Trump’s first budget was unveiled this week and in its wake left much to dislike. The talking heads are parsing the details and if enacted as is (which is certainly debatable) will result in probably the largest transfer of wealth between classes that I have ever seen. The obvious campaign promises (wall, security, etc.), the social welfare programs (which are garnering the headlines) and calculation errors (double counting on both sides of the ledger) will be the news. But as I prefer the more obscure, my questions are more aligned to the question of impact on investments. To this end, my focus is on two areas – farmland and healthcare REITs.
Generally I put together a watch list quarterly based first on overall portfolio goals. As an example, the first quarter typically is used to readjust weightings where they’ve gone a little awry – particularly in my anchor and core positions. This next quarter has historically been goosing returns as its’ priority. Meaning, adding to out of favor positions (depending on the reason) which carry the highest current yield. You could say it’s a personalized Dogs Of The Dow approach. As always, market valuations have the final vote on my actions.
In preparing the list for next quarter, I’m finding more compelling reasons to avoid sectors as opposed to buying:
- Example 1 – The first legislative test facing the Trump team is today’s vote on health care. Even putting campaign rhetoric aside which placed a spotlight on the likes of CVS, the actual bill aims directly at Medicaid and indirectly at Medicare recipients. Assuming the bill passes in its current form (unlikely), estimates are roughly 20 million people will become uninsured. The indirect impact to health care REITs could blindside some investors. Using CCP for one, some providers to which they lease could face reimbursement issues. Simultaneously, the DOJ is pursuing a case alleging Medicare fraud against AET, CI, CNC and HUM. Then there’s fraud in diagnostics resulting in one bankruptcy. I think I’ll let the dust settle in this segment before treading any deeper.
- Example 2 – My expansion into Hong Kong encountered some headwinds. Swire announced a dividend which was effectively a cut (still figuring the magnitude, but about 38%) primarily on the heels of their 45% ownership stake in Cathay Pacific (CPCAY). At least the poor fuel hedge (that my analysis missed) expires next year. And, no, my efforts to increase my diversification outside the US are still intact. If only the Yen would weaken …
Perhaps a correction is on the horizon as UBS suggests. perhaps not. But the one certainty is there is plenty of uncertainty – especially with earnings season set to begin again. I guess I need to finish my taxes to see what the budget for purchases looks like.