Trump honey moon over?

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odysseus2000
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Joined: November 8th, 2016, 11:33 pm

Trump honey moon over?

Postby odysseus2000 » December 19th, 2016, 12:57 am

The US markets have run very strongly since the surprise win by Trump.

This behaviour is similar to what happened when Reagan elected, but the honey moon in terms of equity prices then had a turn down.

As usual the issue is complicated as we move towards the Santa rally and then enter the New Year profit taking window were taxes in equity gains need not be paid for over a year.

Mixed into this is the anger of many who despised the previous system of increased regulation and who now feel that the potential deregulation is such an important tail wind that is not yet baked into equity prices. Meanwhile the likely death of Obama care means less government spending countered in some respects by higher treasury payments from the rise in govvie bond yields. Additional ingredients are the strong $, the potential return of billions of $'s via tax holidays and rising oil.

Personally there are too many variables, do I am focused as usual on price action and for the moment things look a bit extended but not enough for me to feel that shorts are the only way and for now I prefer quite high cash levels.

Interested in others observations.

Regards,

odysseus2000
Posts: 37
Joined: November 8th, 2016, 11:33 pm

Re: Trump honey moon over?

Postby odysseus2000 » December 20th, 2016, 12:39 am

Interesting how the US markets absorbed all the bad news around the world without any serious down movement.

This makes me a little more bullish for the Santa rally to arrive.

If it is to happen then there will need to be leadership groups and the the banks look likely along with some of the stronger tech names and possibly oil names too as this has held up well suggesting some credence is currently being given to supply cut backs promised by the oil producers. Another interesting group is pharma/biotech which is perhaps beginning to absorb Trump's rhetoric and which has been sold since he was elected.

Clearly things can change fast in this environment but for now the upside has begun to look a little more attractive not least because Trump is not getting much negative comments suggesting his honey moon may run for a while yet.

Regards,

MartynC27
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Joined: November 20th, 2016, 8:44 pm

Re: Trump honey moon over?

Postby MartynC27 » December 20th, 2016, 11:17 pm

I have Vanguard S&P (VUSA) and Russell 2000 ETF and both have performed well over the last month. Much of the gain has been due the strong dollar and weaking pound.

Do you think it is time to switch to a ETF hedged to the £ now ?

Lootman
Lemon Slice
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Re: Trump honey moon over?

Postby Lootman » December 20th, 2016, 11:27 pm

MartynC27 wrote:I have Vanguard S&P (VUSA) and Russell 2000 ETF and both have performed well over the last month. Much of the gain has been due the strong dollar and weaking pound.

Do you think it is time to switch to a ETF hedged to the £ now ?

I invest overseas a lot and never currency hedge. Apart from the cost that introduces, I also believe that stock markets are essentially self-hedging when it comes to FX. So, for example, let's suppose that the USD declines. The constituents of the S&P 500 get well over half their earnings from outside the US and so a declining USD helps them.

The Russell is a little different since it is more domestically focused but, even so, I would not spend money hedging currency, especially since in market downturns, the USD usually appreciates.

I share some concern about the US market. The 10-year US T-bond yield is now back above the yield on the S&P 500 and that hasn't happened in a while. But with the VIX at a near all-time low, and have the long-term average, I'd prefer to hedge via SPY and IWM put options.

odysseus2000
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Joined: November 8th, 2016, 11:33 pm

Re: Trump honey moon over?

Postby odysseus2000 » December 20th, 2016, 11:52 pm

Hedging is often a personal preference. Some folk like to be insulated against currencies, others want to use their expectations of currency movements to be part of their trade/investment. Depends what each individual is comfortable with as much as expectations of currency movement in my experience.

US markets again held in, but agin stayed a little below Dow 20,000.

Kind of feels like the inability to go down will in the near term lead the markets to reach Dow 20,000. There is slow but steady buying of dips in US banks, resource stocks like steel (letter x e.g.) all suggesting that the honey moon of a regulation cutting & infrastructure building President is still on going.

Regards,

odysseus2000
Posts: 37
Joined: November 8th, 2016, 11:33 pm

Re: Trump honey moon over?

Postby odysseus2000 » December 23rd, 2016, 1:53 am

Will be interesting to see what happens tomorrow, often the start of the Santa rally.

