"Dow 20k... But Don't Overpay,” says Adam Johnson, former Bloomberg anchor who is currently found at bullseyebrief.com. We agree.
We are still maintaining a cash reserve in our US ETF core and fully managed accounts. For some portfolio details see the report in Barron’s by Johanna Bennett:
The Dow Jones Industrial Average is up almost 1800 points since the election. The evolution of the Trump presidency is seen daily, and there are both positive themes and negative themes. Policies impacting financials and banks, specifically, and the energy sector with a domestic bias are among the positive themes. On the other hand, those businesses that practice free trade and depend on open global commerce are at risk of a rising protectionist and tariff-prone agenda. The final shakeout in the struggle to repeal and replace Obamacare and how that impacts the healthcare sector is highly speculative.
Tax beneficiaries are uncertain. Lower corporate tax rates are certainly bullish for stocks of US companies, but the removal of deductions that will accompany lower rates is an issue. An example is the utility sector, where the lower rate will help, but the deductibility of interest on debt is critical. Some House drafts being circulated would end up with an increase in overall taxation of utilities. That change would result in rising electric bills throughout the US as each utility in question passed the added burden through to its customers as part of its rate-making regime.
But what would happen to our example if the Trump administration wanted to carve out the utility sector? They would begin to change a simplified tax code into a complex one. And then the lobbyists and the “Picking Winners Association” would again have a field day in Washington.
Our point here is that generalities in rhetoric or tweetoric are not a sufficient basis for solid long-term bets. As we said in an interview with Ben White of Politico, figuring out the direction, details, and trends of Trump & Company is like “sculpting fog.”
So what is an investor to do?
In stocks, we would position where the themes are clear and the case for a sector or structure is solid. Domestic energy is a good example. Big US banks that can gather deposits in US dollars at low cost are another group of beneficiaries.
But chasing a 20,000 Dow with a broad-brush approach is taking on a high-risk bet at a time when all the traditional metrics for valuing stocks are in the stratosphere or close to it. That is why we are not fully invested as this is written. Of course, clarity can come fast, and so can a correction in prices. So our strategy can change at any time.
We agree with Adam Johnson. We liked him as a TV anchor when he interviewed us, and we enjoyed his articulate debating when he fished with us in Maine. We wish him well in his new venture. Investors may wish to take a peek at his new work and see if it hits a bull’s-eye.