Over the past week the scene from Ghostbusters where Dr. Peter Venkman tells the Mayor the city is headed for a disaster of biblical proportions keeps popping into my head. Here’s the clip If you need a laugh.
Even though it seems surreal, like I might actually be dreaming, with 20/20 hindsight clarity, the election results are understandable. Lots of people did predict the results after all. Professor Allan Lichtman, my neighbor’s mom, The Simpsons. Lichtman now says Trump will be impeached, but so what? Don’t we call for impeachment of all our Presidents now?
Anyway, forget about the politics and the social context for a minute and think about the potential financial implications. This is, after all, a personal finance blog.
The markets’ reactions to Trump’s victory have been anything but rational. Prices in various sectors have swung massively on speculation over what he and his administration might do. Copper shot up 6% on the theory that the trillion dollars Trump says he’ll raise for infrastructure spending will drive demand higher. Financials skyrocketed nearly 13% on Trump’s promise to tear up all the regulations Congress has painstakingly written over the last eight years to contain Wall Street. Interest rates jumped significantly too, with the thought that Trump’s promises, if honored, will cause high inflation. And the list goes on.
Huge bets are being placed on what might happen if President elect Trump follows through on what he said he was going to do on the campaign trail. I think author Grant Williams said it best: “Any market that goes down 5% and up 6% on the same news is inherently unstable.” If there’s one thing I think we can count on, it’s high volatility.
Yes, I suppose if our leader demonstrates a volatile temperament, it follows that financial markets are likely to be volatile,too. So what’s an individual investor to do?
Develop a strategy, that’s what. And make sure it’s one you can stick to through thick and thin because the BS is thick and fundamental reasoning is frightfully thin.
I personally think the level of volatility we’re likely to see in the coming years is going to make the GFC feel like it was a day at the beach, so your strategy needs to be sustainable in that kind of environment.
Your strategy needs to mitigate as many risks as possible and it needs to be tax efficient. The higher returns the broker dealer or advisor says they’ll get you are not going to offset the impact of taxation. I know, Trump said he’ll slash tax rates. All I can say to that is I’ll believe it when I see it in my own tax bill.
Spending a trillion dollars on infrastructure, building walls, and deporting millions will cost a lot of money, and if you think private investors or Mexico will to pay for it all, you need to wake up, because you are dreaming.
To be clear, tax rates are going to increase no matter who is President because Congress can’t say no to a corporate salesperson and eventually their credit card will max out.
I hope Donald Trump is successful in making America great, or greater, however you look at it. I hope he and his administration can right some of the wrongs in Washington. But I’m going to make sure my strategy is rock solid regardless of whether he fulfills his promises.