Clinton or Trump? Who the Markets Want

The happiest moment of my Monday evening was when Lester Holt said, “that concludes the first of three presidential debates”. Talk about painful. I was SO thankful that I had picture in picture so I could also watch an incredibly entertaining football game between the Atlanta Falcons and New Orleans Saints. High scoring and lots of action.

I thought Trump started off so well and I actually naively thought that it was going to be a real debate about policy. Silly me! It devolved into a reality show on both sides. While the #TrumpWon hashtag is all the rage on Twitter this morning and supposedly the polls called Donald the winner, I thought Clinton won but nothing overwhelming.

Trump had her on the ropes with her emails and nothing to show for herself after decades in government. She hit him good with his tax returns and all the personal nonsense. Trump clearly did not prepare enough and Hillary’s overly rehearsed one liners were mostly bad. Trump should have stuck to Clinton’s open wounds and not let up. Emails, Benghazi, immigration, higher taxes, ObamaCare, Foundation, etc. And what was that sniffling?

Clinton should stop arguing and let Trump rant. He digs his own holes. Tax returns, helping those who need it most, business bankruptcies, etc. What was that cord running down her back into that box? A mic? Hidden earpiece? Medical device?

Trump once again attacked Janet Yellen and the Fed for being political, as if they want Hillary to win. More nonsense. Without any factual base, I would surmise that the Fed is probably skewed slightly right of center and I 100% believe they do what they really think is right for our country. You don’t have to agree with them, but I don’t think there is any hidden political agenda. Fed Governor Lael Brainard is the exception as she has made three public donations to the Clintons.  Brainard clearly has an agenda to get Hillary elected so Lael can either succeed Yellen at the Fed or Jack Lew at Treasury.

Additionally, Trump continued to attack the Fed for propping up the markets with low interest rates and creating the biggest bubble ever. I find that to be 90% bunk. As you know, “bubble” is the most overused word in investing today. Everyone in my ever growing clown parade of doomsdayers, Soros, Druckenmiller, Icahn, Zell, Fink, Gundlach, Gross, Faber, Auth, Faber, Yusko, Singer and Donald Trump continuously use the word bubble and it’s absurd. Bubble equals greed. Mom & Pop clamoring for a certain investment. I would like to know what is being clamored for right now? And no, it’s not bonds. People don’t buy bonds because of greed. If anything, they buy them out of intense fear.

And to repeat a statement I have made more than a dozen times already, the markets really don’t care who wins the White House. By that, I mean that the market celebrates or pouts in a range of -5% to +5%, which is a just a bit outside the normal historic range. On the surface, Hillary means more business as usual and the same slow, uneven and frustrating growth. Wall Street is fine with that. Donald is clearly a wildcard, but I believe it’s mostly bark and no bite as he would have to work with Congress. Wall Street would eventually warm to that.

I do think that a sweep of the Oval and Congress by the left would be the worst of all scenarios for the markets as gridlock would be gone and the government could actually get something done. While it may be counterintuitive, the markets like gridlock and don’t like when things can get done and change.

Finally, I do think that career politicians and bureaucrats are terrified by the thought of a Trump victory as their ability to buy their way (in one way or another) to those cushy posts will be all but gone. DC corruption would be in for some trouble. That’s why so many of the GOP are supporting Hillary. The devil you know. Take care of yourself first. Those comments can easily be extended to the mainstream media as well who overwhelmingly support Clinton.

The bottom line from my perspective is that I can’t believe anyone changed their minds from that one debate.

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Follow Up to Post Crash Behavior

Last week, I wrote a piece here and in Street$marts entitled, Post Crash Behavior Leading to Dow 20,000. If you haven’t read it, I think it’s a worthwhile read (of course I do since I wrote it!) whether you agree with the content or not. Subsequently, I was really excited to join CNBC’s Fast Money to discuss my research. A few things I want to add.

I used the word “crash” very liberally in my study. After “bubble”, crash is probably the most overused word in investing. True, historic stock market crashes typically only occur once in an investing lifetime. They are such emotional affairs and require years of setting up. It’s that perfect storm. We saw one in 1929 as well as 1987. The rest are really just large declines that accelerated like a crash. You can call them crashettes or mini crashes.

As Mark Twain said a “few” years ago, history rhymes, it doesn’t repeat. No two market environments or rallies or corrections are exactly alike. The market does its best to confound the masses most of the time. I remember in 1998 that the NASDAQ 100 actually went from its August mini crash when Russia defaulted on her debt, straight back to all-time highs in September, only to see another mini crash in October when Long-Term Capital blew up. The masses were generally hopping on board the tech train until the tech wreck hit a few weeks later.

If you look closely at my study, 2011 looks very similar to 1998 and 1987 for the most part, but not exactly. 1989, 1994, 1997 and 2010 are not highly alike although 1989 and 1997 are the most alike of the group. 2015’s price decline is similar to 2010.

In the end, it’s much healthier for the stock market to thrash around for 4-6 weeks and test the mettle of both bull and bear. That kind of constructive repair from all the damage done during the decline would set the market up for a potentially powerful fourth quarter rally. I would be very concerned if stocks just took off higher from here without looking back.

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Alibaba… No Bubble to Me

With the Fed meeting, press conference and Scotland out of the way, markets turned to Alibaba’s initial public offering (IPO) to close a very busy week last Friday. Looking at possibly a record $20+ billion IPO, the money had to come from somewhere. And judging by tech stocks behavior over the prior week or so, it certainly looked like institutional investors were paring back holdings to pay for Alibaba.

The hugely anticipated IPO priced at $68 and promptly opened at $92.70. You would think the exuberance could be felt across individual investor land, but one poll I saw showed 75% of Americans had no idea what Alibaba even was. In tomorrow’s piece, I will show previous “hot” IPOs and how they fared. I vividly remember pundits calling Facebook and Twitter bubbles in tech, stocks and IPOs. How did those calls work out?

I went out for lunch with a good friend on Friday at a local popular spot. He asked what was new in the investment world, to which I replied “Alibaba!” He said, “Ali what?” My friend said he never heard of the company nor was familiar with this hot offering. This all made me very curious, so I emailed a list of random people I know to ask what they knew about Alibaba. Only 20% knew anything about it. Not a single one knew they were going public today. No one really cared.

Of course, my “research” is anything but scientific or academically meaningful, but it’s very hard for me to buy the notion of a massive bubble in stocks, tech or IPOs when the average person in my universe hasn’t a clue about what is being touted as “bubble’esque” or just like the Dotcom era. When the last tech bubble hit in 1999-2000, I couldn’t go to the gym, the golf course or even the supermarket without someone asking me about a tech stock or giving me a tip.

Today and for the most part over the past few years, on a 9:1 ratio, comments from friends who are not clients fall in the disbelief camp. Most disavow the bull market and some outright hate it. More than likely the haters are also probably sitting on a lot of cash wishing they were invested.

The disavow camp typically asks questions like, “how can the Dow be at 17,000?” or “isn’t this all smoke and mirrors from the Fed?” The bottom line is that it really doesn’t matter. Price is the final arbiter. Disavowing the bull market from 6500 to 17,000 because the Fed is operating in uncharted waters is a poor investing strategy. People forget that after stocks collapsed 89% from 1929 to 1932, they “bounced” more than 400% with the government’s very heavy hand in the mix using “extraordinary measures.”

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