So much for the Trump Trade?
You know, the one where if Trump won, gold would soar?
Last week, gold fell 6%, its worst week since June 2013.
Pity the poor souls who were convinced, or convinced themselves, that buying gold, and gold stocks, in advance of the US election, was virtually a "can't lose investment."
Let me be clear. I was just as shocked as most people that Trump actually won. And, in the face of his unexpected victory, I was fully expecting US markets to tank on Wednesday last week.
I got it all wrong too.
But here's the difference between me and those who peddle doom and gloom, fear and loathing…
I don't profess to definitively know what will happen to the markets, and individual stocks, today, tomorrow, next week or even next year.
Here's what I do know…
— Stock markets go up, on average, two out of every three years,
— The historical return from the ASX, on average, including dividends, is around 10% per annum, over the long-term.
— A buy and hold stock market investor is likely to double his or her invested money over the next 8-10 years… quicker if you can out-perform the market.
And as for politics… I don't let the politics of the day influence my investing. In fact, I've sworn off caring about politics, and politicians.
Sure, I disagree with many policies — here and in the US — both existing and proposed. But getting myself all worked up about something over which I have zero control and influence is a very poor use of my emotional capital and my time.
Related, buying or selling stocks because of what Trump might do as President, is a mug's game.
ASX bank stocks have surged since Trump's election victory in anticipation of a lighter regulatory environment and higher interest rates, with Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ) leading the way.
But growth challenges remain. Australian households remain highly indebted. Big four bank valuations remain high. The threat of even further capital raisings remains real, as does the possibility of dividends being cut.
ASX mining stocks have surged in anticipation of increased US infrastructure spend under Trump, with BHP Billiton (ASX: BHP) shares briefly breaching the $25 mark on Friday.
But commodity prices remain volatile. China remains a major swing factor. Mining companies remain highly capital intensive, highly cyclical organisations.
And then there's the small matter of how Trump might pay for all this infrastructure spending. Last I looked, US government debt was close to $20 trillion, and Trump was proposing to lower taxes. He'd be laughed out of parliament here in Australia.
Regular Motley Fool readers will recall I proposed selling my BHP Billiton shares if and when its share price hit $25.
That happened Friday. And I missed it. Never mind. With BHP shares up almost 20% in the past three months, I'm not complaining.
As to where from here, who knows? If another Trump Bump sends BHP shares decisively above $25, I'll be ready to sell.
Not that I'm sweating on it. These days, courtesy of its falling share price coupled with the rising share price of a few of my other holdings, BHP is a relatively small holding in my overall portfolio.
That's capitalism for you. Portfolio capitalism. Where the strong get stronger and the weak wither.
Compounding the situation, I mostly add to my winners, only very reluctantly adding to my losers. No extra love for you, BHP Billiton.
Back to Trump, the story of the week…
Writing in The Australian Financial Review, Karen Marley poses the question…
"How long will it take for global sharemarkets to turn tail and wipe out the massive gains notched up following Donald Trump's surprise election victory?"
Of course, no-one knows if and when markets might next take a turn for the worse.
As Marley reminds us, the US Federal Reserve is very likely to lift interest rates next month.
Once upon a time ago, before President-elect Trump, global stock markets would be fretting at such a prospect.
Today's fretting has been largely contained to the bond markets, which has been the subject of a huge sell-off as 10-year US bond yields have risen above 2%. Bond prices fall as bond yields rise.
Yield stocks have also been caught-up in the cross-fire as investors digest the prospect of higher interest rates.
As ever, a little perspective is in order.
— 10-year US bond yields are still just 2%. That's low. Very low.
— Even if the Fed raises US interest rates next month, the funds rate will still be just 0.75%. That's low. Very low.
— Here in Australia, the RBA cash rates remains at just 1.5%, with most economists predicting it will stay around these low levels for at least the next year or so. That's low. Very low.
ASX-listed toll road company, and Motley Fool Dividend Investor recommended stock Transurban Group (ASX: TCL) is one stock that has been sold-off in the rush for the exits, down almost 6% in the last week.
Yet Transurban still owns an enviable group of assets — toll roads in Melbourne, Sydney, Brisbane and Washington DC — assets that have monopoly status and long concessions. Transurban still have substantial pricing power. And with traffic congestion only increasing, long growth tailwinds.
Today, after the sell-off, at a share price of around $9.75, Transurban shares trade on a forecast dividend yield of close to 5.2%.
In this still low interest rate environment, and given its record of increasing its dividend, Transurban still looks a pretty good bet to me.
And as for the death of the yield trade, with forecast dividend yields of 5.2% on offer, it looks to me as if it has been greatly exaggerated.
