Monday, February 29, 2016

Donald Trump and equities markets

For the past 16 years, the stock market has been essentially flat and has moved primarily sideways.  This is markedly a different looking graph over a 16 year period than other similar stretches of time since the stock market came into existence (other than the Great Depression).

Interest rates are near zero, which has virtually never been the case over our country's economic history: when use of other people's assets costs nothing.  And now the federal reserve chairman Janet Yellen is not ruling out NEGATIVE interest rates: charging people to use their money. How is that even possible?

In the big picture, it's not possible.  The artificially low rates right now are a political creation cobbled together by collaboration between governments and banks.  How long this will hold, nobody is certain, but most reasonable folk tend to think that interest rates simply have to go up at some point.

Enter Donald J. Trump.  The general election is less than a year away, and so is the inauguration of the next president.  Recall that when Barry was inaugurated, both in 2009 and 2013, the stock market fell hundreds of points each time.  Stock markets do not like socialists, for obvious reasons.

And the stock markets started to tank once it became clear that Barry was likely to win the White House: stock markets are forward-looking, and the Big Money didn't like what it was seeing in a young man taking control of our nation who had not a lick of business experience, nor any inclination whatsoever towards solid fiscal discipline.  The Big Money saw a tax and spend liberal from a mile away, and the stock market has been in the tank pretty much ever since.

The moment it becomes clear that The Donald is favored to occupy the Oval Office, just watch what the stock market does at that point: it will be a month or so prior to the election, as polls tend to get things right regarding winners and losers (but not always), and the Big Money will make its move at that point, perhaps late summer, 2016.

If you are so inclined to catch the coat tails of Big Money, simply buy equity index ETF's (exchange traded funds) that mirror the S&P 500 and Nasdaq - ticker symbols SPY and QQQ.  After the first 9 months in office, 'The Donald Effect' on Wall Street should take the Dow Jones 30 Industrial average from its current 16,500 level to perhaps 22,500 - a swing of a positive 36%.

Accordingly an investment of $10,000 in either or both of these equities should yield a profit (also called a capital gain, something liberals consider evil) of $3,600 in a year.  Of course, when the Donald takes office, he will propose cutting capital gains tax to zero, and that money becomes free and clear.

Try getting that kind of return out of a CD, there, grampa.  Of course, that eye-popping return is predicated upon the election of Donald J. Trump to the presidency of the United States of America.

Take that to the bank.


LL said...

The single best thing that we could do is to drop capital gains tax to 0 or near 0. It would flood the market with capital and business would start moving, jobs (and wealth) would be created, and a lot of the problems created by the collectivists would end. Or we could have Hillary...the yet unindicted. If she starts wearing the orange pantsuit, there is Bernie and you'd need negative interest rates.

Fredd said...


Yes, agree that dropping capital gains rates drastically would create a stampede of money into the U.S. economy. Huge gobs of cash would flow in like a tidal wave.

Another stimulus would be to drop the corporate tax rates to zero for 24 months, raise them to 5% for the next 24 months, and then stabilize them at 10%. Just about everybody in the US would enjoy a doubling of their standard of living.

Try to convince the left of that, though. Not a chance. They don't and never will get it.

Kid said...

"For the past 16 years, the stock market has been essentially flat and has moved primarily sideways."

Well, except for that move from Oct 2007 (1570) down to 666.70 (basis S&P500), then a 200%+ gain into 2014 and 2143 points. Now back to 1950ish.

Other than that Fredd ...... Yea! Yeaaa Baby Yeaahhhhh !

LL said...

Bernie Sanders has it backwards - - which makes sense because he's 'progressive', where everything is an oxymoron.

Fredd said...

Kid: you know what I mean. Put a hundred bucks into the market 16 years ago, and cash it out today and what do you have?

I'll let you do the math, but you aren't exactly, as Weezy Jefferson would say 'movin' on up.....'

Kid said...

I agree long term investors Fredd. That ain't me. Hey, put 100 in the market in Oct, 2007 and whaddya got. If I was 15 again, I'd be pumping it in every penny I had extra. But I ain't.

Or how about this. Back in the 60's time frame, about 19.9 years wen by and at the end of that 19.9 years, the money y9ou put in at the start equaled the money you ended up with (less inflation factor) This is why all the mutual funds say that over any 20 YEAR time period you will be ahead. Well, no because inflation has stolen a chunk of your money. You need to be a Lot ahead to be ahead 20 years later.

The game is Rigged my friend. I will never hold a position overnight again, ever.

Kid said...

Fredd, Except for that market in the 60's that essentially went sideways for 19.x years. (read: You lost money due to inflation), and which the mutual fund managers cite as "during any *20 year period* an investor who stayed the course was ahead". You can't blame them, No One Know What The Market Is Going To Do Going Forward. Meh. Ok in fairness, they got some dividend money that they paid tax on, but in light of inflation, just how far "ahead" were they after those 19 years? Not enough is what I would say. 100 dollars in 1960 were only worth 10 bucks in 2000. Did people make 1000 % on their stock market money from 1960 to 2000? I'm guessing no.

Fredd said...

OK, Kid. Yes, there's always those in the know that will take advantage of the system.

What investment is worth your attention these days? Bonds? Good luck with that. Real estate? Ditto. CD's? Mattresses have better returns. Gold? Don't get me (or you) started.

If you can stand the volatility, equities are still the only game in town, Kid.

Kid said...

Fredd, I have a smallish 401. If I was younger I'd have a larger 401. But most of my mad money is involved in day trading. You miss the big gains that way but you also miss the big losses when holding overnight.

Fredd said...

Day trading is lots of fun. Much like gambling, especially when you win. But you lose, too, more often than you win in gambling because of the House's squeeze.

Day trading is no more stable as a source of income than horse racing. Sure, people study the racing forms like the Warren Commission, place their bets as a result of their analysis, and then the dang nag they bet on breaks a leg. Doggone it.

You may as well move to Las Vegas, Kid. Day trading only makes one group of people richer: the brokers who take your transaction fee, whether they be a full service broker or the $9.99 tranaction fee at TD Ameritrade.

Have fun with that day trading thing, Kid. But you can't possibly make an argument that it is sound investment strategy to never hold a position longer than you wear a pair of skivvies.

Kid said...

Fredd, at this point it is working well. It is very difficult and most people would probably lose $ at it. But again, if you day trade, you pretty much take the big gains out of the equation as the big gains usually happen in overnight moves - especially in the metals. But passing on the big gains also allows you to sidestep the big loses with a counter move overnight. When you day trade and are keen to the moves so that you can immediately identify when something isn't moving 'right', you can abandon the position for a smallish loss. With enough skill, you can gain by having more wins than losses.

Think of a casino slot machine. If you continue pumping money in looking for the 'jackpot' you are Very likely to lose it all. If you take the "little jackpots' you are more likely to walk away with a jingle in your jeans.

I'm happy to miss out on the 5K wins and avoid the 5K losses as long as I maintain a win percentage with the $500 or even $100 wins. Even a few hundred a week adds up over the course of a year.

And the more you have to wager (The market is a casino on the short term) the more you can make. It's all percentage. Making 5% of 100k is a lot more than making 5% on 10k.