Has Trump ruined your retirement?

In the wake of the failure of the polls and pundits to predict a Trump victory, share markets around the world took a massive dive. We asked leading commentator Marcus Padley how Australian retirees might view this shock result.

Well we have another amazing failure of the polls and the bookies. Trump was paying $5 for a win. It’s Brexit all over again. The markets bounced two days after the Brexit sell off, will they do the same thing again?

Arguably, this is of less significance than Brexit, which is the beginning of the dismantling of a significant global economic union. This is simply the replacement of a reasonably sensible US President with a man who lacks credibility. Congress will contain him and you never know, he might do OK in his role as Ambassador if Ronald Reagan and Arnold Schwarzenegger are anything to go by. The ‘Trumps in the White House’ would have been a brilliant comedy show before the election…now it’s a reality show and it will be hilarious.

But it will be a ‘show’…and one day it will end.

The IMF has said this will kick off a global recession which is almost certainly wrong and is based on the US adopting a Trump like protectionist trade policy. He is inexperienced but he is not stupid and his advisers are not stupid. The US is not going to shoot itself in the foot on trade.

It has injected some economic uncertainty – that’s not good for markets short term but we will rationalise it and start buying again when the price is right whoever is in the White House.

A US interest rate rise is now less likely but the US dollar is going to weaken short term. The Australian dollar should rise. Again … all short term.

Gold will rise temporarily until the market rationalises its fear of Trump which it will do quickly.

If he really is anti-Wall St he will stop feeding them printed money. It was always a Wall St rort that they didn’t funnel money into the economy but used it to make more money investing in anything with a higher return than 0% which is what the money cost them to borrow. This has to be worrying the share prices of the big investment banks and it is morally about time, but it shouldn’t upset Australia.

Is there a likelihood of contagion? This anti-establishment vote is a political lead that could have implications for politics in other countries.

Or possible failure? Trump has said a lot of things. A lot of Americans think he will make a difference, find them jobs, improve their lifestyles. What if he fails. The Trump dream is so fragile, based as it is on a show full of words not reality, Trump risks being an instant let down for all those who voted for him and the political backlash and void will not be good for the economy.

Where to for the markets from here?

  • The S&P 500 is trading on 24x against the long-term average of 17x. It has room to correct further.
  • The markets were in downtrend already; this confirms the break of the uptrend that’s been in place since February. In the face of the current downtrend there’s absolutely no rush to buy.
  • Any market operator with any experience will tell you that moments of extreme sentiment are almost always an opportunity. Your game is not to make grand declarations about the long term, but to let the market find its level and time the buying, which means waiting for the bottom not predicting it. When the rally starts, that’s when you get involved, not before, and with proper discipline (quite easy) you can protect yourself from a mistake.

 

What would you do?
Our game now is to wait for the market to hit its extreme and buy those stocks we’ve always wanted to invest in but haven’t. There are a lot of them and the reality is that Trump’s appointment will have no impact on company earnings for many of these companies. Ultimately I see this as a real opportunity to take advantage of a negative sentiment extreme. But don’t jump in straight away…that would be a grand declaration that you can’t make today. We’ll try and time it for you in the Newsletter. 

The ASX 200 Chart now 
This year’s uptrend is well and truly broken. But note the big tail on the last candle. We closed 105 points off the low today. On top of that, as I write the media and the shocked are getting their heads around it and the US Dow Futures have bounced from being down almost 800 points to being down less than 300. The market is already rationalising it. There is a price at which you buy whoever is in the White House. 

 

This is an edited version of Marcus Padley’s summary of likely effects of a Trump Presidency on shares. To read Marcus’s full report, Marcus on Trump, visit Marcustoday.com.au

Written by Kaye Fallick



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