The Donald Can't Stop It...

Authored by MN Gordon via The Economic Prism blog,

The Dow’s march onward and upward toward 30,000 continues without reservation.  New record all-time highs are notched practically every day.  Despite yesterday’s 31-point pullback, the Dow’s up over 15.5 percent year-to-date.  What a remarkable time to be alive.

The President, Donald Trump, is pumped!  As Commander in Chief, he believes he possesses divine powers.  He can will the stock market higher – and he knows it.  For example, early Wednesday morning he blasted out the following Tweet:

“Stock Market has increased by 5.2 Trillion dollars since the election on November 8th, a 25% increase.”

Four minutes later, he sent out another Tweet:

“…if Congress gives us the massive tax cuts (and reform) I am asking for, those numbers will grow by leaps and bounds.”

Who knows?  Maybe President Trump is right.

These days even bad reforms – and just about everything else – are good for stocks.  And what’s good for stocks is good for everything.  For instance, according to President Trump stock market gains reduce the national debt.  He even said so this week.

President Trump’s logic for how higher stock prices reduce the national debt was unclear.  But it certainly sounds good to say.  More importantly, it sounds bullish.

Smart and Savvy Investors

On the other hand, obvious risks and hazards no longer matter. 

Not the prospect of nuclear war with North Korea will stop this bull market.  Not the gold backed yuan oil exchange agreements being developed between Beijing, Moscow, and Tehran, and the implications for the petrodollar’s reserve currency status.  Not weak jobs numbers.

So, too, runaway government debt, consumer debt, and corporate debt haven’t fazed the stock market’s trajectory.  Because everyone loves debt.  Especially bankers.  They want more debt so they can buy more stocks.

Nosebleed level valuations don’t matter either.  Because, if you haven’t heard, high valuations are no longer high; they’re permanent.  Likewise, the beginning of the Fed’s great unwind of its $4.5 trillion balance sheet has hardly elicited a flinch.

President Trump’s shoddy tax reform proposal, the proposal that would tax income that’s already confiscated via state and local taxes, hasn’t done a thing to deter today’s smart and savvy investors.  Why should they care about taxes when, thanks to The Donald, their portfolio wealth has increased by 25 percent since election day?

Of course, smart and savvy investors, particularly buy and hold index investors, have reaped plentiful fruits for mindlessly plowing their capital into low cost S&P 500 index ETFs.  Indeed, this strategy has worked well for nearly a decade.  Surely it will continue, right?

A passively managed S&P 500 Index ETF, such as the SPDR S&P 500 ETF (NYSE: SPY), is up over 279 percent since March 9, 2009.  Investors that merely bought and held have been rewarded for their lack of discrimination.  Conversely, those who scratched their head, did some homework, and concluded that the market’s fundamentals are deficient, have been sorely punished.

The Donald Can’t Stop It

Yet, while SPY investors have experienced the delightful sensation that comes with a burgeoning investment portfolio, they’ve also been handicapped.  The extended bull market has lulled them into believing that investing is easy.  All you need to know are several simple rules.

Buy and hold the SPY.  Dollar cost average.  Eschew individual stocks.  You’ll always come out ahead over the long-run.

A SPY buyer doesn’t need to study businesses to understand which ones are profitable and which aren’t.  They don’t need to bother with the tedious task of analyzing a company’s financial statement and making inferences about its growth prospects and risks.  They don’t have to read footnotes.  They don’t have to do any work.  They don’t even have to think.

But not only has the bull market made the SPY popular for individual investors.  It has also made it a popular investment for funds and institutions.  This combination has served to relentlessly push the market higher, even though there’s no fundamental rhyme or reason to justify it.

Certainly, buying SPY has been a great strategy over the last eight years.  Who can argue with 279 percent returns?  However, it’s unlikely to be a good strategy over the next eight years.

You see, passively managed ETFs that simply mirror the movement of the S&P 500 are a fantastic investment vehicle when the stock market rises over an extended period.  On the other hand, in a bear market, when there’s a protracted stock market decline, these passively managed index tracking ETFs are terrible investments.  When the stock market crashes by 50 percent – which it likely will, these ETFs will also crash by 50 percent.

No doubt, with each passing day, the bull market moves closer to the next bear market.  That’s when the trajectory will no longer be up.  But, rather, it’ll be down.  That’s when SPY portfolios will vaporize as the herd attempts to panic out of the market at precisely the same moment.

What’s more, when push comes to shove, The Donald can’t stop it.

