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This market is no fun.
That means I keep doing less.
Here is this weeks Momentum Monday (you can watch or listen) which tours the markets and I do not see much to like or be happy about.
The short form is:
1. Banks, Utilities and REITS are working. They don’t interest me as a growth investor.
2. Fashology continues to be the one area of the market that keeps chugging – Nike, Apple and LULU.
3. Software is not working, but Microsoft, Apple and Google are helping the Nasdaq 100 mask (because it is market cap weighted) a lot of damage to the stocks I have loved. I liked this post from Fred Wilson saying we are now seeing the real software companies stand out. Meaning, if your gross margins are not over 75 percent you are not a software company.
4. Risk is coming off quickly again in crypto, biotech and China.
5. As Ivanhoff points out in the show, breakouts are failing everywhere. The evidence favors standing aside unless you are nimble from the long side. I don’t mind paying higher prices later once stocks consolidate again.
6. Rates are still low and that means most institutions are still rotating capital, not fleeing the stock market. That remains the biggest positive.
I liked this out of the box idea from Adventures In Capitalism blog wondering how Trump’s incentives may change as he gets cornered with impeachment. The gist:
If anything, the low risk short is Biden—he’s a parody campaign at this point. Unless Warren seriously fumbles, she will be the Democratic candidate. As I noted three weeks ago, I don’t see how the market can be comfortable with this, as her policies are decidedly anti-equity markets. Sure, she’ll move a bit more centrist in the general election, but investors will still be terrified. If Argentina’s market could drop by half when Macri lost the primary, why can’t ours drop 20 or 30% if Warren is the candidate? Especially, with Warren leading in most polls against Trump.
Now, here’s the interesting wrinkle; what if a savage market decline favors Trump? Imagine the ability to get out on twitter and blame Warren for the market crashing? Imagine scaring working people that their IRAs will detonate? Imagine scaring retired people that they’ll have nothing left? I don’t care what your political leanings are, no one wants to lose a substantial portion of their net worth. Warning voters that they’ll crystallize a 30% loss may be amazingly persuasive in an election—especially after you remind people how successful you were in pushing the market higher as stock-pumper-in-chief.
The market wants to crash because the global economy is rolling over. Trump certainly doesn’t want to take the blame. In fact, he’s the master at shifting the blame to others. If the market starts crashing, why wouldn’t he blame Warren and then aggressively force it lower so voters feel real pain? I know I would. That’s how you win elections. Trump is a winner—consequences be damned. Are Trump’s incentives about to change?
The market sure isn’t prepared for such a narrative shift. Invest accordingly…