|
Sector Model
|
XLP
|
-1.17%
|
|
|
|
|
|
|
Full Model
|
Date
|
Return
|
Days
|
|
BT
|
8/11/2015
|
-50.27%
|
936
|
|
TMK
|
11/23/2015
|
39.67%
|
832
|
|
NVR
|
12/16/2015
|
74.84%
|
809
|
|
CMP
|
2/19/2016
|
-5.01%
|
744
|
|
NVR
|
2/22/2016
|
82.21%
|
741
|
|
AMWD
|
3/17/2016
|
88.15%
|
717
|
|
CASY
|
5/12/2016
|
-0.78%
|
661
|
|
AEM
|
6/7/2016
|
-22.92%
|
635
|
|
ESRX
|
6/13/2016
|
-1.50%
|
629
|
|
AMED
|
6/16/2016
|
16.16%
|
626
|
|
FRO
|
6/27/2016
|
-43.21%
|
615
|
|
ASTE
|
7/12/2016
|
-1.40%
|
600
|
|
MFC
|
9/1/2016
|
44.82%
|
549
|
|
SFM
|
9/8/2016
|
30.28%
|
542
|
|
CFFN
|
9/12/2016
|
-2.59%
|
538
|
|
FOSL
|
5/11/2017
|
-4.43%
|
297
|
|
HIBB
|
7/25/2017
|
89.31%
|
222
|
|
FOSL
|
7/27/2017
|
25.00%
|
220
|
|
HZO
|
8/1/2017
|
38.38%
|
215
|
|
CMPR
|
12/27/2017
|
34.61%
|
67
|
|
|
|
|
|
(Since 5/31/2011)
|
|
|
|
|
S&P
|
Annualized
|
10.80%
|
|
|
Sector Model
|
Annualized
|
14.89%
|
|
|
Full Model
|
Annualized
|
14.51%
|
|
|
|
|
|
|
S&P
|
Total
|
100.03%
|
|
|
Sector Model
|
Total
|
155.63%
|
|
|
Full Model
|
Total
|
149.84%
|
|
|
|
|
|
|
Sector Model
|
Advantage
|
4.09%
|
|
|
Full Model
|
Advantage
|
3.71%
|
|
|
|
|
|
|
Previous
|
2018
|
|
|
S&P
|
98.38%
|
0.83%
|
|
|
Sector Model
|
172.95%
|
-2.34%
|
|
|
Full Model
|
145.63%
|
1.71%
|
|
The Full Model is once again close to parity with the Sector
Model, and the ultimate goal is for it to pull ahead. The Sector Model is, and always has been, a
benchmark to beat.
So much for the model.
What of the market? The recent
skittishness over tariffs needs some mention.
First, it’s premature.
Nothing has been written or put in place, yet. The President has a habit of speaking before
things are ready. But the tariffs certainly
are one of the few matters he has been consistent about for the past 30 years. If he has anything to do with his own
Presidency – there will certainly be tariffs.
We are now, therefore, entering stage 2 of his Presidency.
I’ve made two broad statements about a Trump
Presidency. The first was that his
vision of mass deportation and tariffs could, if both taken suddenly and to
their full extent, trigger a global depression:
That was August 2015; before we had heard all of his
campaign promises.
When Trump was elected the following year, I made a somewhat
more nuanced statement – that his stated promises were both good and bad, with
the good coming before the bad:
I concluded that note with this: “The first two years will likely focus on the pro-growth agenda Trump
and Ryan agree on. After that, it will be a contest between Trump’s bad
ideas and Ryan’s good ones. Who wins that contest remains to be seen –
but Trump doesn’t like to lose.”
The good ideas are to cut taxes and regulations. Both Trump and Ryan were in favor of these
positives for the economy, and they carried them through.
The bad ideas are Trump’s opposition to reforming
entitlements, his opposition to an immigration compromise, and his opposition
to free trade.
First, entitlements.
If you cut taxes you will cut revenue.
To make that work you have to cut entitlements. If you don’t cut entitlements you blow up the
budget, double deficit spending, and create inflation. The Fed is already struggling with raising
interest rates ahead of inflation now.
The inflation hasn’t hit yet, but once it hits in a year or two it will
be difficult to control. By that time
the next Presidential election will either be over or close. If it hits after the election Trump could win
re-election. If it hits close to the
election Trump could still win re-election.
By that time inflation will be baked into the cake.
Second, immigration reform. Regardless of what we think of immigrants, they
do work, and are a net plus in the economy.
Cut workers and consumers and you cut the economy. Doesn’t matter whether you are a supply sider
or a demand sider. The economics is the
same: less workers and consumers, less economic growth. Deport them fast enough and you can create an
economic contraction right when inflation kicks in.
Remember stag-flation?
Yeah, Carter.
But it gets worse:
There’s also that final nail in the coffin – Trump’s new tariff
toy. It seems that a President doesn’t
need congress to raise tariffs.
Tariffs are a tax on you.
If he raises a 25% tariff on steel, then you, dear American consumer,
pay 25% more for steel.
A tariff is basically the same as the government sending an
agent to any business offering a sale, and arbitrarily collecting what you
could have saved on the sale. Imagine a
Joe Furniture Spring Sale of 25% off all merchandise. You drive across town, and find that although
the furniture really is on sale, you don’t get to save any more because the
government is charging you the difference.
So that 1000 dollar table you thought you could get for 750 dollars you
still have to pay 1000 dollars for.
But won’t that help local steel workers?
Yes, but for every steel manufacturer who benefits, three
other companies that make goods with steel will suffer.
George W. Bush tried a tariff on steel in 2002 and had to
rescind it after 21 months had passed and Americans had lost 800,000 jobs.
But there is a darker history than 2002. There is also 1930:
Remember the great depression?
Want to make depression great again?
I don’t.
So why are we playing around with tariffs? Why are we all wanting to “wait and see” how
it turns out? If we survive unscathed it
won’t be because of the tariffs, but in spite of them.
So now we enter Trump stage 2. Stage 1 went as I expected; positive moves on
regulation and tax reform.
We’ve had the good.
Now for the bad and ugly.
Tim
PS -- unless there is a negative gap tomorrow, I plan to sell XLP and buy XLE on the sector model.