Comments

LawsofPhysics Fri, 10/13/2017 - 14:33 Permalink

LOL!!!  The market goes up, because it has too...   ...look at the fucking denominator!!!"Full Faith and Credit" I love Jamie Dimpn's comment earlier; "bitcoin is great for criminals"think about it, this fucker would know.

Endgame Napoleon FreeShitter Fri, 10/13/2017 - 15:47 Permalink

Ordinary people who have money to put in that stuff would probably want the cryptocurrency with the most cybersecurity. When you do not have much money, you need to be more careful about losing it. There is nothing criminal about this programmer-designed money. The only problem is the limitations on spending it, but some people might like that because it encourages saving. Some people would probably like the more spendable cryptocurrency, while some would like the less spendable ones as a savings vehicle.

In reply to by FreeShitter

Swamp Yankee Fri, 10/13/2017 - 14:36 Permalink

Who would you rather have in The Big Chair when this thing goes kerplooey:  Don or The Hildabeast? Darn toot'n. Here in the swamp not only are we ready for this, we can't wait.  :) (and by swamp I mean the neathers of the New England marshes and mires, not the DC swamp; we were here 100 years ago and will be here generations to come)

rp2016 Fri, 10/13/2017 - 14:39 Permalink

i see you are getting pretty confused, ZH. Stay focussed. Why are you worried about idiots getting vaporized or not. Trump promised - Drain the Swamp. He is doing every thing but the drain. There are still no signs of drain the swamp. Unless he drains the swamp, nothing really matters.

lester1 Fri, 10/13/2017 - 14:45 Permalink

I have insider knowlege that Trump cut a deal with the NY Federal Reserve for them to buy stocks, keeping the market going up no matter what, in return for keeping that registered Democrat globalist Gary Cohn as his economic advisor.Trump then takes the credit for a booming stock market despite a declining economy on main Street.

Mr. Apotheosis Fri, 10/13/2017 - 14:52 Permalink

I always kick myself every time I think about all of the opportunities I missed out on over the the past 9 years, having stayed out of this hyperbolic (yet fraudulent) market. Then I'm reminded that I never had any fucking money in the first place, so I'm somewhat comforted. The recovery never was for anyone in my income tax bracket, but the smarmy parasites who blew up the system in the first place. T'will be interesting how it all plays out. Everything eventually reverts to the mean. This one ain't going down with a whimper though.

youngman Fri, 10/13/2017 - 14:54 Permalink

If you dont think Janet Screamin Yellen will print to save the world on that down day...you are crazy..she will try to save the markets and the world in her mind by buying trillions of stocks to stop the freefall.....but then we sit..market is stable..but she owns 40% of it.....what are you thinking about those dollars in your hand...still full faith and credit..still worth a dollar????? that is the come to Jesus moment...

ThePhantom Fri, 10/13/2017 - 15:26 Permalink

is an 80 year old closer to death than a 1 year old? considering both will die of old age? getting pretty close based on an average cycle of 7ish years or so, id say. or were all slaves to the fed? either way..really bullish, lets get rich!!

Pollygotacracker Fri, 10/13/2017 - 15:41 Permalink

The value of a stock isn't the price you pay...it is the value of the income stream produced going forward. I have nothing invested in stocks. But, I wisely set up my retirement income stream so that I would not need them. It will collapse. We just don't know when. 

ludwigvmises Fri, 10/13/2017 - 16:12 Permalink

The bear market will be Trump's bear market. He helped cheerlead this pig up. Once it implodes it will be very very ugly. Whatever is left of our manufacturing industry will then be totally destroyed.

gdpetti ludwigvmises Fri, 10/13/2017 - 18:36 Permalink

Yeah, but he's a fake reality tv star who did some real estate manipulation in the NY area before that.... who got a lot of media coverage before his tv days, why is that? His ego is very, very oversized.. could be a GMO product, but that is typical of most narcissists, and his style is so East Coast, Big Apple.... but then most people didn't vote for him, they voted against the establishment controlling both parties... and even the third parties it seems, as most of them aren't much different, which is probably why Jesse Ventura didn't run as he was thinking about it with Cynthia McKinney as a running mate... .never happened... and after watching some of the 3rd party debates on RT, I can see why... they are mostly the same BS as the Dems adn Repubs.Trumpy will have WW3 started most likely by the time the PTB pull the rug on this market... or so the script looks so far....will he get in the way of that? So far, it doesn't seem that way, as he seems like a war junkie like all the rest of the puppets in DC.... 'they know not what they do'.

In reply to by ludwigvmises