Where is the darned correction? Where is the breakdown, the rollover, the obliteration that so many are expecting?
It's a legitimate question, especially because of the musings of a parade of money managers who truly seem to despise and fear Donald Trump and what he's doing and therefore think we are due for a correction because of him.
The criticism just keeps piling up. This morning my colleague Andrew Ross Sorkin penned a column in The New York Times about Seth Klarman, a respected fund manager, titled "A Quiet Investing Giant's View on Trump." Klarman, who is a legit investing genius, told his investors in a private letter two weeks ago that the euphoria post-Trump has created "perilously high valuations."
He goes on to write that "exuberant investors have focused on the potential benefits of stimulative tax cuts while mostly ignoring risks from America-first protectionism and the erection of new trade barriers."
He wrote that the pro-growth policies "could prove quite inflationary, which would likely shock investors." He notes that the spending could balloon the deficits and that Trump himself could be a huge negative to the market because of his inherent nature. Klarman regards him as "shockingly unpredictable" and, "If things go wrong, we could find ourselves at the beginning of a lengthy decline in dollar hegemony, a rapid rise in interest rates and inflation and global angst."
OK, let's pull these apart because, while Klarman may be quiet and understated, I find his view to be the consensus view of everyone from hedge fund managers to regular managers to the elites, the mainstream media, the intelligentsia and the literati and just about everyone else except the people who voted for the man and are agreeing to all of his Cabinet appointments.
First, I don't disagree that the guy is unpredictable. I blanched when he attacked a judge, a federal judge, in a tweet nonetheless -- the most thoughtless way to communicate since two cans attached to a string -- for blocking his immigration plan and thereby putting the entire nation at risk.
But just in case you think only judges get an ad hominem attack, he's damning Arnold Schwarzenegger for his low Apprentice ratings.
He seems to watch a lot of TV and tweets about that a lot.
OK, maybe he's not what some would call all that presidential. Or maybe everyone who has ever occupied the White House is not that presidential and he is.
I don't know.
I am about stocks.
But is his style or substance, or lack of substance, a reason to sell stocks? I guess so, but it's been a pretty awful bet to sell since he's been elected, and what you saw on the campaign trail is what you are getting, pretty much to a T.
Now how about the plans Trump has to cut taxes? Unlike pretty much everyone other than Trump, I am not sure how awful these cuts will be for the budget. First, the repatriation plan brings back money that's never going to be taxed unless it is brought back. Is that so horrible? If you can't tax it now, how will it hurt the deficit if you can tax it?
Cutting corporate taxes? We are completely and utterly uncompetitive when it comes to corporate taxes. That's wrong. Plus, shareholders in this country pay taxes on profits twice, once at the corporate level and then at the individual level. I question if that is even right.
I totally get that tariffs are bad. We would be jacking up the prices for everything we import, hurting 317 million Americans in order to create tens of thousands of manufacturing jobs at best, real bad trade-offs unless you are someone getting those jobs.
But I don't like dumping, that's unfair. I do think that when you manipulate currencies to keep them down, that hurts us. Look at General Motors (GM) , today. Stock got hammered. It still can't do well in Europe and I think that's in part because of arcane work rules but also because the Europeans have manipulated the euro to keep their products more competitive. The Japanese have done this for years. So have the Chinese. So the idea that the dollar's hegemony might run its course and the freaking strong dollar might get hurt, something Klarman fears? I say bring it on.
But the key thing, the thing I am really stuck on, is the "perilously high valuations."
I can't figure out why we haven't corrected if stocks are at perilously high valuations. Instead, we just keep hitting new highs. And this isn't like 1999 when we hit new highs. We have real earnings. It isn't like the Obama period when we hit new highs; that was from the Fed staying loose. Now we are in a tightening cycle. If everything is so terrible and dangerous and unpredictable and shocking and feckless and corrosive and nihilistic, why the heck haven't stocks gotten crushed already? We've had plenty of time since the election for a real knock-down, drop-dead selloff.
You see, unlike Klarman, I think a lot of the strength in this market has less to do with Trumpian exuberance and potential budget-busting initiatives that could help short term, and more to do with strength of earnings and a desire for a president to help companies do even better so they can hire more people. That's been the ethos, hasn't it? It sounds a little circular, but a pro-business president is good for business. A pro-capital president is good for capital. You may absolutely hate that, but we are not measuring Trump per share. We are measuring earnings per share, and as unpredictable as Trump might be, he is totally predictable when it comes to American business: He loves it. He wants business to do better. From a stock point of view, that's a welcome change from a previous president who wanted labor to do well, even if it was at the exclusion of capital, especially the bankers, or the previous president who just figured get out of the way and good things will happen and then bad things occurred because he paid no attention and let the Fed run things and they ran things badly.
Let me go a step further. When a company reports a terrible quarter, whether it be a retailer like Target (TGT) or a transport like United Parcel (UPS) or a drug company like Teva (TEVA) , the company's stock is trashed. That's rational. If a company reports a good quarter like so many of the industrials and techs, their stocks go up. Rational. And a lot more companies have reported good quarters than bad quarters, so their stocks have gone higher, although I am not sure how exactly perilous that is. (United Parcel is part of TheStreet's Trifecta Stocks portfolio.)
I think there's a lot of raw emotion when it comes to Trump and that emotion translates pretty easily into blasts of rank incompetence by the financial sophisticates out there. I get that. And I, too, expect that correction someday. Maybe tomorrow he tells the Chinese he is done with them and that they can't sell into the U.S. anymore. That could cause a crash. Maybe he says Taiwan's the legit China. Maybe he calls for a Chinese boycott. That would bring things down for certain.
Maybe you need to raise some cash for that event. You can certainly take profits because stocks have been so strong that most people have them. And it certainly isn't yet dispositive that because we haven't had a correction we won't have one. I am simply pointing out that the new highs we keep getting are real even as they can be destroyed by Trump picking up the phone and calling the head of China and telling him that the U.S. is closed for business.
The stock prices aren't chimerical and to date it's been about as calm a rally as I can recall in my career, which is as long as Klarman's. So let's stipulate things could go wrong, let's accept the market could get hammered and then let's proceed to find the stocks of companies that are doing well that might turn out to be cheaper than we think if business is actually better worldwide than almost any money manager I have heard from believes to be the case. Because as far as I am concerned, things are better and that, not Trump, might be the real secret sauce behind this extraordinary and very real rally.