So many equities are in very tight price ranges suggesting that if a move happens it will be strong, but which way is far from clear to me. I am positioned more long, but with tight stops under most things.

The investment commentary remains very polarised. Those who have missed the post Trump election rally are bitter, or if short in serious trouble and are consequently invoking every possible fundamental to say the markets are well ahead and must correct hard. Those who have ridden the rally are more optimistic and still believe the blessing of Trump are far from priced in.

Or to put it in more simple terms, best to ignore all the fundamental folk, in favour of price action. If this moves one can then get a clue on who made the good calls, but most folk are clueless and are right or wrong through luck rather than analytical skill imho as one discovers by watching them over several calls and discovering more or less randomness. The only certainty being that they all feel they should be paid well for having an opinion, not for getting things right: Where are the customers yachts?

Regards,

GoSeigen
Posts: 33
Joined: November 8th, 2016, 11:14 pm

Re: Trump honey moon over?

Postby GoSeigen » December 24th, 2016, 2:06 am

Now is the worst time possible to ignore fundamentals, or those drawing attention to them. Investors have accepted a 2% yield on the S&P 500 for the best part of seven years now. Nothing really has happened in the markets in that time, but it will change. Reversion to a more sustainable 4% or so will devastate those ignoring fundamentals.

The Treasury yield curve has bear-steepened, up 50bp - 100bp in months and at multi-year highs. We have yet to see the effect of that.

Merry Christmas all!

Grinch Seigen

deeemully
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Joined: November 22nd, 2016, 1:19 am

Re: Trump honey moon over?

Postby deeemully » December 26th, 2016, 11:24 pm

Hey Ody,
Admitting my priors upfront, I've been surprised by the strength and longevity of this rally. I've enjoyed it, but for all the wrong reasons. At the moment of peak Hilary expectation 8pm on the election, 33d (2250 strike) March calls were calling for 2.5% upside; while 33d puts (1950 strike) were suggesting equal chances of 10% downside! Premise utterly wrong... but the riskie has worked a dream. Since then, I've been frankly astonished by the market's ability to rally on a Twitter-feed to Heaven (and sold Feb 2275 calls when 2250 hit).

The performance of the Russell/IWM is an even greater mystery to me. I get the narrative of small-cap domestic focus and small-cap tax-benefit; but both are Turnips! But whether I'm right on this or dozens of US fund managers are right, they're clearly in the ascendancy right now. I know I'm right fundamentally... but shorting RTY vs SPX is one for next year into weakness rather than stepping in front of the proverbial steamroller.

Trickiest one for me is whether to short TMV, i.e. The triple levered short long bond ETF. Nibbled this and lost out so far; but still dry powder before I'm properly committed. At 3% yields now, the bond sell-off has to accelerate into an ever-greater crash for the short in one-third size to start to become a death spiral. Against which, flat yields in one-third size would suggest ~3.5% uncorrelated returns. Unless one has extremely bullish expectations of the SPX at 2260, not to be sniffed at IMO.

Best,
DEM (or DeeeM)

odysseus2000
Posts: 37
Joined: November 8th, 2016, 11:33 pm

Re: Trump honey moon over?

Postby odysseus2000 » December 27th, 2016, 12:15 am

Hi Dem,

Looks to me to have been pure animal spirits running over shed loads of fundamentalists who went short, covered, short, recovered etc, in a murderous upward spiral that will likely have put many out of business.

No idea when it ends. We currently have tight pricing in many sectors which inevitably leads to volatility, but which way? Remembering last January makes me nervous for the longs, but recalling post election moves makes me nervous for the shorts.

Kind of feel that we are in the early stages of a big adjustment in how everyone from shop floor workers to hedge funds view US business & thence equities. If Trump does the sort of things he spoke of pre election, I can easily see the market going up a long way from here. Simultaneously I see a lot of reasons why folk will not play ball with him leading to a stall and prices going a lot lower.

One could sit in cash & wait, but that may be a huge opportunity cost, so I prefer to take positions with tight stops. There is always the danger of being chopped up and it has not been a market were buying strength has been well rewarded, but currently better in my view to have controlled long side risk in sectors like financials in case we get a Santa rally, then a January rally too.

Apologies if this is too tactical for many, but with serious risk either way it doesn't seem a time when one should have strong fundamental views and hold them irrespective of what prices do.

