Perhaps the most difficult task a portfolio manager can do in the modern (post-2008) era is to provide clients with a one-year outlook for capital markets. The underlying problem is that capital markets no longer operate via basic laws of nature and where common sense leads to price discovery. In a word, it is no longer our capital market, but theirs.
https://en.wikipedia.org/wiki/Scientific_law
Today, it’s Rule by the Fed and their financial services industry titans. To put it simply; if the CEOs of Goldman Sachs and JP Morgan and the other controllers of the Fed want market prices to be x and y, they will be x and y. Not today or tomorrow maybe, but trending that way while couched in as much deceitful media communications as those manipulators can rationalize as being for the good of all.
Am I a cynic? Aren’t we all these days?
Notwithstanding the true condition of the capital market today, there is one law that seems to still work and give hope to the people. It is the strategy and tactics of guerrilla warfare.
https://en.wikipedia.org/wiki/Strategy_and_tactics_of_guerrilla_warfare
This year I plan to write a lot about guerrilla aspects to trading and portfolio management – not because I have spent 10 of the past 20 months as a tourist in Cuba, soaking up the history of Fidel and Che, but simply because we – you and I – must adapt to current day market conditions.
Based on his appointments to the incoming Administration, I think we can forget the notion that Trump is one of us. Clearly, he is one of them. Moreover, he may appear to be a bit of an idiot particularly regarding his seemingly off-hand remarks; but I think he’s a shrewd operator who more often than not gets from us what he wants.
Not in my memory has an incoming President of the United States put the world on notice he intends to direct the affairs of the country like a monolithic corporation. But that is Trump and we know it and can make our plans accordingly. Bottom line, I see Trump as a whale in the sea and his opponents as herring being amassed in a ball to be devoured.
I don’t plan to be part of that herring ball. I’m already brushing up on how to toss my harpoon effectively and the conditions best suited for my “armed” success. We’ll see how the year plays out.
I’m really looking forward to 2017 because I think the Whale is going to be making numerous mistakes in tackling a job he has had no training for and for which he has gathered a killer pack around him that numbers many associates who are similarly new to public service.
Where do I foresee opportunity in 2017?
1.Precious metals. Core inflation is likely to exceed the Fed’s 2.0% target sometime in 2017 because of excessive government spending under Trump and wage demands of the public who, watching the ambitious Trump repeatedly take his piece, will want theirs too. Oil price increases will add to the inflation concern. However, a high US Dollar will cap the increases in prices of oil, gold and silver.
2.Trump-inspired spending in homeland security. I foresee humongous spending in advanced military technologies because Trump’s power won’t come from his histrionics but by the build-up in America’s military strength.
3.Trump-inspired spending for airports, roads, bridges and waterways infrastructure because he has noted in many speeches how these aspects of America have fallen far behind those of other leading economies. Expect a huge increase in public-private partnerships.
4.Sinking bond prices based on rising Fed rate hikes, competition from high dividend paying companies and a huge increase in government debt.
5.Solid economic growth in the US, unfortunately partly generated by inventory build-up. However, unemployment will likely fall, so people will be buying more clothing, automobiles, houses, furniture and furnishings again, and increasing their vacation travel.
6.The oil price (West Texas Intermediate) will soon rise and stabilize at about $60/bbl, followed by a gradual move higher to $75+ in the 4Q2017. Drillers, Equipment and Services and heavy oil producers will benefit the most.
7.Geopolitical tensions will continue to escalate, especially in various parts of the Middle East, in Turkey, re Brexit, and between China and the US. Well-hyped, so-called “breaking news” will serve to intensify market emotions at times and investors dislike uncertainty.
To seize the multitude of opportunities in an already high-risk market condition – given the terrific run-up of prices in the past few months largely because of the Trump win – the percentage gains and holding periods of trades must shorten. It will not be unwarranted to take capital gains of say 5% in 10-20 days, and to sit out for lengthy periods as well. Stock-picking will return to favor. Finding Value (ahead of Growth) stocks will be important. With numerous trades, having anticipated short lives, I do not believe that the usual levels of industry-promoted portfolio diversification will be important. Above all, performance is the key word. Traders and portfolio managers will have to think like guerrilla fighters.
Back at Camp Cara, I am looking forward to a move from Toronto/Havana to Toronto/Ft. Lauderdale – mostly because I am returning to active duty and need the communications and logistics capability that south Florida offers. My associate Owen Williams, while headquartered in South Carolina is mostly operating from Europe.
With my humongous computer system to be finished for the better part this quarter, I will now embark on a quest to recruit a young assistant who I can teach to follow in my footsteps, as now at the age of 74, while very healthy (except for being celiac), I truly don’t know how many footsteps I have left. While my associate Owen Williams will be fulfilling a good part of the continuity plan, he applies somewhat of a different investing style and use of computer resources than me, so I will be on the look-out for the next “Bill Cara”.
Wishing all of you and your families the very best of 2017. Let’s make this the Year of the People.
/Bill
