On Tuesday Peter Brown spoke on a wide variety of topics relating to the investing outlook. He looked at what the US Election may mean for Irish pension holders and investors and he discussed where there might be value for Irish investors. Finally in light of Tuesday's Irish budget he also touched upon the Irish economic outlook.
We might dislike the ‘Mango Mussolini’ but what would an ‘Agent Orange’ (Sorry these are some of the numerous great Trump nicknames floating around online!). victory means for investors?
A Trump victory means continued confusion over foreign policy. It could result in continued tension with China. Tensions with China are not good for global growth and in turn Ireland and neither are these tensions good for the economic recovery from Covid.
Trump's tax policy is unclear, who does he want to tax and where is the money coming from for his $2trillion stimulus package? This is uncertain for the market and the market doesn't like uncertainty.
Are the tech stocks going to be a target for where he is going to raise money? It's unlikely he's going to go after them as much as Biden.
What does a Biden victory mean for the market?
The US would re-engage globally, tensions with China would ease. This would be a positive move.
His stimulus package would be bigger than Trumps and could be up to $4Trillion. The markets would love that.
Tax increases would be in line for ‘middle income’ i.e 400k in his eyes. That's not good for stocks.
With a Biden victory the markets are likely to be torn between their welcome of stimulus but resilience concerning tax increases.
In conclusion we need a clean result and after that we need an economic policy and one which demonstrates where the money is going to be sought from.
Market distortion and where is the value?
Regardless of the election, why does the market seem so divorced from the realities of the economy?
This is because infinitely printable money is chasing finite investable resources.. The market is pricing in an economic stimulus every time there's bad news.
However Peter argues the valuations are completely skewed and that you are buying something that is extraordinarily overvalued and hot.
Over the short term it might do well but over the long term you are unlikely to get as good a return.
He argues that value investing principles should not be ignored. Back-tests have proven, if you buy an expensive asset your returns over the long term under-perform.
However If you buy a value asset you will perform better over the long term.
Peter cited that 'Greed makes people buy the most expensive stocks, fear makes them sell it.' Whereas the reality is people should be doing the reverse.
On the subject of cheap assets, Peter discussed this commodity super-cycle diagram highlighting that if this increased spending leads to increased inflation, commodities are stunningly cheap and at historical lows.
He believes that commodities are at the bottom of a generational super cycle and are stunningly cheap.
In terms of the Irish Outlook; Peter expects:
Massive hit to growth, high unemployment and companies paring back their workforce.
He can't foresee property prices remaining strong in light of all of this.
He believes that government supports will have to continue but in more positive news he cited that now is a good time for the government to be borrowing with record low interest rates for borrowing.
Peter will be discussing the investing outlook, his 10 point investing checklist and lot's more on his Investing Fundamentals course. More info can be found here.
As always please do your own independent research before making any financial decisions and the above are not recommendations.