Regards,

tjh290633
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Joined: November 4th, 2016, 11:20 am

Re: Trump honey moon over?

Postby tjh290633 » December 27th, 2016, 10:41 am

When this sort of discussion comes up, I always look at my notes of share price rises since the start of the year. As you might expect, there are rises and falls. What is noticeable is that last years big faller (S32) is this year's big riser. Here is the list:

27/12/16          
Epic Change
S32 201.90%
PFL 67.45%
BLT 65.46%
INDV 53.94%
RDSB 50.42%
BP. 42.09%
RIO 37.86%
TSCO 37.69%
CPG 23.91%
BATS 20.87%
IMI 18.86%
BA. 18.80%
TATE 17.86%
LGEN 15.05%
DGE 12.95%
GSK 12.82%
ULVR 11.82%
PSON 11.01%
ADM 8.44%
RB. 8.44%
SGRO 5.89%
KGF 5.22%
REX 4.90%
SSE 1.70%
SMDS 1.59%
NG. 1.47%
IMB -1.32%
UU. -3.79%
AZN -4.54%
AV. -6.92%
VOD -9.25%
LLOY -12.69%
BLND -18.45%
MARS -19.16%
CLLN -19.93%
BT.A -21.49%
MKS -22.19%
TW. -24.22%
WMH -24.90%

It's not infallible, but the shares which have lagged behind tend to recover in the next year.

TJH

odysseus2000
Posts: 37
Joined: November 8th, 2016, 11:33 pm

Re: Trump honey moon over?

Postby odysseus2000 » December 27th, 2016, 6:37 pm

Hi tjh290633,

Interesting list with possible tactics very similar to the Dogs of the Dow approach which comes in and out of favour. There is something appealing about buying a stock that used be strong with the expectation that it will recover. I have seen this tactic work well with large caps where the balance sheet is strong enough to absorb pain, but I have seen it fail miserably with small caps where the balance sheet is weak.

There are some nice sector correlations in the list: e.g. the oils you list having done well as Oil has risen and similarly for the extracting industries.

There are also some nice sector divergences with the once loathed Tesco having a good year while the once loved Marks & Spencer being heavily sold.

I prefer to act only when shares show me technical signals that they are likely to go up and be positioned so that I can have a stop indicating to me that I am either earlier or wrong, close to where I would open. The problem I find is keeping track of enough stocks for it is almost a given that stocks have a habit of moving when I am not watching them, the old adage about the watched pot never boiling over.

Regards,

tjh290633
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Posts: 241
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Re: Trump honey moon over?

Postby tjh290633 » December 27th, 2016, 11:03 pm

Those are the shares in my portfolio, and when I reinvest dividends I select the beneficiary by looking at the weight and yield of the constituents. The ones with the lowest weight and highest yield rank highest. There is some software written by kiloran which will do it for you. There is a link to it somewhere on this forum.

I don't look for fresh holdings unless I need to replace a share.

TJH

tjh290633
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Re: Trump honey moon over?

Postby tjh290633 » December 27th, 2016, 11:08 pm

For interest, the same data for 2015 is:

Epic   Change 
TW. 47.39%
REX 33.21%
IMT 26.46%
INDV 25.70%
ADM 25.49%
SMDS 23.20%
RB. 20.56%
BT.A 17.48%
SGRO 15.96%
MARS 15.95%
ULVR 11.36%
WMH 9.24%
BATS 7.74%
CPG 6.71%
AV. 6.50%
BA. 5.85%
UU. 2.13%
NG. 2.11%
AZN 1.34%
BLND 1.16%
DGE 0.43%
GSK -0.22%
TATE -0.66%
VOD -0.74%
KGF -3.23%
LLOY -3.63%
MKS -5.51%
SSE -5.80%
BP. -13.87%
TSCO -20.90%
RDSB -30.90%
IMI -31.79%
PSON -38.15%
PFL -44.32%
BLT -45.26%
S32 -49.52%


I find the comparison instructive. REX and PFL have gone this year, replaced by LGEN and RIO.

TJH

odysseus2000
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Joined: November 8th, 2016, 11:33 pm

Re: Trump honey moon over?

Postby odysseus2000 » December 28th, 2016, 12:15 am

Yes, the comparisons are interesting, showing how sentiment changes.

TW is currently heavily sold, last year it was the best performing stock, an inverse performance compared to s32.

