FYI | Dec 12 2018
By Peter Switzer, Switzer Super Report
I’m starting to nibble back into stocks but I’m doing it based on the flimsiest of reasons — President Donald Trump might be getting the message that he needs to help Wall Street. Over last week there were a number of US reports suggesting that the very confident leader of the free world was having some self-doubt.
The Wall Street Journal’s Vivian Salama told us: “As the stock market churned this week, President Trump anxiously called advisers both inside and outside the White House looking to ensure that his talks with China were not driving the sell off.”
If that’s true, it indicates that his team in Washington is responsible for a new age “Emperor’s New Clothes” fairy tale, where their leader doesn’t realise how he’d become a naked pest for stocks. We especially feel it here because we have the Royal Commission exposing the more than naughty behaviour of the financial sector which is 33% of our stock market.
After getting over a mining boom collapse, dealing with the revolving door of PMs in Canberra and then seeing their housing boom headlines be replaced with house price collapse hype in the media, investors in Australia needed Donald’s erratic and unique negotiation antics and their impact on Wall Street like a hole in the head!
That said, the fact that he might be pondering his impact on US stocks comes as a flicker of hope for we Aussie investors who’d love to see a Santa Claus rally rolling into a positive January, to set us up for another good first-half period for stocks that this CNBC chart says can be quite likely:
In addition, this is the third year of a US presidency, which historically is good for stocks.
And while history can repeat, and that’s why I put it on my checklist of pros and cons for buying stocks, the US President has the capacity to make or break a Christmas rally and a positive year for stocks generally.
The fact that he’s wondering about his impact on Wall Street is staggering.
“In consulting with advisers,” Vivian Salama tells us, “he remained convinced that the volatility wasn’t his own doing, but rather, the product of the Federal Reserve’s plan to raise the benchmark interest rate.”
However, last week, the Fed boss implied his commitment to slavishly raising interest rates is not on and Wall Street liked what they heard, while all trade war reports led to substantial sell offs.
Back on November 2, the ABC website reported: “Mr Trump said he had a ‘long and very good conversation’ with Chinese President Xi Jinping, and that trade talks were ‘moving along nicely — reviving hopes that they can resolve their countries’ trade war amicably.
“Wall Street advanced for the third straight day, with the industrial-skewed Dow Jones index rising sharply by 265 points, or 1.1 per cent, to 25,381.”
You’d have to be sight-challenged Freddy to not see that positive Trump trade war talk inspires the stock market and vice versa.
The Tuesday slide coincided with the revelation that the trade war truce started on December 1 rather than January 1 but this was compounded by a Presidential tweet, which was not helpful for stocks as the chart shows.
“On Tuesday, when Mr. Trump declared himself ‘Tariff Man’ on Twitter and indicated he would be willing to slap additional tariffs on China if it doesn’t deliver on key promises, stock prices tumbled,” the WSJ reported. And the arrest of a Huawei official on Thursday did nothing for Wall Street’s positivity towards stocks.
Believe it or not but Salama says Donald has business channels on in his office and he watches the ticks of the Dow constantly! That surprised me but it does make me think that the 9% drop in the Dow since October 2 must be telling the President that Wall Street needs some good news.
The trade war has affected 30% of US companies, Chinese as well as global growth and ultimately has affected the stock market value of America’s greatest tech companies. All up, it hasn’t helped economic forecasts for the US, which have been downgraded, which then affects profits going forward and then stock prices.
A smarter Donald Trump talking about progress on the tariff front with China would be a positive circuit-breaker, so we wait with baited breath this week to see if the President can change his game and pave the way for a Santa Claus rally.
But all these revelations in the WSJ shouldn’t surprise Donald because he tweeted the following last year: “The Dow just broke 24,000 for the first time (another all-time record). If the Dems had won the Presidential Election, the Market would be down 50% from these levels and Consumer Confidence, which is also at an all-time high, would be ‘low and glum!”
CNN says the President thinks the Fed is to blame for the volatility.
“Contrary to some of his advisers, Trump remains confident his combative China policy is not roiling markets; instead, he’s blamed the Federal Reserve. He has told people this week his agreement with Xi will eventually be seen as historic.”
For a market man like Robert Pavlik, the chief investment strategist at SlateStone Wealth, New York, he’s got no doubt about the Trump trade talk effect on stocks saying the following after a nice rise for stocks back in November.
“Maybe there’s going to be some hope that a trade deal with China will actually come through,” said. “Now you get a little bit of fear of missing out, mixing in with, ‘I don’t believe this is actually happening’.”
I’m starting to buy stocks, even though the bank black cloud and the Royal Commission hangs over financial stocks. I’m betting Trump is getting to know that he can’t let Wall Street drop much further without rattling both business and consumer confidence. I see two legs up for stocks and you can play them through a simple ETF for ASX 200 index.
The first is a spike on Trump and China cracking a trade deal and the second is after February, when the Hayne Royal Commission makes its recommendations and the Government and Labor respond with their policy prescriptions.
I think it will be a ‘sell the rumour, buy the fact’ situation but as you can see, these are instances where I’m gambling on geo-political guesses and I confess I hate doing that. I just think many companies both here and overseas are looking cheap, as my Thursday piece in this Report showed.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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