarize, the political and social damage could be as monumental as the man’s ego. But having no exposure to the US in your portfolio? Naaah. Bad idea.

In conclusion: weird times ahead. Be balanced and diversified. Stay invested. Don’t be extreme. Avoid deplorables. They’re gonna be ripe.

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July 20th, 2017

Posted In: The Greater Fool

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