WASHINGTON, January 5, 2018: During the last two weeks of December 2017, we and our portfolios were essentially out of action. From the looks of it, most investors deserted the field as well, save for a small but intrepid band of tax-loss sellers, shorts and permabears, all of whom enjoyed hammering the market down whenever they could. But when stock market traders re-launched on January 2, 2018, lo and behold! The Trump Rally suddenly returned with a vengeance.
It’s ironic. Virtually all the rich bigwigs in Washington, New York and on Wall Street – and the politicians they own – think President Trump is far worse and definitely crazier than the cretinous circus clown he’s portrayed as in Steve Bannon’s (alleged) intemperate outbursts. Yet it’s also clear that all the above (save, perhaps, for Bannon) absolutely adore this President’s economic policies.
Hence, this truly Happy New Year was off and running on Wall Street this week from the get-go. Could it be that we’re entering into Trump Rally, Part II? Although the S&P 500 is what real investors look to as a market barometer, the Dow Jones Industrial Average (DJIA) certainly thinks so. In Thursday trading action, the Dow hit another all time high, soaring above 25,000 for the first time ever. The other major averages got in line as well.
The fun appears to be continuing today, as Trump Rally II has kicked the DJIA up another 100 points or so even as we write this article around 1:30 p.m. Friday.
All of which gets us to our first Trading Diary entry for the New Year.
Trading Diary, Trump Rally II Edition
Given that Mr. Market is a fickle fellow, come Monday, January 8, we might find ourselves in the midst of a market swan dive. Indeed, at this point in our continuing rally, a day or two off, or even a few sharply negative days might prevent irrational exuberance from getting the better of reason in this market.
But the fact remains that President Trump’s relentless liquidation of Barry Obama’s job- and spirit-killing jungle of business restrictions and regulations, plus the GOP’s awesomely business-friendly tax package – passed without a single vote from the Democrat “Resistance” – is the biggest pro-business gift since the 1986 tax reform package backed by President Ronald the Great.
For businesses and traders alike, the new law, plus the relentless strangulation of Executive Branch over-regulation fever together remind this writer of one of those old pirate movies. The pirates unearth a huge, buried treasure, and keep digging in the piles of gold doubloons they’ve discovered. Howling with delight, laughing and dancing with their eyes bugging out with pure greed, they dig deeper and deeper and find: even more gold doubloons!
That’s what it must be like for a great many American businesses this month. As CEOs, CFOs and the usual phalanx of corporate lawyers get their hands on copies of the new tax code and begin to dig through it, they keep finding more and more good stuff. At which point they find even more good stuff.
All’s finally right with their world, so they’re buying stock, shelling out bonuses to the peons, note that buying new equipment is a great idea, buying back shares is a great idea, and maybe even bringing some of their European cash stash back to America might also be a great idea.
All this Trump Rally giddiness is dramatically reflected in this week’s market action. Right, it won’t last forever. But the underlying market tone is likely to stay positive now for a long time, which will put a floor under any incoming selloff.
But what does that do for our individual portfolios?
As for us, we’re finally seeing at least a dead cat bounce in our position in Allergan’s convertible preferred “A” shares – one of our spec year-end bounceback candidates – so we continue to hold.
We’ve also made our first purchase of General Electric (GE) shares in this, the Dow’s ultimate dog and one of our speculative 2018 bounce back candidates as well. We’re already up modestly in the stock, and may buy more on any notable price drop. This one is probably a two-year project at least. But (famous last words) it’s not likely to go any lower that it has already sunk.
We continue to enlarge our positions in various Schwab ETFs, given that we can trade these shares without commission. Many firms have similar deals on their own house ETF products, and in this market, they’re worth accumulating bit by bit on dips, just as long as your own brokerage charges zero commission.
The reason we’re enlarging our position is that we’ve become at least half convinced that it’s the various ETFs – which, of course, own specific portfolios of stocks that track popular averages – that are moving this market, rather than individual stocks themselves. Ergo, they’re easier to invest in and are giving good old fashioned stock-picking a run for its money.
Our best Schwab ETF position at the moment by far is in Schwab’s large cap growth ETF (SCHG). We’re up over 20 percent in that one since we first started building a position to it around Christmastime 2016. The straight large cap ETF (SCHX) is in second place, up close to 11.5 percent since we started building a position in it in June 2017.
Guggenheim’s Equal Weight Tech ETF (RYT) has been a good move for us as well, although it can be quite volatile. We’ve only been building that position since August 2017, but we’re already ahead 12.24 percent. Better yet, by investing in a tech blend with a low volatility factor, we’ve been avoiding the frequent heart attacks that come with owning any investment in the tech sector.
Rounding out the good stuff, our positions in Texas Instruments (TXN) and British telecom giant Vodaphone (VOD) have also done well for us, both up nearly 12 percent over a fairly short period of time.
All these big wins, however, are at the moment offset by the big hit we took in that Allergan preferred stock when the Restasis mess hit the fan. But it, too, is starting to make a feeble recovery, gradually blunting our nearly 22 percent paper loss down to around 17 percent, and hopefully lower.
We are looking for stocks to buy, as we are holding too much cash at the moment. But during huge rallies like this currently-revived Trump Rally, one is reluctant to buy until there’s a dip, a correction, or a selling panic. But at this point, it’s hard to know when that will happen in this market.
We only know that it will. Stay tuned.
*Cartoon by Branco. Reproduced with permission and by arrangement with LegalInsurrection.