Thursday, January 5, 2017

Is Wall Street "Trump rally" nothing more than stupid greed?

In the 5 weeks after Donald Trump was elected president, the Dow Jones industrial average jumped 8.5%, and reached 19,900. The Dow leveled off since then and still has yet to reach the magical 20,000 mark, but it's still only 100 points away as I write this, and the runup in stocks has likely helped your 401k and retirement outlook.

But is the apparent "Trump rally" a good thing? CBS Marketwatch's Tim Mullaney doesn't think so, and says stocks are "riding a bull market in corruption," where Wall Street is gambling on a return to an unregulated 2000s-style cocaine party, now that Republicans run all areas of the federal government.
Financial stocks are responsible for much of the U.S. market’s recent move, and the rally in financials is rooted in hopes for government deregulation of the industry. Financial stocks represent about a third of the S&P and are up around 17% since the election. Take them out and there is no rally, Trump or otherwise.

There's the hope that higher interest rates will finally boost banks' interest income. There's even some fantasy belief that higher interest rates will spur loan volumes — except dramatically higher rates for business means less investment, not more.

Except that interest rates aren’t behind most of the rally. Instead, the enthusiasm for financials is more about prospects for repeal of the Dodd-Frank bank reform bill, as well as the Obama administration fiduciary rule that requires financial advisers, brokers, and asset managers to put clients’ financial interests ahead of their own. Just look at how shares of investment managers have performed lately. Giant asset managers such T. Rowe Price Group and Alliance Bernstein Holding AB, rose as much as 22% post-election. Clearly, asset managers aren’t interest-rate plays, dispensing of the notion that rising rates are what’s pumping the financials.
Mullaney adds that bank stocks have also risen in the hopes of a return to the no-limits casino days of the 2000s...which promptly led to the worst economic crisis in our lifetimes. In addition, Mullaney notes that energy stocks have risen due to speculation on OPEC nations limiting oil production (and I'll add that the most GOP legislators being owned by the Kochs and other oil men doesn't hurt this thinking), and drug stocks have gone up now since the Trump Administration is less likely to go after them for excessive profits and isn't likely to force them to negotiate prices with Medicare.

So while the recent "Trump rally" may look nice for a few months in your portfolio, Mullaney adds that it isn't something that's made to last, and it isn't good for the real economy.
The Dow is likely to cross 20,000, but that doesn't validate Trump. U.S. stocks tripled under President Barack Obama. They went up under former President George W. Bush, too — until they didn't — and have risen about 10% a year since 1928. They'll rise in 2017 too if corporate profits beat expectations built into prices already.

The market is usually one of many things that makes you, to borrow Trump's Twitter wording, hopeful to be American, because it's typically a monument to the creativity of our Elon Musks and Steve Jobses. Right now, something else is happening. It's ugly, it’s cynical — and it won't work.
Now add in the expectation of blah job growth in tomorrow's December jobs report, and then note disappointing Holiday-season sales from retailers such as Macy's, Sears, and Kohl's, leading to hundreds of store closings.

It sure seems to me that we are not seeing enough real-world growth to match the idiotic optimism infecting the greedheads on Wall Street, at least not yet. Which makes me wonder when's the point where the temporary "high" wears off, and the mini-Bubble over the last 2 months starts to deflate, or burst.

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