Whims per share? Is that the best way to figure out what stocks are worth these days? That's what I am beginning to think after the president's use of tariffs to coerce Mexico into help stopping emigration and illegal border crossings.
What would whims per share look like? Pretty simple. You would have to analyze how corruptive and negative each move by President Trump might be for business and then you slap a discount on it that's worthy of a readjustment in what we pay for stocks. Yes, you would multiply the earnings by the presidential whim discount, with each whim creating a decline in the VALUE of future earnings. So, you have China exposure? Perhaps multiply the future earnings by by .6. You multiply earnings from Mexico by .8. How about Europe? Point nine? Until we decide to put tariffs on Europe because many countries don't pay their fair share to NATO?
Oh and then, let's get right to the point. The Federal Trade Commission and the Justice Department are supposed to be staffed by people with an affinity to the president. They can be a little rogue but when the Justice Department leaks that it is about to start a top to bottom examination of Alphabet's (GOOGL) predatory practices, as well as a possible inquiry into monopolistic practices by Apple (AAPL) , and at the same time that the FTC is doing virtually the same thing against Facebook (FB) , one has to believe that this president, who has already picked on Amazon (AMZN) , is getting serious about hurting businesses. At one time these companies were thought to be crown jewels of the United States. Now they seem like enemies of the state. What do we do with that? How about multiple a .7 discount? That would put both stocks appreciably lower. They are viewed as left wing companies by Trump, so it seems reasonable.
Now the Justice Department's case against Alphabet seems more likely to lead to something drastic like a breakup. Oddly that's not so bad. The break-up analysis I saw gives the stock a 30% upside, a sad indictment of how little value the company's been able to create. I have no idea what in heck Apple did wrong. I do think that we can pretty much count on Apple not being helped by the president when it comes to tariffs on goods made in China and exported here as is the case with a lot of Apple's products. I know that Facebook did many things wrong, but it's become a pinata so I guess it is reasonable that the FTC takes a whack at it.
What happened to the business president? I think what happened is that the polls are showing that whatever the president is doing is working.
And the president is only going to get more whimsical as the new Harvard Caps/Harris Survey found that 48% of the people approve of the job that Trump is doing versus 45% in March. Yes, it is true that 52% disapprove but that's not the reason why Trump tweeted - and I found out about - these results.
Why can Trump continue to be whimsical? Simple: A record 62% approve of his approach to employment, according to the poll, and 59% approve of his handling of the economy.
Which brings me to an obvious conclusion: if you are Trump why would you change? Ain't broke don't fix is an old adage and I think he's following it.
I know that he had been using the Dow Jones Average as a benchmark for his performance when his poll number were not so hot. But why use that atavistic average as a faux Nielsen gauge when you have the real thing, a Harris Poll, going for you. Believe me, if you were an adviser in the Oval Office you would be telling the president to stay whimsical no matter what.
Now we know from the commentary on Wall Street that I get off line - much more scathing than on-line - that the president has been protected by the employment growth that the country has sustained.
There has been no sign whatsoever that it has been derailed. As long as employment stays strong then it is unlikely that these poll numbers will reverse and go south. Why should they? We know from James Carville that "it is the economy, stupid", as he told Jimmy Carter and right now, the economy is totally in charge of Trump's fate. It is incredible to many how all of these real and perceived woes that take the stock market down: China trade war, Mexican tariff tiff, potential European car tariffs, low U.S. bond yields, inverted yield curve, even bad weather, seem to mean nothing to the economy or its job creation which then continues to spur the whim in the man.
Perhaps the employment number on Friday will show a tick down and make the man less whimsical? But unless one of the "Other than Biden" candidates comes to the fore does a weak employment number even matter? Do we want Whims per Share versus the idea that an Elizabeth Warren or a Bernie Sanders advances in the polls? Do we have to start analyzing how Kamala Harris thinks about Mexico?
No matter, as long as we understand that whimsy defines the era, what we are going to do is pay less for every stock. That's right. Every stock. Because whimsy is the enemy of valuation.
Oh, and one other thing, it is entirely possible that President Trump realizes what President Obama realized in his battle for his second term: most voters don't own stocks anymore and they have been brainwashed that the S&P 500 goes up all of the time anyway. Perhaps the price to earnings multiple of the S&P 500 under Obama might be instructive here. The average multiple of his second term? Right here. That's right. The market now trades at the same price to earnings multiple as President Obama's stock market, 16 times earnings, down from 20 times even as the bond yields are much lower, which should raise the P/E.
Who's the more pro stock market president now?
So, if most voters don't own stocks and don't bother to look, why should Trump care? A negative view on business got Obama reelected. Why not Trump??
That combination - no caring about Dow Jones and only care about employment as a way to have high poll numbers - is a recipe for caring about cash and cash only.
I don't want to believe that. But when you have us attacking all of our trading partners, when you have a trade war with China and Mexico, the latter for so-called national security purposes, you have to wonder, don't you? I can't imagine the Obama administration ever attacking FANG, although then again, I am sure our president would say that's because all of these companies are tools of the left. I bet his base would agree with him.
But whim has taken over in importance versus being pro-business. Which lowers what we would pay for the price to earnings multiple for Bristol-Myers (BMY) as well as all other stocks regardless of whether they are in the president's crosshairs. If you didn't know any better you would have to say that with the exception of our great fossil fuel companies every entity is doing something wrong in this president's eyes. And if you own oil and gas don't be too cocky as the Federal Energy Regulatory Commission has been a friend of the pipeline industry.
So you put it altogether and you have to say that we have a president that, by an empirical judgment, the Price to Earnings multiple is the same as Obama's with lots of factors, like alternative investments being much LESS attractive then when Obama was president.
If you own stocks, it is a shocking and dispiriting development. If you don't, you just might be cheering. Hmm, maybe that's exactly what the non-investing public might want to do.