Personally I don't like to take losses such that I try & sell anything that doesn't have positive momentum. Not that I am always 100% focused such that I do get stuck with some stinkers & sell other stuff too early.

Very different approach to yours, which is why it is always valuable to have alternatives from practical investors causing me to have a little re-evaluation of my approaches & predujices.

One of the important lessons I regularly forget or don't implement well enough is to continually monitor equities, especially ones I have liked which I have sold for some reason or other. Many investors/ traders set great store by how many stocks they look at each night and I need to take this more on board and do similar. It is vexing when I have stalked something and lost interest in it only to find it has moved a lot. Probably I need to make this a New Year resolution & allocate time for it in some kind of systematic study that I can easily do each market day.

Regards,

tjh290633
2 Lemon pips
Posts: 241
Joined: November 4th, 2016, 11:20 am

Re: Trump honey moon over?

Postby tjh290633 » December 28th, 2016, 11:44 am

One of the important lessons I regularly forget or don't implement well enough is to continually monitor equities, especially ones I have liked which I have sold for some reason or other. Many investors/ traders set great store by how many stocks they look at each night and I need to take this more on board and do similar. It is vexing when I have stalked something and lost interest in it only to find it has moved a lot. Probably I need to make this a New Year resolution & allocate time for it in some kind of systematic study that I can easily do each market day.


I don't usually monitor stocks which I don't hold, unless I know that I am going to have to replace one of my holdings, but I do have a watchlist of potential candidates, which I look at from time to time, usually when a dividend has been declared by one of them.

I find that the swings and roundabouts in the 37 shares which I hold tend to produce decent overall results, usually in front of the market but not this year for once. Dividend income has outpaced the RPI by a considerable margin, and that is my principal criterion.

TJH

odysseus2000
Posts: 37
Joined: November 8th, 2016, 11:33 pm

Re: Trump honey moon over?

Postby odysseus2000 » December 29th, 2016, 12:48 am

First reasonable bearish engulfing candle in the US markets since the Trump election win.

As things now look, it seems unlikely that we will have a Santa rally and unlikely that we will see Dow 20k this year.

Whether this is the beginning of the end of the US equity markets honey moon with Trump is still unknowable, but the spike in volatility took out many of my stops and so now I will wait for potential opportunities at likely lower prices. The memories of January 2016 are still relatively fresh and we did see simultaneous move downs in all the S&P sectors, many engulfing several days worth of prices.

Always impossible to know what comes and one can't completely rule out some up move but I am sure not prepared to put money on it. The key question for me is whether Trump will react to equity markets. Some commentators argue he is so vain that he will be distressed if prices fall, but personally I believe he will not take any continued weakness to be some barometer on his stewardship, especially as he isn't yet in the Whitehouse. Continued and serious weakness after the inauguration maybe another issue which would trouble him.

If the animal spirits have gone away then the fundamentals and desire to lock in profits should send the market down. The McClellan oscillators are only a little oversold for now and could easily move down for several days before becoming extremely oversold. Policy announcements could have some very stock specific effects too.

Regards,

mikel2
Posts: 14
Joined: December 29th, 2016, 12:56 pm

Re: Trump honey moon over?

Postby mikel2 » December 29th, 2016, 1:02 pm

>>>>Mixed into this is the anger of many who despised the previous system of increased regulation and who now feel that the potential deregulation is such an important tail wind that is not yet baked into equity prices. Meanwhile the likely death of Obama care means less government spending countered in some respects by higher treasury payments from the rise in govvie bond yields. Additional ingredients are the strong $, the potential return of billions of $'s via tax holidays and rising oil.

Personally there are too many variables, do I am focused as usual on price action and for the moment things look a bit extended but not enough for me to feel that shorts are the only way and for now I prefer quite high cash levels.

Interested in others observations.<<<<

Have to agree oddie there are too many variables to make any kind of future predictions, almost anything could happen with this newly changed set of circumstances.
However, I suspect increased regulation will only become despised if and when it has the potential to damage or harm the economy and Trump looks like he is ready to address that sort of problem though I would imagine that any results will only become evident over a much longer time scale so the uplift of any tail wind may be some time off and may even be difficult to detect as the global economy grows.

