Trump Volatility
Pfäffikon SZ, Switzerland – After months of serenity in the financial markets, US President Trump caused unrest this week. Investors start to realize that they have made a great advance on the future. Instead of promised tax cuts and boosted investment, it is about political scheming; Trump’s possible ties with Russia. The old ‘cold war’ thinking is revitalized.
SKEW
Last week, I mentioned the VIX index and the SKEW, not knowing I was at my beck and call this week about the effect. Within one day, the S&P 500’s profits of this month were wiped out. Therefore, nothing is wrong concerning the bulls. For the moment, the bulls are right based on technical chatter. However, investors are complacent today and do not consider the point or where they are in the economic cycle. Additionally, I notice that in Switzerland the so-called HNWI is seriously concerned about the building of its assets. The blown real estate is a cause for uncertainty among the wealthy Swiss, which is not entirely incomprehensible.
Impeachment
In relation to Trump, the word impeachment is increasingly taken into account as there are more rumblings in The White House. A possible Trump deposition process has never been so close, and at the same time so far away. Meanwhile, the ‘America First’ idea slowly fades. China wants to invest billions in the so-called new silk route. The silk route is an ambitious Chinese logistics plan that needs to build a new network of trade routes. At the last minute, Trump, nevertheless, sent his chief Asia adviser to the meeting of Chinese President Xi Jinping. If the European Union were to join this project, this would create a unique Atlantic-Pacific partnership to the South Pacific; this aside.
Cash flow
Investors would do well to realize at what stage of the economic cycle they are. That a market moves on presented earnings figures is logical. However, the cyclically-elevated profit as a basis for market valuation leads repeatedly to investors paying too much for cash flows that will be realized the coming decades. Upon completion of the current market cycle, it will become clear that profit margins are not sustainable. Investors, therefore, pay twice the value they receive. Also, investors will discover that the long-term cash flow will only be paid once. The Trump volatility of this week should give investors pause for thought.
It remains for me to wish you a good weekend.
Jan Dwarshuis is CIO at Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in above mentioned shares and has no intention of doing so in the next 72 hours.
