• What are markets telling us about Trump?

    The most significant event of the past week was the first Trump conference. During this conference, it was clear that Trump will use bullying tactics to get what he wants. He will use these tactics domestically to ensure that lawmakers repeal Obamacare and internationally to get more products value added back in the US.

    A bully uses force to attain his goals. In the case of Trump, he will use the threat of cutting off the world's largest consumer market by threatening to impose import duties.

    I researched the situation of the US car manufacturing industry and discovered in the link below that the AMI - American made index - fell from 30 (I guess out of 100) in 2010 down to about 7 in 2015. This is a very steep drop in only a few years. I believe that import duties will also be imposed on imported car parts and not only imported cars. This simply means that car prices will go up, making cars less affordable. Car manufacturers will have lower pre-tax profits. However, after-tax profits could eventually stay unchanged as tax rates will be decreased. Good luck exporting these expensive cars out of the US though.

    https://www.cars.com/articles/the-20...1420680649381/



    There is also the case of China. Trump will not impose tariffs 'before talking to them first,' but has made clear that he would drop the one China policy unless a fair trade agreement can be negotiated. I do not believe that China will be bullied into an agreement. Hence, the solution will also be to impose tariffs on Chinese goods (Wal-Mart goods.)

    Will China then not retaliate and impose duties on US cars and planes? As you can see below, large investors have been net sellers of BA stock. About 25% of Boeing's sales are to China, and Boeing management has stated that about 150,000 US jobs (at its plants and subcontractors' plants) are linked to business with China.

    BA is doing well for now and will probably report excellent earnings on January 25, but I believe that the stock price will head down after earnings, since only negative news is expected down the road. Funds that have large positions in BA need time to sell. This is why we see this move ahead of earnings (and especially before negative guidance.)



    What about the Biotech sector?


    Trump has stated that he will work on the drug price issue. I found it very interesting that IBB's money flow started to display weakness a few days before Trump's conference and dropped when the conference started, even before Trump had spoken about drug prices.

    I think this is very important: it shows that on Wall Street, it is business as usual. If you are close enough to the decision makers, you can front-run the markets, or to put it more bluntly, engage in insider trading. I am very happy that the Money Flow tool detected this move, because it means that there are information leaks, especially ahead of an official presentation whose content must be discussed with a large group of advisors. It is not the same as a single tweet about Lockheed, for example, which would have been difficult to leak in advance.

    Note below that the IBB bounce does not seem to be attracting much money. I expect more weakness, especially if the rest of the market goes North, because many funds need to show balanced portfolio (long/short positions.)



    The 10 strongest stocks in IBB make up more that 57% of the ETF weight. Hence, it is not about small biotech companies, but much larger companies that rely on overpricing a few patented drugs that save lives.

    GILD is one of them. On the other hand, priced at 6 PE, GILD looks cheap, but only if GILD can keep its pricing power, which is exactly what Trump was talking about.



    What about growth?

    Trump stated: 'I’ll be the greatest president for jobs that God ever created.’
    Arrogance aside (I believe more jobs relative to population size were created when the pyramids were built, and WWII also created much industrial activity) more jobs imply more value added in the US, which means wealth to spend and hence inflation.

    US rates bounced the day after Trump's conference (Treasuries down.)



    This had negative consequences for the housing sector. This sector issued a short signal on January 5.



    In the past, short signals that occurred on steep selling indicated lower prices.



    Some positive sectors

    Energy and retail are two groups with a Money Flow that seems to imply a bounce.







    Conclusions:

    Positive: XLE, XOM, XRT
    Negative: IBB, XHB
    Neutral: Tech, Industrials, Financials