Phenomenal!

I am writing this on Friday evening, Feb. 10, 2017.

On Thursday Trump said he would be unveiling a “phenomenal” tax plan in the coming weeks, and the stock market went crazy, without any information about the specifics. And so (along with most other investors) I made money yesterday and today in the market, and I did so without the slightest belief that the economy needs a tax cut, or that it will benefit anyone except for the very rich. In making investment decisions, sometimes I have to set aside my opinions, and sometimes my opinions are shouldered aside by events.

I have accidentally stumbled onto a method of making money off the illusions of Republicans—just stay in the market until Republican investors realize that sustained economic growth is mostly about investing in the productivity of the American worker, including their inventiveness and healthcare. Until then they will keep gobbling up shares of Goldman-Sachs and small-cap stocks and driving the market higher.

But before Republican investors realize this simple truth, time will pass—we may witness the Return of the Buffalo before they see the light.

Every market is driven by narratives. In 2015 we had a “global collapse” narrative that convinced people that China’s slowing economic growth and declining oil prices would lead to another banking collapse and a severe world-wide recession. It didn’t happen. There are usually competing or complementary narratives to the dominant one; narratives appear and disappear and are seldom fully explained to novice investors. Right now we have the Trump narrative, which says that Trump will revive American manufacturing through protectionism and free the rest of the economy from the chains of Obamacare….and cut taxes on the rich and corporations. There’s an alternative narrative that Trump’s trade policies will wreck global supply chains and send the economy into a recession, but that’s been somewhat muted until now.

Trump believes he can achieve 4% sustained economic growth with his policies, and he can certainly make it seem that way to the very wealthy. What the market sees is—at a minimum—his corporate tax cuts will result in four quarters of improved earnings per share, since quarterly earnings are by convention compared to the same quarter of the previous year. So cutting the corporate tax rate is seen as ensuring another year of increasing stock prices. I’m not completely convinced, because that year could also include trade wars, shooting wars and extreme political instability—but I’m not selling stocks, either. Yet.

But what happens after a year? What’s the real plan for 4% growth? Protectionism and tax cuts?

Making money off the illusions of Republicans….although this may seem like a gift from above, I prefer investment strategies that do not rest on illusions, mine or others’.