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Elections Have Consequences Part II

Oct. 3, 2016 6:46 PM ET

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324 comments

This article is an update of Elections Have Consequences, dated May 11, 2016. Although not as consequential as the impact this particular presidential election might have on the future of our country, as investors we must consider how it might impact our investment decisions and specifically our individual portfolios. What are we, as investors, to expect in the event our next president is Donald J.Trump? Setting our particular ideologies aside, it is vitally important that we pay close and careful attention to those external circumstances and events, I often refer to, that might impact companies, sectors, or the market in general.

Although it's only speculation, from what I have learned during the primary nominating process and the subsequent run-up to the election, I'm reasonably certain the general market, or particular sectors of it will be radically affected. Being forewarned is being forearmed, consequently, the best way to protect our portfolios is to position them as best as possible in the unlikely event Mr. Trump is elected our next president.

More than ever, I believe that President Trump would be most impactful, and unfortunately in a potentially cataclysmic way. Yet I'm forced to admit that certain sectors of our economy might actually benefit.

As many of you already are aware, I'm not unbiased; however, the evidence I am using to state my case and predictions are based upon fact, reality, and a number of troubling statements that were repeatedly made by Mr. Trump during this past year. Sadly, in his defense, I as many, really can't pin down what he truly believes and what he will actually do, because from minute to minute he changes his tune and direction. Furthermore, many of his past speeches and tweets concentrated on tearing down his opponents rather than having anything to do with actual policy. And on those occasions that he has discussed policy, it was often vague and secret, similar to his

secret plan to beat ISIS. Rather than digging into the numbers of his tax policy, he asks us to trust him because he is a rich successful businessman. I have a problem with the successful part of that equation because of the number of bankruptcies he has suffered through and of the $916 million of losses he reported in 1995, one of the few years we have gotten a look at his tax returns.

Most alarming were his comments about negotiating down our national debt. To make matters worse, he intended to balloon our deficit with additional borrowing by taking advantage of our treasuries' low-interest rates. He spoke of using these funds on infrastructure projects (which I can't argue with), but because money is fungible, I expect a great deal of it will go to the military he has vowed to rebuild (as if it needs rebuilding). The infrastructure part makes sense because it will help boost our economy and ultimately increase tax receipts.

However, at the recent Commander-In-Chief forum, Trump's plan for rebuilding the military was, frankly, unrealistic as determined by its inevitable cost and no discussion of a way to pay for it. Although he vows to increase the yearly GDP to an unrealistic four possibly five-plus percent. After the expenditures on the new ships, planes, and combat battalion increases he spoke of, It leaves one to wonder what would be left for the infrastructure projects he promises. Consequently, from an investor's standpoint, should Trump win, investments in all military-related hardware from ships to planes and guns to bullets might be sound and profitable. To name a few: Boeing (NYSE:BA), General Dynamics (NYSE:GD), Raytheon (NYSE:RTN) Lockheed Martin (NYSE:LMT) , United Technologies (NYSE:UTX), and Huntington Ingalls Industries (NYSE:HII).

Frankly, I don't believe Trump will eliminate Obamacare as he frequently promises, simply because I don't believe he has a credible plan or any plan at all to effectively replace. Nor do I believe the Republican Party has one. And although building that Wall has been a great talking point, I'm certain it will never be built, especially if we expect Mexico to pay for it. Yes, parts of it might get built, but the continuing costs will be prohibitive and the desultory attempts to complete it will soon fall by the wayside.

The TPP will go unsigned, which I believe will negatively affect primarily our pacific ports and trans-Pacific shipping. Exporters and importers alike will suffer as will the producers of products for export.

Farmers will be negatively impacted and many of their crops will wither on the vine or rot in the ground as Mexican farmhands and "rapists" flee for the border. The cost of food will skyrocket, as will trade between the United States and Mexico.

