Themes

I'm going to introduce another new category on the blog that for now I'll call "Themes".  These are basically foundational ideas that can either form the basis of an investment or trading thesis.  These are classified in my mind more as "big picture ideas" than actual investment theses, however, they may be the foundations on which investment portfolios and strategies might be built.  Here are some of the things that have been running through my mind.  I'll categorize these in terms of time: short term thoughts {days to weeks}, intermediate [weeks to months}, durational, something that is in between and intermediate and longer time frame and longer term which will be themes that have the potential to last many years.  These are just short form note today, although some of these I think  maybe I'll explore in more detail over the coming weeks and months.

Short term:

Market has again been repulsed in that zone of resistance we've highlighted again and again, most recently here.  Market is also overbought by many of our measurements.  Seasonal factors may now come into play.

Intermediate Term:

I think there is a higher probability of increased volatility between now and the election.  Market will now have to come to grips that Mr. Trump has secured the Republican nomination.  The markets will factor in that Mrs. Clinton is the prohibitive favorite to win.  Anything that causes that thesis to be doubted could possibly lead to increased negative volatility.  Likewise, data that suggests the Clinton Presidency is intact could lead to positive market responses.  

A vote by Britain to leave the EU is likely to be viewed by investors as a negative event.  In that vein markets are not factoring in much of a possibility for a negative event overseas.

Intermediate to Longer Term:

The last act of the "Great Recession" is now coming into play as governments of all stripes have to admit that their debt burdens are unsustainable and the promises that have been made to citizens and pensioners cannot be entirely kept.  We have seen this already in Detroit, now Puerto Rico and are beginning to see the "own up" phase happen in Illinois.  Overseas places like Venezuela are seeing their economy in meltdown.  Part of the reason that Cuba is willing now to open up to the United States is that it needs the influx of foreign dollars.

Longer Term:

There is a higher probability that whoever is the next President will undertake a massive stimulus program in order to jump start the economy.  I'm thinking something in the trillion dollar realm over perhaps a 3-7 year period.  It will be harder to justify the spending we are doing overseas without doing some additional stimulus at home.  Both a President Trump or a President Clinton I believe will have the political capital to do this.

Investors should use much more conservative investment assumptions looking out over the next five years or so than I believe most choose when doing financial planning.  I think investors should use 2-3% gains when making longer term financial plans based on where we currently sit.  I'm not saying that's what we're going to get in terms of actual returns over time.  Returns could obviously be higher or lower.   This is my simply current view of what I think folks ought to use when doing the analysis.  Probably means we're all going to have to save more money than we'd like, particularly those of us entering that 10-12 year window prior to retiring.  Definitely more on this at a later date.

It's very likely that we're going to come out of this election with more than two viable political parties.  The cleavage between the Trump faction of the GOP and it's traditional constituencies may be too hard to repair while a probable Clinton win may only mask the deeper divisions between the progressive wing of the Democratic party and its more moderate elements.  If I had to bet I'd say that a political party emerges that appeals mostly to the middle elements in American society.  It would be more socially moderate then the current Republican party and more fiscally conservative than the progressive wing of the Democratic base.  Will be fascinating to see how this pans out.

Back Monday.