Iron Capital Insights

  • Iron Capital Insights
  • November 23, 2016
  • Chuck Osborne

Thankful

In recent days I have been reminded of 1992. The recession that played a role in President H.W. Bush’s failure to get re-elected was over. It was over before the election even took place, but no one knew that on election night. Practically the next day the economic recovery was made public and President-Elect Clinton received full credit. That is not unusual. When I was in high school, my political science teacher told a story about waiting for the train in Chicago the day after Ronald Reagan defeated Jimmy Carter. The train was late, and the lady next to him looked over and said, “The (insert colorful adjective) Republicans have been in office one day and they have already messed up the trains.”

Reagan had nothing to do with the train schedule in Chicago even once he was in office. Clinton had nothing to do with the economic recovery before he took office, and likewise this really isn’t a “Trump rally.” What is happening in the market today started in the third quarter. We are seeing the long-awaited rotation out of the so-called FANG stocks (Facebook, Amazon, Netflix and Google parent Alphabet) into the stocks which have been ignored or even beaten up over the last two years. The market stalled in October as investors waited for the outcome of the election to be known; once it was known, we went right back to the bull run. We will never know of course, but I suspect the outcome would not be terribly different had the election gone the other way.

The stock market may react to political events in the short run, but in the long run it is the results of the companies and the price of their stock that matter. Lost in this election speak is the improving health of corporate America and the low price at which many stocks are currently selling.

Yes, markets are at record highs as measured by several indexes. However, that fact is skewed by a handful of companies whose stocks are selling at outrageous prices. Those stocks actually have been going down since the election, while the larger number of companies whose stocks are cheap have seen a great rally.

The question of whether a Trump administration will be good or bad in the long run will depend, as with all administrations, on what he actually does once inaugurated. If his administration promotes good policy, then we will get good results; If not, we won’t. Either way, the United States of America will survive. I have been fortunate enough to live through several administrations – some for which I voted, many that I did not, but all of whom were my president. I didn’t always realize that in my youth, but one day you grow up and understand that this is the beauty of our republic. In the immortal words of Mick Jagger, “You can’t always get what you want. But, if you try sometimes, you just might find, you get what you need.”

Regardless of politics we still have much for which we are thankful. In keeping with our tradition, here is my own list:

I am thankful…

  1. That this election season is over and we won’t have another presidential race for four years.
  2. That the United States of America is a place where people are still free to disagree without having to be disagreeable. I’m hopeful more of my Facebook friends will remember that.
  3. For the opportunity to once again coach my son’s basketball team.
  4. That my Wake Forest Demon Deacons are finally looking like they at least belong on Tobacco Road once again under third-year coach Danny Manning.
  5. For my family, immediate and extended.
  6. For the latest addition to the Iron Capital family, Cecelia Elizabeth Smith, who was born on November 2 to proud parents Michael and Sara and big brother Griffin.
  7. Of course, I’m always thankful for Mama’s pumpkin cheesecake and my loose-fitting pants, which make enjoyment of said cheesecake possible and are a little looser than they were last year.
  8. Finally, I am thankful for you, our clients and friends. Your trust in Iron Capital is our greatest asset and we value it every day of the year.

Happy Thanksgiving!
Chuck Osborne, CFA
Managing Director