Increased Tariffs will lead to trade wars with China and other countries, further negatively impacting an already suffering global economy This will further impact the already struggling shipping sectors of dry bulk and container carriers. Bad for: Navios Maritime Holdings (NYSE:NM), Navios Maritime Partners (NYSE:NMM), Safe Bulkers (NYSE:SB), Global Ship Lease (NYSE:GSL), Costamare (NYSE:CMRE), and a whole host of others.

And that promised boom in oil exploration and production will not happen because of the current world oversupply and glut of oil, which will only get worse as a result of the shrinking world GDP that will most probably shrink further a result of President Trump's actions.

Ironically, many of the things Trump wants to accomplish like building that wall and getting rid of all the undocumented aliens makes little sense, and in all probability won't ever be undertaken except for potentially some half-hearted attempts.

But then Trump takes it a step further into dangerous territory:

"I would borrow, knowing that if the economy crashed, you could make a deal," Trump told CNBC. If the U.S. borrowed too much and invested its fresh cash in unproductive products, Trump would tell creditors to accept less than what he'd initially agreed to.

Tax policy center review issued the following statement:

The U.S. dollar is a global reserve currency. It is considered the least risky asset in international finance. If investors have to start taking haircuts on this debt, it means that the way money is measured around the world would be thrown into question. All kinds of businesses, both domestic and foreign, would grind to a halt as investors stopped to figure out how to sort out the mess. Even in a best-case scenario, the results would be catastrophic. Financial markets eventually sorted things out after the 2008 meltdown, but it still sparked the worst recession in 75 years. A default on U.S. government debt would be worse.

And there is no reason for the government to default. The U.S. government owes $12.8 trillion to the public. The majority of this money is owed to American citizens and businesses. And the annual output of the U.S. economy is currently $18.1 trillion and growing. The federal government collects over $3 trillion in taxes every year. The national debt just isn't that big a deal. If it were, you'd see investors demanding high interest rates on American debt. But interest rates are in fact very low, meaning investors think the U.S. will not have trouble paying its debts.

Even if the United States eventually saw interest rates rise, the government could easily deal with it by raising taxes or simply printing more money.

Furthermore, Trump's tax plan, when scored by the non-partisan Citizens for Tax Justice, the Tax Foundation, and the Tax Policy Center, respectively stated that Trump's tax plan would increase the US deficit over 10 years by $12 trillion, $11.980 trillion, and $9.517 trillion.

Crazy as it seems, it appears that Trump actually had plans to seriously balloon the national debt, and by threatening a default, intended to set up a scenario favorable to forcing our creditors to take a haircut by accepting approximately .80 on the dollar; and consequently negatively affecting the full faith and credit of the United States; resulting in another credit downgrade, in all likelihood worse than the one we suffered as a result of just threatened default brought on by the Republican congress a few short years ago. What happens to the world economy when the dollar, the global reserve currency, can no longer be trusted? Will it remain the global reserve currency? What will replace it? China's renminbi? What yield would our treasuries have to offer investors to induce the to buy them? How much more will corporations have pay to borrow? Will the global economy continue to function as the world attempts to sort out this new paradigm? Frankly, I have no answers, nor do I believe others have who are much smarter than I. The one thing I am certain of is that the uncertainty will rock the market immediately after election day.

How are we, the investor class, to protect ourselves? Simple, I for one will exit the market the moment I actually believe Trump has a chance to actually win the election. I am no expert on investing in gold, but I intend to begin learning about it long before November. Furthermore, even if Trump never attempts his mad schemes, he is a loose cannon, and even brags about being unpredictable; the single thing the market most hates.

On a brighter note, realistically speaking, I don't expect Trump's political advisors or even a Republican-dominated Congress will ever allow him to carry out several of his most ridiculous schemes, but I'm certain the possibility will be on the minds of many, as it is on mine.

Note: I have attached a link to the above article, which you can access directly. Most interesting and informative are the numerous responses, many objecting to this article and my comments concerning Trump.  

https://seekingalpha.com/instablog/499741-norman-roberts/4921740-elections-consequences-part-ii