Traffic was a bit heavier than usual today as I made my way to work. At one of the intersections, the usual bespectacled traffic volunteer in his orange vest stopped traffic as a group of teenage students biked across the road. Framed in my windshield is the oak lined boulevard with ranch and split level residential homes filling the edges. Above the tree lines and the distant Mt Hamilton peak, the sun rose. It is yet another glorious autumn day in Northern California. As I slept last night, a new president was elected. His name is Donald Trump.
There was, however, pandemonium in the darkness during the small hours. Stock futures traded off sharply. Dow Jones Index was down 800 points or 4.5% at one point. Perceived safe heaven assets such as Gold and Treasury climbed. Yet when market opened in the morning, stocks was only down modestly for a very brief time. As the hours grew, a rally developed. The Dow finished the day up 257 points or 1.4%. Meanwhile, safe-haven Treasury was dumped and yield on 10-year government bonds rose above 2%. It appears that Mr. Market, just like the pollsters has seriously underestimated Mr. Trump.
It was all supposed to be a joke. No one took him seriously. Sensing a historical opportunity, a dozen leading characters of the Republican Party took to the contest to secure its party’s nomination. Despite leading performances in early primaries, it was widely expected that his lead would eventually fade. During the presidential campaign, his intemperance and boorish behaviors were widely disseminated. Pundits after pundits informed that Mr. Trump was merely the straw of the pale complexioned and uneducated sinking in the global whirlpool. As if on cue, Mr. Trump responded gleefully, “I love the uneducated!”
Despite spending only half as much as his opponent, lacking the support of organized political machinery and having zero experience running a political campaign, Donald Trump somehow tight roped his way from Trump Tower to the White House. So says the Buffalo Springfield song, “There is something happening here.”
A rally never treats all equally. A new regime brings new winners and losers. Here is a tally from the pronouncement of Mr. Market.
In the category of a more benign regulatory environment, investors eagerly snapped up banks and brokerage stocks. In the category of changing energy priority, stocks of coal producers were warmly embraced. The nearly bankrupt Peabody Energy soared nearly 50%. Solar energy related shares, on the other hand witnessed additional selling pressure. SunPower for example was down almost 15%. In the category of protectionist policies, steel producers were cast as the leading beneficiaries. In the category of enhanced infrastructure spending, investors piled onto builders of bridges and roads. Ironically, both leading gun makers Smith Wesson and Sturm Ruger was off by about 15%. It turns out gun control, a policy favored by the current administration is the best sales brochure for the gun makers. Last but not least, in the category of possible repeal of Obamacare, pharmaceutical companies were lifted on mitigated risk of price control while hospitals and health service companies were dumped on possible reduced flow of customers.
Campaign promises and actual accomplishments are of course quite different. Closing the detention camp at Guantanamo Bay was the promise of Barrack Obama in 2008, yet it remains open in 2016. Enhanced infrastructure spending has been the mantra of almost every presidential candidate, the highways and bridges of United States are no better today.
From night to day, a thousand points elapsed in the stock market on an ordinary day. You see intemperance is the middle name of Mr. Market. There of course lay the opportunities for the temperate investor.