I see the election of Trump as more of a huge change in direction (long overdue in my view) which will over the course of time have huge implications in the new and increasingly competitive global economy.
As for looking towards the indexes for inspiration /enlightenment of where the economy is going or try and draw any conclusions from their meanderings, this looks increasingly difficult. For example the FTSE at around 7100 is not much different from it it high of almost 10 years ago when it was around 6700 in October 2007. True it did collapse in the wake of the banking crises in March 2009 but since around that time it has looked pretty restrained almost strangulated which I find odd considering all the ongoing problems which beset the market. The index does not appear to be giving much away in my view which may be an indication that it may be part managed, a bit like the price of gold or oil where vested interests may have more to gain in the longer run rather than allow the natural forces of price discovery, which may not always be conducive to the management of the economy, to gain any traction.

All a bit of a speculative view perhaps, but we never really do know for absolute certainty who is driving what and that may become more apparent as the years tick by.

Regards

odysseus2000
Posts: 37
Joined: November 8th, 2016, 11:33 pm

Re: Trump honey moon over?

Postby odysseus2000 » December 29th, 2016, 1:13 pm

Hi Mikel2,

Nice to see you over here.

However, I suspect increased regulation will only become despised if and when it has the potential to damage or harm the economy and Trump looks like he is ready to address that sort of problem though I would imagine that any results will only become evident over a much longer time scale so the uplift of any tail wind may be some time off and may even be difficult to detect as the global economy grows.

Trump has already change plans by several manufacturers to move jobs to Mexico and it looks like he will make substantial changes to Obama care. Meanwhile the EPA has new heads who are, at least by their history, set to drive a coach and horse through all manner of approaches that the EPA has. The US system doesn't need changes in regulations as is needed in e.g. the UK where one has a permanent civil service. Over there the EPA & similar government bodies do what their chiefs tell them. So whereas the EPA was anti pipe lines, anti coal, it may now no longer object to projects, essentially changing the regulations by actions not by re-writing of its regulations etc.

Regards,

mikel2
Posts: 14
Joined: December 29th, 2016, 12:56 pm

Re: Trump honey moon over?

Postby mikel2 » December 30th, 2016, 11:41 am

>>>>>Trump has already change plans by several manufacturers to move jobs to Mexico and it looks like he will make substantial changes to Obama care. Meanwhile the EPA has new heads who are, at least by their history, set to drive a coach and horse through all manner of approaches that the EPA has. The US system doesn't need changes in regulations as is needed in e.g. the UK where one has a permanent civil service. Over there the EPA & similar government bodies do what their chiefs tell them. So whereas the EPA was anti pipe lines, anti coal, it may now no longer object to projects, essentially changing the regulations by actions not by re-writing of its regulations etc.<<<<<<<



Yes I suppose we will have to wait until the US EPA makes a meaningful decision that may carry some weight bearing in mind that changes to regulations and indeed the regulations themselves may not have much meaning in an increasingly competitive economic world.

I read today that VW still have around 900,000 cars on British roads with illegal software.
“VW is way behind on promise to fix its cheating cars”
http://www.thetimes.co.uk/article/vw-is ... -mfw70m5q3

I suppose overall the charade of saving the planet via an increase in taxation combined with a mass of regulation is a noble cause and will go on until someone like Trump returns much of the West to reality, the kind of reality that has not been entirely lost in the booming developing world.

We do live in interesting times.

Regards

odysseus2000
Posts: 37
Joined: November 8th, 2016, 11:33 pm

Re: Trump honey moon over?

Postby odysseus2000 » December 30th, 2016, 10:34 pm

With three consecutive down days in the SPX, Dow and Nasdaq this is the worst sell off since the Trump election win and this year Santa did not come to the US markets at his normal time.

This could be the end of the selling, as its similar, but slightly worse, than the selling in early December, but if the SPX is going lower the first likely target is around 2200.

Interestingly the index least hit has been the Rut which consists of small cap business that are generally domestic and which should benefit if Trump rhetoric is converted into reality.

Many are citing very high valuations, drawing parallels to the sell off after Reagan was elected and arguing that the markets have to go a lot lower, but they have been saying this for the entire duration of the post Trump election rally.

Happy to be mostly in cash and to wait to see which way the markets go next year. Kind think lower to at least 2200 on the S&P, but no interest in putting any money at risk till some more clarity emerges.

Regards,


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