PLEASE NOTE - THE TEXT WHICH FOLLOWS WAS ORIGINALLY PUBLISHED AS PART OF A WEEKEND ‘CHARTS’ BLOG. ANYWAY, I THINK THE MESSAGE HERE IS EXTREMELY IMPORTANT AND I DECIDED TO PULL IT OUT AND CREATE A SEPARATE BLOG AS WELL. THE IMPLICATION OF THIS IS THAT I THINK WE COULD VERY LIKELY SEE A BIG RISE IN STOCKS AND I AM POSITIONING MY PORTFOLIO THIS WAY.
You may have picked up from comments I have made on the Website, but more particularly on Twitter, that I am feeling extremely Bullish about Markets at the moment and I am more than Fully Invested with a Long Spreadbet on the S&P500 and I might even add to that position.
There are 2 main reasons for this - firstly the recent Breakout to New All Time Highs on the US Major Indexes (and also on the FTSE100) is Technically a very Bullish event. In the early part of the Week just gone we had a bit of a Pullback but this already seems to have sucked in a new load of Bulls and it looks to me like Markets are turning up again - Friday was especially strong after a big Jobs Number in the US (I will move on to some Charts later where I will show these moves). Secondly, despite the confusion this Price Bullishness has caused among Investors, the Fundamentals look highly supportive of this move - and a Programme I heard on BBC Radio 4 on Thursday demonstrates this very well.
By sheer fluke I was driving to the PUB for Quiz Night and happened to have the Radio tuned to Radio 4 and there was a discussion about Trump’s Economic Policies and what they could mean for the US Economy. The Programme was ‘The Briefing Room’ from Thursday 2nd February 8pm on BBC Radio 4 and here is a link so you can listen to it - and I recommend that you do because it is quite an eye-opener for the potential boost to US GDP Growth that Trump’s Policies could provide, and the Historical Precedents from the Reagan era support the view that his Policies probably will make a huge difference:
The blurb for the Programme is as follows:
“President Trump says he'll make America richer. He's promised a raft of radical economic reforms including a huge cut in tax on businesses, an income tax cut, a massive reduction in regulation, and investment in America's infrastructure.
His goal is to get America's economy growing at roughly double its current rate. He also wants to create 25 million new jobs, and put 'America first' in every policy decision.
But are these goals achievable and are the measures he's proposing likely to work?
David Aaronovitch explores what 'Trumponomics' might mean in practice and asks a range of experts whether his plans for the economy will lead to boom or bust.
Guests include Arthur Laffer, Professor John Kay, Diana Furchtgott-Roth and Jim Tankersley.”
The Key Points I took from the discussion are as follows:
Anyway, that’s the gist of it and much of what was said makes a lot of sense to me and I expect to see a big change in how Economies are managed as a result of this. If Europeans see the US booming they will soon realise that the crop of Politicians that have been ruling the roost for recent decades has let them down badly and we will see a clamour for more Free Market thinking and some proper Growth Policies. It is certainly shaping up to be a very interesting period for both Economics and Politics around the World after much tedium. Of course, a really scary idea is that if Trump is successful in boosting US growth, then he will most definitely be President for 8 years - remember, “it’s the economy, stupid”……….
When looking at this sort of stuff we must throw away our Political Biases and try to think rationally and objectively about what Trump’s Policies are most likely to bring in terms of the effect on Stocks. It is pretty basic Economics that lowering Taxes and cutting Regulations will boost Economic Growth and if Trump’s Infrastructure Plans are anything like what he suggests, then this will give a huge Keynesian type Boost. In such an environment I think Stocks can go massively higher and we could be on the verge of a big Stockmarket Boom - as ever, we will face countless problems along the way, particularly stemming from Europe over 2017 but overall I am going to be positioned very much on the Long tack and I will just use bits of Hedging to tactically ride out any Pullbacks along the way.
Something else to consider is that many Stocks (and Stockmarket Indexes) appear to be very fully Valued if not Over-Valued. However, if Growth is set to take off like I think it might, then these apparent Over Valuations might actually not be anything like as bad as they appear as Upgrades by Brokers to Earnings Forecasts could make those P/E Valuations a lot lower.
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