Klarman on Trump

Klarman on Trump

More Klarman

“Exuberant investors have focused on the potential benefits of stimulative tax cuts, while mostly ignoring the risks from America-first protectionism and the erection of new trade barriers,” he wrote.

“President Trump may be able to temporarily hold off the sweep of automation and globalization by cajoling companies to keep jobs at home, but bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces,” he continued. “While they might be popular, the reason the U.S. long ago abandoned protectionist trade policies is because they not only don’t work, they actually leave society worse off.”

In particular, Mr. Klarman appears to believe that investors have become hypnotized by all the talk of pro-growth policies, without considering the full ramifications. He worries, for example, that Mr. Trump’s stimulus efforts “could prove quite inflationary, which would likely shock investors.”

And he appears deeply concerned about a swelling national debt that he suggests could undermine the economy’s growth over the long term.

“The Trump tax cuts could drive government deficits considerably higher,” Mr. Klarman wrote. “The large 2001 Bush tax cuts, for example, fueled income inequality while triggering huge federal budget deficits. Rising interest rates alone would balloon the federal deficit, because interest payments on the massive outstanding government debt would skyrocket from today’s artificially low levels.”

Much of Mr. Klarman’s anxiety seems to emanate from Mr. Trump’s leadership style. He described it this way: “The erratic tendencies and overconfidence in his own wisdom and judgment that Donald Trump has demonstrated to date are inconsistent with strong leadership and sound decision-making.”

He also linked this point — which is a fair one — to what “Trump style” means for Mr. Klarman’s constituency and others.

“The big picture for investors is this: Trump is high volatility, and investors generally abhor volatility and shun uncertainty,” he wrote. “Not only is Trump shockingly unpredictable, he’s apparently deliberately so; he says it’s part of his plan.”

Volatility

I said I would update earlier but I wanted to let the idea roll for a while longer. 

With that I think taking a long VIX positon, as a mark beyond a form of hedging, is a losing bet.

The futures structure just doesn’t work. 

The indices are upwardly biased. A long VIX position is incredibly time sensitive. Contango and roll yield (to the short side) eat up the long VIX position. 

On the other hand, the short side is pretty intriguing. 

I’ll write about that in the coming days. It’s far too involved to tap out on a phone. 

I closed the UVXY trade. Even though I made money, it wasn’t the way I anticipated. Still long commodities plays and Gilead. Under armour took a beating and is getting close to being worth a look. Twitter is down huge this morning but still no love from me there. Started evaluating Chuys this morning. 

Mostly my evaluation focuses more and more on small caps. Low or nonexistent sell side converage and little or no idea pressure. 

There is space for a activist micro-medium cap fund. 

Best to your investing, 

Daniel 

Passive vs. Active Monday Reads

I’ve decided to farm out the Computer heavy work for this and another website I am working on.

Know what you are good at and what you are not.

Anyway, here are some threads, articles, and comments on the Passive, Active, AI heartburn the managed money industry and LP’s seem to be undergoing right now.

BLUF: Fears of active managements death are overblown. Closet indexing (with a bull market especially) does not a fee justified model make.


BlackRock’s Robot Stock-Pickers Post Record Losses

Passive > Active

Future of Active Management

Active vs. Passive Investing and the “Suckers at the Poker Table” Fallacy

No, Actually, the “World’s Greatest Trader” Would Crush the S&P to Powder

Shift from Active to Passive Investments

How can AM survive the move to passive indexing?


The above is not exhaustive obviously but stokes the discussion. I tried to get past the popcorn journalism pieces declaring the end of active management.

As an aside, there is an interesting behavioral element to my networking in general. I am surprised by the line of thought that says “I am huge success in this specific industry and in this particular way, but don’t do what I did.”

Best to your investing!

 

Site Updates; Friday Reads

This is the first post of the week as I have been working on a login area for the site along with formatting updates.

I’ve probably fallen too far down the rabbit hole with coding, but I’ll leave it where it is over the weekend. Hopefully the site will continue to be more readable over the coming weeks as I clean it up and give it a better look.

Best to your investing

Daniel


Friday Reads

America’s Great Working-Class Colleges

Yellen on The Economic Outlook and the Conduct of Monetary Policy

Commentary: What the Davos crowd needs to understand

Investor Sentiment Bullish Decline

Hurricane Matthew Clocks Top Wind Speed for 2016 at 101 MPH

 

 

 

 

Build a SPAC to take advantage of Uranium lows; Friday Reads

Uranium has been in a huge selloff for several years. It looks like things may be looking up though with estimates approaching old highs through 2019.

Best and worst performing assets of 2016

Silver Run launched to take advantage of energy prices in early 2016.

With an IPO at $10 p/s and SPAQU currently trading at 17.56. Not a bad year.

I like the idea of building out a vehicle to consolidate an industry, streamline efficiencies, and then scaling up as infrastructure is built out. I like the idea even more when it has to do with unsexy businesses that print cash and/or extremely crushed sectors. Oil and Gas last year, Housing 09 and numerous other instances in between. Is Uranium next? Anyone want to back my SPAC?

Did you catch the Rhyme?


Things to read

Uranium 1

Uranium Price Jumps as Top Supplier Pulls Back

How much will GDP grow in 2017?

The U.S. Needs More Manufactured Exports

What Explains the Trump Dollar?

How much will GDP grow in 2017?

Daryl Morey, Basketball’s Billy Beane

China posts worst export fall since 2009 as fears of U.S. trade war loom

Rent Growth for Higher-Priced Rental Homes Slowed in 2016