Following the most divisive and cantankerous election I’ve ever seen, I – along with many others – were likely longing for a return to normalcy. A day where markets are driven by earnings, GDP, or other useful metrics rather than tweets and soundbites. A time when logic dictates norms rather than bluster and berating. The ability to take a deep collective breath followed by attempting to figure out how our respective investing strategies need to be tweaked to profit from the new regime. I’m not referring to the recounts as I suspect they will result in no significant change with Clinton winning a majority of votes cast but Trump winning the Electoral College – and therefore the election. What I’m referencing is the ability to cipher a meaningful direction that the President-Elect (PE) is going to take the economy.
Three diverse events occurred this week that gave me pause. On the surface these are likely one-off issues but looked at in total generate more questions than they answer.
The Victory Lap
Two companies are being placed on a pedestal for their responsiveness to the PE’s bully pulpit. According to Ford (F), the ‘saved’ line was never slated for Mexico while Carrier (UTX) was able to extract subsidies to keep some jobs in Indiana. To both companies credit they remained silent allowing victory to be claimed by the PE and generating free advertising in the process. While panned by both Democrats and Republicans alike, it appears that Rexnord Corp (RXN) now has the next seat on Trump’s corporate gravy train. Perhaps another sweetheart deal is forthcoming to goose their results?
The Advertising War
Admittedly there is only an indirect correlation with this issue, as a result of the PE’s choice for the chief strategist and Counselor to the President role, Steve Bannon. However his prior role as Executive Chair of Breitbart News is the core issue. Breitbart is commonly associated with the alt-right although Bannon appears to prefer the term economic nationalist. Regardless, Breitbart has emerged as a lightning rod of sorts in the internet advertising medium. Apparently companies with ads appearing on Breitbart are being targeted in social media campaigns lobbying for removal of said ads. Breitbart in return has begun orchestrating boycotts of companies, Kellogg’s (K) for one, involved. Last I heard, advertising was a choice reserved for companies. To threaten a company with a boycott if advertising isn’t purchased appears to be blackmail. The PE’s involvement in this scheme, albeit indirectly, is troubling in the very least. Digiday and The Wall Street Journal both recently reported on this issue. An unconfirmed listing also includes ALL, MMM and USB among companies in my portfolio.
A Rookie Mistake?
The PE’s choice to blindly wade into international tipping of apple carts resulted in an official protest being lodged by China. Since 1979, the US has had a precarious relationship with China over the Taiwan issue. The need to address bi-lateral issues is paramount beginning with trade, debt, currency and regional security. For a “brilliant negotiator” to stumble when attempting to leave the gate doesn’t bode well for the near-term. Particularly when US interests including McDonald’s (MCD – spin), Starbucks (SBUX – expansion), Coca-Cola (KO – asset sales), et.al. are at stake. Let’s hope – as China does – that this is a misstep and his education on issues takes on a higher priority.
Here we are, roughly halfway between election and inauguration and the euphoria beginning to ebb. While not unexpected, until concrete proposals are put forth I believe the market will basically move a little down or sideways – unless the Trump toe is stubbed again or the real agenda becomes clearer. This is especially true with the Italian referendum results. A new government which will likely lead to a second referendum on departing the Euro is on its way. Meaning, we may see parity with the Euro as well. Certainly an interesting year 2017 is shaping up to be.