If you are going to invest well, you have to listen to everyone, you have to learn from everyone. Last night an incredibly smart man, David Rubenstein, the co-CEO of a brilliant money management firm, the Carlyle Group (CG) , told a CNBC Net Net gathering in Washington D.C. that he's worried for the next two years about an unanticipated geopolitical event, a so-called "black swan."
Call me a worry wart. But I have a list in my head of things that dog me and I want to use the Carlyle Group co-CEO's words as a jumping off point to discuss my list of top 10 worries as we head into 2018.
Before I give you the list, though, let me just say that I am not a big fan of the term "black swan." The idea that something unexpectedly bad should be on the table every single day of our lives. We don't live in an era where we can figure nothing's going to happen that can rock our world. We have to be ready for anything.
So, while I, too, am concerned about something I don't know yet to be concerned about, let me give you some of the thoughts that weigh on me daily as I try to figure out how to make money or not lose money in the market.
First, I am very concerned about what's going to happen with the tax plan. For the longest time I didn't really focus on it because I didn't think Congress was capable of changing the tax code in a sweeping way without help from the Democrats and a thorough set of hearings about what the code should look like.
Instead, I believe Congress is about to pass and the president is about to sign a bill into law that we have no idea what it says. We do know that it will lower corporate taxes, which will spur investment and or returns of capital to shareholders. Classic case: Home Depot (HD) held a terrific analyst meeting today and while I like everything they had to say about how robust the housing market is and how Home Depot is taking share through innovation and customer experience, I know that this stock has been bid up because it is a 36% taxpayer. In fact, because the chain is largely domestic, I would say that it might be one of the highest tax payers in the country.
We have had a gigantic rotation out of the companies that are more internationally based into domestics such as Home Depot. If this bill doesn't pass you are going to see a wholesale shift back to the internationals and you will regret paying anywhere near these prices. I have liked this stock forever but it is vulnerable because there's been so much money piling into it. So, we now need that passage because it is built in to the market.
Second worry? I am concerned that there is no way that North Korea can be deterred and no way the President of the United States is going to let things go undeterred. We all know that the leader of North Korea is unstable. We know he has nukes. I remember in kindergarten going into fallout shelters and putting my head into my cubby in case nuclear war breaks out. I remember the sky being dark with bombers from the nearby Willow Grove Naval Airbase as planes readied to bomb Cuba after the Bay of Pigs. We don't want to go back there. We also have the potential for a new blow up in the Mideast because of President Trump's recognition of Jerusalem as the capital of Israel. This market is not set up for something big that lures us into some sort of new Middle East war. I hope it doesn't, I don't think it will, but it is on my radar screen.
Third: the investigation by special prosecutor Robert Mueller into President Trump and his compadres ties to the Russians. I often find the whole thing abstruse. But having lived through Watergate, I know that the stock market's in big trouble if Mueller finds evidence that leads to an indictment of the president.
Fourth, I am concerned about valuation. Or, to be more accurate, I am concerned about the worries of others that the market's gotten too expensive versus the growth we have and the profits we will experience. There are so many strategists who want to pull the plug on their bullishness come year-end that I am concerned about a beginning of the year selloff that most aren't prepared for. I just don't think we ready for an en masse pullout of strategists from the bullish camp even as I expect exactly that to happen.
Fifth, I am concerned about cryptocurrencies, especially bitcoin. Somehow bitcoin, the most speculative thing out there, is regarded as an investment, not a gamble and it has created some non-stock market-related froth that I think could spill into our world via futures and ETFs and whatever kind of device exchanges create to equitize bitcoin. It's all that anyone seems to want to talk about or invest in. I have tried to cordon off the darned thing but it's too big a story to ignore and I think, at this point, it is no different from gambling. The people who proselytize this crypto currency have been dead right to do so but to ignore this financial bubble is to think that if it bursts there will be no impact. I think that's just too pat.
Sixth, we stop wishing for rate hikes and we start getting afraid of them. I think that we all know the economy right now is strong enough to handle the Fed's bumping up of rates and we are thrilled that the banks are running. But I have been involved in so many rate cycles in my time that I know one day we will dread them. When we do, stocks will not fare well.
Seven, I am getting concerned about antitrust. A huge component of the bull case is the fact that companies are interested in buying other companies. M&A has been a major prop of this stock market. But if the antitrust division is going to go out of its way with new doctrine to stop the ATT (T) -Time Warner (TWX) deal does this mean the golden age of takeover is over? We sure don't want that.
Eighth, the new tax code with its loss of state-and-local tax deductibility is going to cause huge ripples throughout many important geographies when it comes to spending and housing. We have to keep an eye out for what happens to cities in New York, New Jersey and California. It could be a shock to the system that's underestimated.
In the same way, I am worried about the cost of health care for millions of Americans -- number nine on my list. I think there is a reason why the dollar stores and Walmart (WMT) are doing particularly well. I think that the average worker is poorer than we think and that healthcare takes way too much out of their paycheck and it is just going to get worse and worse. Is this a political worry? I am just concerned that spending could take a nosedive if we let the health insurers dictate how much we have to pay.
Finally, I am worried about cyber terrorism. There are too many devices and records and personal computers and storage facilities and unprotected records not to be worried. Candidly if I didn't interview the CEOs of many of these companies this one wouldn't be as much of a worry. But I do talk to them and I can't believe, frankly, something big hasn't happened already. I fear it will and when it does there will be major financial consequences.
Now of course there are tons of other worries: what industry will Amazon (AMZN) destroy next, what happens if people stop buying iPhones, what happens if China goes bust, or we finally decide to fight back against the Chinese because they steal so many of our jobs? They all matter. But the main reason I give you this list is I want you to be ready and to develop one yourself. We want a swan to be white when it comes at us and the only way to do that is to list your concerns so you will have a game plan ready for when they come true.