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(s)Elections See other (s)Elections Articles Title: Stock Gumshoe's Election Assessment My strongest sentiment about the election when it comes to financial markets is that interest rates will probably go up faster than I would have otherwise expected. That’s because the easiest path forward for all politicians, even when other things might be difficult or complex, is giving more and spending more, so if Trump wishes to make a big splash — which seems likely to me — probably an infrastructure spending project and a tax cut are the likeliest financial outcomes of the early days, and both of those are likely to be inflationary and to increase interest rates… as, of course, fears of trade wars could impact demand for US dollars (and debt) overseas. But it’s also quite possible that there are still some fiscal hawks, particularly in the Republican party, who will push back on higher deficit spending… and it’s possible that President Trump will do something dramatically different. I doubt that he will be as deferential to his party colleagues in Congress as President Obama was in his first year in office, but at this point we’re flying blind. Those sentiments of mine are not, of course, particularly unique — you can see from the stocks of engineering and construction companies Fluor (FLR) and Chicago Bridge and Iron (CBI), for example, that people are expecting big infrastructure projects, and the initial reaction this morning is that bond prices are falling to bring interest rates up, and financial stocks are rising in anticipation of inflation that might bring a steeper yield curve…. and we can even start guessing as to whether rising long-term interest rates mean the Fed will or won’t raise the short-term rates they control when they meet next month. That initial financial sentiment, of course, could change in an instant if and when campaign ideas become government priorities. So whaddya do? In my case, not a lot. I’m not going to change my portfolio allocations right now, and I will probably wait out the week to see where markets settle and what the incoming administration and Congress put out as feelers regarding their initial plans. I’m surprised at the speed with which the markets recovered from the shock overnight, and somewhat encouraged as an investor that the quick recovery in futures markets was caused almost entirely, at least to my eyes, by the conciliatory nature of President-Elect Trump’s first speech — but mindful that this means sentiment is very fragile, and we don’t really know which Trump will be speaking in the weeks to come. I will be keeping an eye on my interest-rate-sensitive holdings to see if they warrant purchases or, if a big inflationary spend seems to be in the offing, if they should be sold as they hit stop losses (as many of them have today) because future interest rate expectations begin to change (if people start to think that the 10-year Note will be at 6% in two years, for example, all income stocks — REITs, pipelines, telecoms, etc, are likely to fall quite a bit more before they find a new equilibrium). And I’ll continue to work with the basic assumption that owning shares of companies who can turn capital into profits on a consistent basis, and who can reinvest those profits into compounding the growth of their businesses, is still likely to be the best path forward for any long term portfolio. So I’ll keep looking for those… and keep looking into the crazy promises and ridiculousness peddled by the investment newsletters, who I’m sure will have lots of plans for us that they’re certain will turn into 10,000% returns. Post Comment Private Reply Ignore Thread
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