Trump Can Fade Out In A Soft Market

Way back, I bought an apartment in Trump Towers. It was early on. The Sosnoffs were sole occupants in the building. You never want to be the sole, early occupant in a new building. It takes time for the heated water to build up so you can take a hot bath. In short, a lot can go wrong that takes time to fix. 

I was going for control of Caesars World,  New Jersey which turned out to be a costly mistake. Trump, later, got financing from Merrill Lynch to build a humongous casino in Atlantic City, New Jersey. He failed to fill it up with guests and players. 

When I asked the buying department at Merrill Lynch why they so readily financed Trump, I got a simplistic answer: “Well. We bought the name.” 

When I hear rumblings about Trump announcing for a third Presidential term, I discount his camp’s playbook. He’s having a hard enough time keeping functional currently. There’s no structure in place for a third term run, not enough money and least of all a new coherent program with financial backing at his fingertips 

Last night, when I looked at closing prices on the Big Board, big cap stocks, the Magnificent seven, call ‘em what you care to, the markets looked tired. Not much money for big cap names like Microsoft and the electric car maker whose name I’d rather not give any more recognition. I’ve sold down Microsoft. It’s just too big a market capitalization to move with aplomb. Major positions like Apple, Amazon and Goldman Sachs remain my core positions. If I’ve misjudged their fundamentals, I’ll suffer and later bang ‘em out. 

During this market cycle, I hang in under 50 percent long stocks. Half a dozen positions. If I no longer buy their fundamentals, I’ll bang them out in 2 minutes or so. When I refer back to “1929” and read about the excessive bullishness of its players mid-1929, I am wondering where capital is to come from to keep today’s markets functional and buoyant. 

I wouldn’t worry if the market sold at 10 or even 15 times earnings, but it's higher. We're closer to 20 times the capitalization rate currently. Make a mistake in owning a wobbly stock at 20 times earnings you can drop 30 to 40% of your capital. I just said sayonara to some Microsoft as too big and pricey.  Take Apple, a mid teens multiplier. You gotta own something unless you’re profoundly bearish. 

If allergic to high-priced growthies, retreat to market multiplier groups like financials which sell at mid-teen multipliers. But, in recession they get priced down to book value.  Too often, in past cycles, banks needed to write-off bad loans that were substantive. Sadly, the financial history of the country is filled with stupidity on bank lending. At times, only assistance by the U.S Treasury and Federal Reserve system were enough to preserve our system’s functionality. 

Today, I’m more concentrated in stocks like Apple. We'll see. In “1929”, I’m up to the cascade of bad numbers showing up in late October. Bulls had begun to blink. On Wednesday, October 23, 1929, the market saw panic selling of blue chips. Westinghouse was down 35 points and GE 20. The market itself dropped 7%. Many stocks had no bids at all. All morning long the floor was engulfed in wave after wave of selling. Share prices of every stock plunged deeply and quickly. No Buyers. 

Every few minutes the latest drop in prices was announced, adding to the despair  and wiping out half of GDP ($50 billion). In the office we had a saying. Who cares? Nobody cares. I’m not sure it can’t happen again to us. 

In 1930, the market was 20% below its 1929 low. I was born late in 1931 and struggled for the next 10 years. As the youngest of 3 brothers I got plenty of hand-me-down shirts and pants. By 1939, I was making a good living hustling souvenirs at Yankee Stadium, busiest day of the year was the Army-Notre Dame football game. 

The deep recession nearly was gone but not forgotten. The market in 1930 still was 20% below its 1929 low. 

Before getting too aggressive, Trump should reread the country’s financial history. By 1932, the market had dropped 80% from its peak. Everyone kept his hands in his pockets.