Do you remember? My editor does. "So, how has this trade worked out for you, one year after you wrote this column?" He's referring to my December, 2016, piece, "Trump has created a new class of suckers: Investors in U.S. equities," in which I said I was continuing my personal sell-off of stocks that I started the week after Mr. Trump was elected.
Well, I think we know the answer: As we sit here in January, 2018, my mostly cash portfolio has had returns that could be described with a choice Trumpian vulgarity. However, this particular lookback won't quite be what my editor thought, namely "something about not letting emotions and politics dictate your investing strategy": I still believe investors overrate the economic benefits of a Trump presidency, and underestimate its risks.
The argument I made several weeks after Mr. Trump's election was that whatever economic growth and rise in corporate profits might reasonably come from his administration was already rapidly being priced in. And what was not reflected in equity prices, I said, was a significant rise in uncertainty from having someone of Mr. Trump's temperament commanding a global power. We were, I argued, "heading down a deeply abnormal path."
So. I don't think I was wrong, necessarily, certainly not about the abnormal path. But as markets continue to set new records, investors clearly reject the idea that Mr. Trump offers an imminent threat to global stability – at least, the stability of the financial markets. On Jan. 3, the day after Mr. Trump taunted North Korean leader Kim Jong-un by saying his "nuclear button … is a much bigger & more powerful one than his," MarketWatch sent the headline "Wall Street's 'fear gauge' tumbles, threatens to hit record low."
I find this odd. Perhaps investors are taking to heart what Brian Belski, BMO Nesbitt Burns's top equity strategist, told me late last year as he explained why his bullish market projections came true. "When you look at President Trump, you have to understand it's, 'Don't do as I say, it's do what I do.' The best example of all this is how he dealt with the [U.S. Federal Reserve]. Remember during the campaign, he talked about 'The Fed is a sham, and we need to close it down, and increase interest rates, strengthen the dollar.' That's what he said. But what did he do? He elected a dovish, Yellen-like new Fed chairman. Don't do as I say, do what I do. Period."
It is said that Mr. Trump's negotiating strategy is to be an unpredictable, even erratic, opponent, so as to keep the folks on the other side of the table guessing, unsure of themselves, and ultimately weakened. Which is fine, one supposes, when the stakes are no higher than a Manhattan skyscraper, but is considerably more unnerving when a U.S. president, for the first time in the nuclear era, publicly threatens apocalypse.
What might support this shocking rise in equity prices? Mr. Trump's never-ending tweetstorm of previously unpresidential rhetoric does distract from a massive and profound deregulatory effort that will ultimately boost earnings across nearly every sector, but particularly finance and energy. Certainly, he's made far more progress in deregulation than he has in his noisy promises to undo the free-trade deals he finds so unfair to the United States.
If unshackled corporations indeed rack up profits, perhaps some of these gains might make sense. But the S&P 500 is now up more than 30 per cent since the day of Mr. Trump's election. And notwithstanding Mr. Belski, who says we're still in the early stages of a very long bull run, the prevailing sentiment in 2016 was that the economic expansion and the concurrent market rise was well-aged. Now, as the sturdy old Dow Jones industrial average added another 1,000 points in just eight days, the Wall Street Journal referred to market sentiment, quite baldly, as "fear turns to greed," saying, "Some market observers have dubbed this phenomenon Fear of Missing Out."
I have no such fear. Thursday afternoon, I went in to my brokerage account and placed orders to sell off the last of my equities. I was right too early in the 1990s, eschewing flashing Janus Funds even though they had another couple of years to go in their hot streak. I was right too early in 2005, pulling out of most equities out of concern for the overheating U.S. housing market. I missed out on significant gains in both cases, illustrating the warnings that ordinary investors shouldn't try to time the market – but those gains became illusory as markets crumbled thereafter.
My final sale on Thursday was Warren Buffet's Berkshire Hathaway, a stock I bought in 2009 when he purchased Burlington Northern Railroad and said he was making "an all-in wager on the economic future of the United States." Appropriate, because I'm making, with sadness, a similar, but all-out, bet.
David Milstead