Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Best Stock Market Investment Strategy Today: Be Optimistic and Short

Stock-Markets / Stock Market 2017 Mar 24, 2017 - 05:50 AM GMT

By: John_Mauldin


BY JARED DILLIAN : For the last eight years of my life, we’ve been dealing with higher taxes and lots more regulation.

Like I’ve written about before, we’ve been dealing with these things for so long that we’ve forgotten what it was like not having to deal with them.

And if we had elected Hillary Clinton, we would have gotten even more of the same. A few months into the Trump regime, and we have started to figure out that things are going to be very different.

And unsurprisingly, people are very happy about it.

But it actually was a surprise!

People Were Pessimistic and the Market Went Up

I was chatting with some folks on Facebook the night of the election. One of my old Lehman friends told me to buy S&P futures limit down. I was too chicken. That would have been the trade of a lifetime.

In hindsight, it was an obvious trade. The market was worried about Trump (because Trump), but once the market started to figure out that we were going to have lower taxes and less regulation, it was happy.

For some context, the market hasn’t been happy in years. Which is weird because the market has been going up for years.

I’m serious. You have probably heard on the news that this was the most hated bull market in history. Investors were looking at the economy, which was actually pretty crappy underneath the surface, looking at all these overvalued companies and Obama’s economic policies, and said, “This market sucks—you can’t make money in this environment.”

So, people have been pessimistic for eight years, and the market has been going up for eight years.

Now People Are Optimistic. What Do You Think Is Going to happen?

Trump will enact a number of pro-growth policies (which we will talk about in a second), which could result in the stock market going down.

It is true that the stock market has done better under Democratic presidents than Republicans, even though the Republicans are allegedly pro-business. I think this is true for two reasons:

  • Pro-growth policies often work with a long lag.
  • Democrats generally appoint dovish Fed governors and end up with easier monetary policy.

Which is something to consider—it is nearly impossible to assemble a group of people at the Fed that is more dovish than the current group. There are two vacancies on the Board of Governors. No matter who Trump appoints, the Fed will get more hawkish.

Higher rates are unquestionably great for savers, but we won’t be getting the stock market rocket fuel like we have for the past eight years.

The contradictions here are just mind-blowing.

The Obama administration lowered interest rates to zero and only succeeded in making inequality worse—the opposite of what they intended.

The Trump administration will be viewed as friendly toward the rich, but higher interest rates will tomahawk financial assets (stocks and bonds), helping lower- and middle-class savers and making the rich worse off than they were before—and actually improving inequality.

Can you imagine what the world looks like with 2–3% fed funds? Where you can get interest in a savings account at the bank? Where you don’t need to put your money in junk bond ETFs to get yield?

Very powerful stuff.

But, as you can see, not necessarily bullish for financial assets. And so, what people need to do is to reconcile their optimistic views on Trump and the economy with the likely negative effects on financial assets.

The last eight years, it paid to be pessimistic and long—the next four to eight years, it will pay to be optimistic and short.

Investment Implications

I don’t recommend getting naked short the market—the conviction on a tactical basis is not very high. But I think the sector rotation is going to be massive (otherwise known as dispersion), and there are some great sector bets you can put on.

This is easy.

Trump is bullish for all financials. He is going to roll back Dodd-Frank and steepen the yield curve. It’s an easy trade.

Interest rates are going up, so that is bearish for:

  • Utilities
  • REITs
  • High-dividend payers

Trump is bullish for energy as well.

Grab the Exclusive Special Report, The Return of Inflation: How to Play the Bond Bear Market, from a Former Lehman Brothers Trader

Don’t miss out on this opportunity to cash in on the coming inflation.

Jared Dillian, the former head of Lehman Brothers’ ETF trading desk, reveals why inflationary price increases could be much higher than 1% or 2% and how you can position yourself for big profits as the bond market falls.

Download the special report now. 

John Mauldin Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in