Mike
Lipper’s Monday Morning Musings
Inflection
Point: “Trump Trade” at Risk
Editors: Frank Harrison 1997-2018,
Hylton Phillips-Page 2018
When Traveling We Often Don’t Know We Are Lost
As a portfolio manager for multi-generational accounts, it
is critical to continually focus on the long-term funding needs of accounts, particularly
when I am no longer around. In effect we are on a long march, which was part of
my training as a USMC officer. (Most of our subscribers will read this blog on
the 249th Birthday of The Corps) Rarely does a long march go in a straight line
and each turn could be a minor change in direction. Alternatively, it could be a
significant change in direction to avoid future danger. At some point a good
Marine will recognize that we have passed a critical inflection point.
Our fellow investment marchers should be aware of a
meaningful change in direction, speed of travel, and a different set of
tactical moves. As an officer, it is my duty to consider changes.
Recent chatter from various investment pundits suggests there
are various “Trump Trades”. Without making a judgement on each suggestion, I am
willing to bet a year from now at least half those trades will not have worked
out.
These trades are based on the 45th President’s actions and campaign
comments. I believe no one knows what the 47th President will be able to get accomplished
in his first year. We may think we know what he wants to do, but the world has
changed both domestically and internationally and he doesn’t know for sure. Based
on history, I am concerned about how Congress will follow direction. In many ways,
both Chambers of the two major parties are split internally. Just look at the number of announced caucuses and
the potential number of informal voting blocks. Republican majorities in both
chambers are likely be under 10 members. Furthermore, the incoming President
did not do much to get many members elected. There are a number of Senators who
see themselves sitting in The Oval office after the 2028 elections.
My portfolio management suggestions for protecting portfolio
manager’s jobs are the following:
- Divide the Trump Trades in half and hold one half for the next year.
- With the second half, subdivide into twelve equal groups and sell one group each month for the next year.
- Put the freed-up cash in an equal-weighted S&P 500 index fund if you must be invested, otherwise put the cash in a money market fund.
The above tactic is for short exposure but does not address
the real problem.
Lack of Competent Leadership is the Problem
As a society Americans have become defensive about their own
worth and their jobs. We seek to acquire the credentials that qualified us at
some point in time for a particular job, “guaranteeing” that job and income.
Once we have the credentials, we no longer need to compete. The longer the elapsed
time from when we “earned” the credentials, the less talents we acquire. To
offset this deficiency, we lean more on support staff. During WWII it required eight
support people for every fighting man (mostly men).
This is true not only in the military, but also in medicine,
government and schooling. (Note, I didn’t say education.) The larger the staff,
the more bureaucratic the control systems get. (A classic example is the
Ukrainian fighting people vs the Russian Army.) In general, the more people
involved the less efficient the group gets and the longer it takes between
promotions.
Our so-called educational system (school and university) has
molded our workforce since the 1920s. The Communist Party thought that if they
could control New York and other school systems they could impact the
government, aided by the Depression. The key for union teachers was protecting
their jobs by teaching-to-pass exams, both for teachers and students. They were
not taught how to think. This strategy was remarkably successful.
These teachers trained many of the senior teachers who trained
the senior college and university students of today, which explains the
political efforts of the majority of teachers today. Trustees and Deans don’t
control most of the critical choices of their schools. The faculty senate are the
main decision makers, run on a seniority basis.
These are the people who are teaching the leaders of today
and tomorrow in government, medicine, and business. They tend to favor large organizations,
despite most progress in society originating from smaller groups.
Inflation is not the Problem
Inflation is society’s way of dealing with imbalances
between current supply and demand. Attempts by a top-down government to control
the urges of people to balance supply and demand are not useful. Every attempt
to control these forces has enlarged grey and black markets, often summoned in regulated
and expensive markets. Most supply shortages are due to government regulation for
the benefit of friends of the government.
In Conclusion
If we have entered a new cycle, we may see a very different
set of trends that we will need to understand and master. Any thoughts on how
to manage long-term portfolios?
Did you miss my blog last week? Click here to read.
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