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The State of the Union speech — perhaps a boost for markets

I liked Donald’s State of the Union.

It was a good motivational speech.

It will boost business confidence.

It may even help arrest this week’s stockmarket pullback.

Most importantly, it will not hurt the reality of today’s present strong corporate earnings and the strong coordinated growth in the world key economies.

In short, I remain a buyer on any pullback. This week I’ve added a little to my positions in SQ and UNH. I have not sold any stock.

I realize stock valuations are extended and we could see further pullbacks.

But I’m wary. Catching falling knives is not great strategy today.

My rule remains “When in doubt, stay out.” GE is, for example, an “any doubt” stock. Ditto for airlines.

A talented money manager, Chris Radici of UBS wrote me after yesterday’s 400 point drop in the Dow:

Since 1928, even in bull markets (i.e. years with positive S&P 500 returns), on average stocks have daily declines between 1-2% seventeen times during the year and have five drops of greater than 2%. Again, these data are just for years that the market rises. For investors that have been waiting for a “pullback” before adding to stocks, in our view, you’ll likely be better off taking action now rather than holding out for something larger – and rarer.

Also, given the rise in the Dow Jones Industrial Average to over 26,000, large point drops do not represent as big percentage declines (obvious, I know).but “triple-digit declines in the Dow” still grab headlines even though a 100 point drop is only 0.38%. Based on historical averages, investors should prepare for 15-20 days of the Dow dropping between 250-500 points and a handful of 500+ point setbacks. This would be a “normal year” for a bull market.

To be sure, there are no shortages of potential triggers for such setbacks. Rising interest rates (the likely culprit of the past two days), fears of trade protectionism and elevated valuations will periodically dent market sentiment.

But we continue to believe that the global equity bull market will remain intact in 2018, and we recommend a tactical overweight to global and emerging market stocks. The economic expansion remains robust, with nothing over the past week suggesting otherwise. In fact, 4Q earnings results and company guidance for 2018 gives us even more confidence in our call for US corporate earnings rise to 16% this year. More than good enough to handle a little bit of volatility.

Amazon’s amazing entreprepreneurship:

I don’t own enough Amazon, though I do own lots. Look what this incredible stock has done in the past five years:

AMZN

Everything is going its way: A monster Christmas season. Explosive growth in AWS. Also new:  Direct AWS connectivity.

Alexa is fast  infiltrating itself into every gadget and his uncle. Alex absolutely dominated the recent January Consumer Electronics Show in Las Vegas. It’s killing Apple and Google for voice recognition dominance — the new way to talk to your every gadget — from your fridge to your car, from your smartphone to your laptop. I just asked my home Amazon Echo what temperature is it outside? Alex told me 18 degrees. Yuch.

Amazon reports its latest quarter at 5 PM this Thursday. It will be a blow-out.

Three tech companies I have no interest in

+ Qualcomm.

+ Broadcom.

+ Intel.

Too much doubt. Too much shenanigans.

Trump is doing good for some of us

+ The new tax act is creating the biggest boom ever in capital investment.

+ The stockmarket has exploded (except for this week).

+ Companies are bringing back their overseas stashes and spending it on employees, shareholders and capital investments.

Everyone should be fully invested in the stockmarket.

And everyone will be — as money pours in from the sidelines. From people who’ve missed out on the boom.

This weekend the New York Times reviewed two books on Trump — Fire and Fury, an amusing read, and Trumpocracy. The Corruption of the American Republic, which is the more serious book.

Trumpocracy
I’m going to reproduce the New York Times’ review of Trumpocracy because I think it’s important to understand how Trump became president  and what it means for The Investor Class — i.e. you and me, readers of this blog. Here goes:

Donald Trump is the oddest president America has ever elected. He lived in a gilded tower on New York’s Fifth Avenue but nevertheless became the voice of the left-behind. He made his public reputation as a reality-TV star but nevertheless defeated one of the most experienced politicians in the land. Trump has done so many extraordinary things in his first year in office, from tweeting about nuclear war to conducting public business in sight of paying guests in a resort he owns, it’s easy to forget that, unless impeachment intervenes, he still has another three years – and perhaps seven – to go.

Trump’s election has set off a furious competition among America’s pundits to explain what is going on: The most depressing political story of our time is also the most exciting. David Frum has usually been at or near the front of the pundit pack with a succession of articles in The Atlantic, where he is a senior editor. Most commentators are dyed-in-the-wool liberals who exhausted the language of fulmination during George W. Bush’s presidency. Frum worked for Bush and even had a hand in writing his “axis of evil” speech. Most commentators regard conservative America as an alien land inhabited by monsters. Frum has been writing sharp but sympathetic books on that land since his first, “Dead Right,” on the weaknesses of Reaganism, in 1994. The central theme in Frum’s excellent new book, “Trumpocracy,” which draws on his Atlantic articles, is what Trump’s career tells us about the deeper structural problems of America in general, and conservative America in particular.

Frum argues that Trump’s greatest talent — his genius really — is spotting and exploiting weaknesses. The Republican establishment spent $100 million to put the crown on Prince Jeb Bush’s head. Trump incinerated Bush (and all that cash) with his gibe about “low energy.” He then proceeded to incinerate “little” Marco Rubio and “lyin'” Ted Cruz. Trump’s campaign against Hillary Clinton was in some ways a model of how not to run campaigns – he lurched from crisis to crisis and never bothered to enumerate any detailed policies. But he understood her great limitation: that she represented the nexus between meritocracy and plutocracy, indebted to Big Money and divorced from millions of heartland Americans.

