Monday, January 9, 2017

Investment Climate Jan 2017 - Favorable Winds of Change



The markets reacted to the surprising results of the U.S. Presidential election with a resounding vote of confidence and have raced on to new highs recently.  Once again, conventional wisdom was turned on its head as virtually nobody saw this coming.  What was equally remarkable was that those market pundits who chimed in with a prediction on what would happen in the event of a win by Donald J. Trump virtually were unanimous in their view that the market would surely collapse if Trump were to win.  Oops!

We had no idea who would win the election, or what the market would do in the aftermath regardless of the results. Yet, it really does not surprise us that the market has reacted well, especially in light of the policy issues that Trump has espoused, most notable of which is a reduction in tax rates and simplification of the tax code, as well as a reduction in the level of regulation that has held back businesses for so long.

It was just in our last Investment Climate where we pointed out, yet again, how big government has held back business.  If the new Trump administration can be successful in moving forward on those two major policies, then much of the “trade” issues that Mr. Trump has also railed about should take care of themselves because we should witness considerable increase in capital investment and general business activity.

If the investment climate should finally become more favorable, then that should only enhance the prospects for many of the investments themes on which we have focused  in our portfolios.  Additionally, and perhaps most importantly, such an environment would likely benefit small business the most. We have been quite concerned about the lack of new, innovative businesses coming about, and the resulting lack of initial public offerings in the stock market.  This desperately needs to change, and if it does, we could witness the type of market activity that was brought about by the sea change witnessed back in 1980, which led to the significant market moves of the 1980s and 1990s.

We are very encouraged and would argue that it’s been quite a long time since the wind has been at the back of businesses.  This isn’t altering our investment approach at all.  We just have even more confidence in its ultimate success!