Where Is The Punch Bowl?

Daily, at the close, I check the action in Tesla. It can trade over 100 million shares up or down. TSLA has a chance of taking its shareholders to the moon, but without me. 

I've had a hard enough time figuring out whether I should buy bunches of Treasuries, 10 to 30 years out. Anyone who’s bullish has to show me why President Trump can be a bullish force. Where is his punch bowl? I read Trump as a destroyer of equity value and a negative force in the flow of business. He’s unafraid to tax and destroy any industry that opposes him. Be it tech, drug houses, certainly banks and loaded financial operators. 

In the blowdown past week, they took all the girls away. I’m talking about double digit declines in Microsoft, 5% hits in oils like OXY,  J.P. Morgan off 5%, along with Amazon. The message I get from all such bloodletting is it's too hard to hang bullish these days for very long. 

Why not buy a bunch of 30-year Treasuries and eschew equities until the market reflects better historical comparisons on valuation. Punditry is mum on the valuation structure of the market.  Its price-earnings ratio hangs in over 20 times earnings power. This is dangerous territory.

I wouldn’t dream of wading back into the market that is selling over 15 times earnings. That’s the historical valuation where you can do money. Where is the Fed in all this? They must think 10 to 20 percent drops in prime growth stocks is good for the country, lowering its inflation potential as players finally drop out and buy bonds. 

Sooner or later, the market will figure out that Trump is a growing disaster for business, that his tariff levies are burdensome and lead to a much higher cost structure for all. Impact on demand for goods and services will shave profit margins for most everybody. The country can slide back into recession as consumer demand wanes, unemployment increases. 

I can’t remember when working for the government was a hardship. Even in the Korean War, as a combat airborne officer, I was bonused, monthly. But bonus and all I understood I was fighting the wrong war without the field backing of our President, Harry Truman. He called this nasty combat a police action and we never got the proper clothing to ward off North Korea’s arctic days and nights. Consider, a peace treaty was never signed with our enemy, only a truce that has stretched out well over 50 years. 

I can imagine how presently laid off government employees feel. Their country has failed them. Trump couldn’t care less. Let’s remember that Trump never served in the armed forces. He ran to his doctor and got a letter stating he was unfit for military service. 

What do I see ahead for investors who have long believed in our country? Widely adopted, most advisors employ the long accepted ratio of 60/40. That’s 60% in equities and 40% in fixed income securities. Our major banks have invested trillions of their clients' capital, using this construct.   But what looks like a blind but safe investment construct can fail its investors when bonds and stocks decline in tandem. Financial markets, bonds and stocks, can decline in unison. There’s no law that says the bond market stays safe even if the country faces a deep recession. 

The high yield bond market is suspect today,  I wouldn’t invest in any bonds with credit ratings below BBB. High yield bonds can lose their liquidity and never regain investment ratings. 

Net, net, I don’t see any blue sky in financial markets. Our President could bury the country before he has to conform to a more traditional management construct that favors orderly growth.