Trump’s political operatics worked because he understood deeper weaknesses in American society. The white working class is suffering from two great hammer blows. The first is to its economic well-being: A group that thrived during the golden years of the 1950s and 1960s has seen its incomes stagnate and its job security disappear. Great swaths of white America now suffer from maladies that are all too familiar to black America: broken homes, drug addiction, listlessness, early death. The second hammer blow is to its psychological well-being: Even as their economic position has declined, members of the white working class – particularly white working-class men – have seen themselves denounced, often by people who spend more on college education in one year than they earn shoveling dirt, as agents of privilege and oppression. What better way to respond to being defined as a problem than to vote for a man who promises to punch back?

Trump grasped that America is suffering from an epistemological weakness as well as economic ones: The line between truth and falsehood is becoming dangerously blurred. Again, America’s knowledge elite is partly responsible for this: Armies of postmodern academics had prepared the way for Trump by arguing that truth is a construct of the power elite. But the biggest culprit is technological progress. Digitalization is not only creating a deafening cacophony of voices. It is also making it harder to finance real journalism while simultaneously making it easier to distribute tripe.

A Manhattan-based playboy who has had life handed to him on a silver platter might look like a strange vehicle for the pain of the American heartland. But Trump is a winner with the soul of a loser: He is consumed by imagined slights to his fragile ego, hypersensitive to the pretensions of smarty-pants liberals, a man who spends many hours a day watching cable news and seething with anger. He is also an anti-intellectual with the soul of a postmodernist: He believes that reality is something that can be bent into any shape you choose provided that you have enough power.

What does Trump want to do with all his power? The answer, Frum argues, certainly does not lie in helping the white working class that put him in the White House. His tax cuts will widen America’s already high levels of inequality. It lies instead in “the aggrandizement of one domineering man and his shamelessly grasping extended family.” The essence of Trumponomics is running a country just as you run your family business: appointing people with whom you have strong personal ties, ideally ties of DNA, directing business to your properties, using public resources to avenge private grudges. Trump’s appointments to the White House staff included his former bodyguard, Keith Schiller, and a former contestant on “The Apprentice.” Perhaps the most telling moment in his first year was when he asked his daughter Ivanka to sit in his seat at a G-7 meeting, thereby reducing a great republic to the level of a family property.

Frum thinks the combination of Trump’s drive for self-aggrandizement and America’s current weaknesses is nothing less than a threat to the democratic order. “The thing to fear from the Trump presidency is not the bold overthrow of the Constitution, but the stealthy paralysis of governance; not the open defiance of law, but an accumulating subversion of norms; not the deployment of state power to intimidate dissidents, but the incitement of private violence to radicalize supporters.” Any supposed solutions to Trump’s behavior, however, may be worse than the disease: American liberals have found themselves investing extraordinary hopes in the generals who now surround the president.

Trump isn’t alone in the weakness-exploitation business. Some of the most eye-catching investors in his real estate empire since he won the Republican nomination hail from countries where there is a faint line between business and politics. And some of Trump’s biggest ideological backers have an almost apocalyptic sense that America needs to be purged in order to be saved. Hanging over everything is the figure of Vladimir Putin, a man who has devoted his career to accumulating information on weaknesses, both personal and political, and turning that information into power. Rather than Russia turning into America, as America’s policymakers argued in that great age of illusion, the 1990s, America seems to be turning into Russia.

The immediate task facing the American republic is to limit the damage that Trump can cause: Here the checks and balances are already playing the role that the founders intended. But the bigger task is to eliminate the weaknesses that have produced Trumpism. Frum rightly points out that these are broad as well as deep. The travails of the white working class are symptoms of a bigger problem: the concentration of wealth in a narrow range of industries and companies. Likewise, the corruption embodied in Trump Inc. is the product of a broader corruption of America’s governing class, which has allowed Bill and Hillary Clinton to transform themselves into public-service millionaires and Barack and Michelle Obama to negotiate a reported $65 million book deal for their autobiographies. Getting tough on Trump is going to be a picnic compared with getting tough on the causes of Trumpism.

Fun stuff

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HarryNewton
Harry Newton, who is playing tennis at 7:30 AM. But I’m not biking there in 18 degree weather. A  nice yellow New York City taxi will do just fine. I’m crazy, but not stupid. I want to be alive when this little fellow, Peter, newly 2, grows up.

Petermultiples

  • gerryb

    Peter. Beautiful boy. Definitely worth staying alive for.

  • bruuno

    A few things come to mind, Harry.
    -mother reminding about Mussolini getting the trains right.
    -the outstanding deck arrangement on the Titanic.
    -the hope that the millions dying and sacrificing in 1940s to halt authoritarian regimes gone rogue and destroying lives..did not do so in vain.

  • Glenn

    Harry, do you ever do an analysis of your stock picks (on right hand column) at the end of each year – I would be curious what you were up as a %? I’m not sure on your timing but most of these stocks killed it in the last year. Frustrating because my broker did not do as well as he should have compared to S&P…you’re better off doing it yourself than using a broker in this market.

  • Lucky

    Congratulations Harry…nice to see you speaking kindly toward our President for a change. Stick with him and watch your riches grow.