Are Trump-Towns Next?

“let me assert my firm belief that the only thing we have to fear is fear itself”

Franklin D. Roosevelt, March 4, 1933

With all the news coverage this month of the stock market slump there is a rising comparison with historical events.  Notable are the comparisons with 1931 which was when we were in the midst of the Great Depression.  Current events certainly lend themselves to shocking headlines with fearmongers like Jim Cramer piling on the bandwagon with comments like, “It’s not a safe market. It’s a treacherous market. This is the most treacherous market I’ve seen in a many a year.”  While probably true, this narrative is more ‘click-bate’ than substance.  Sad are the masses feeding from Facebook feeds with nary a thought towards deeper analysis.

After all these years historians remain at loggerheads as to the cause of the Great Depression, however to equate current events with history is misguided at best.  The common denominator is only that Hoover, Bush and Trump represent the Republican party.

Sivaram Velauthapillai penned a great thesis in 2009 laying out a case as to the differences between the Great Recession and the Great Depression.  In my view, the key points pertaining to the markets in the Great Depression were:

  • During the Depression there were two 100% market rallies
  • Dollar cost averaging mitigated losses for some investors
  • Currency liquidity was not increased
  • Maintaining the Gold Standard tightened money supply

The first two notes are only points of interest, the third point was not repeated in the Great Recession (TARP) and fourth, Nixon (another Republican) removed us from the Gold Standard in 1971.

Another Great Depression issue was Hoover remaining steadfast in cutting spending to maintain a balanced federal budget which (combined with a tightened money supply) contributed to his current day image as an uncaring soul and a lasting legacy of “Hooverville” shanty towns.

Fast forward to 2018 – while there are a few similarities with past crises these (my opinion) do not yet rise to levels where alarm bells are ringing.  Caution is warranted particularly on the trade and political fronts.  Uncertainty is the bane for business and commerce and this has been presented in abundance.  The market, being a reflection, has responded in kind ignoring some basic fundamentals while emotion – and fear – run amok.  Trump-towns aren’t a blip on my radar – yet.

The S&P has lost 12.45% of its value so far this month.  Even with an overweight in regional banks my portfolio lost 10.87% so far in December.  These are only paper losses and the strength I see are dividend increases announced thus far for 2019 outweigh the few decreases.  Yes, Virginia, there are some positives lurking in the shadows.

Have a Merry Christmas and a Happy Holiday Season!

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4 thoughts on “Are Trump-Towns Next?

  1. I’ve been ignoring the market for almost the whole year. I think the only blog I’ve been following is yours. 🙂

    Mr.W told me the market is down massively again, and I told him
    I should buy something quickly . But I should to to your blog to see what you have to say.

    I’m glad I got your portfolio has a bunch of banks stocks, that where I’m heading to.

    Liked by 1 person

  2. Appreciate the vote of confidence 🙂 and I’ve missed seeing your gaming exploits unfold. Most of my recent buys have been staples and utilities only because of the number of banks I have. The community banks have been hit harder due to concerns on the yield curve impact (mortgage related) but I think this is overblown as the majority don’t carry them in house. Other than issues with C, GS and WFC I don’t see many other issues with banks. Personally, I think Mnuchin’s calls went to the wrong ones – I would have called the ETF guys like STT, IVZ and BLK if liquidity was a concern!

    Have a good holiday!

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  3. I haven’t heard much in the way of comparisons to the Great Depression from this part of the world (like Vivianne I’m paying less and less attention to market commentators), but I like your perspective comparing now and then. I know my buddy Gary is about to put some money in a few more Global stocks, with plenty of cash to burn – unfortunately my own portfolio has copped a real hammering the past few weeks….

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  4. I tend to think that most of these comparisons here are from both of the most extreme sides of the political debates in an effort to place an exclamation point on their point of view. Today the fear of the past versus fear of the future based on market gyrations is “news”. Hopefully my effort to sift through the noise a little to say “Market corrections – and even bear markets – are a fact of investing and can be advantageous (though we haven’t seen one in awhile)” came through.

    On your portfolio, my Aussie holdings have generally tagged along with the US turmoil (no real surprise there). It will be an interesting decision for Gary (US vs EM vs EU vs UK – or even China/Hong Kong). Has Ian been hit by outflows similar to US ETFs?

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