Riley: President Trump Helps Magaziner to First Positive Annual Return
Tuesday, January 24, 2017
Because of the Trump rally, in calendar year 2016 the State Pension fund likely returned between 9.0% and 10%. No doubt Mr. Magaziner will want to tout his performance but he clearly got help from Trump. This return would have been enough to challenge our 2016 Buffer return.
But, in my opinion, the market “reset” is now over and though it may first struggle higher, the market in 2017 will be vulnerable to surprises. Starting a few years ago the term “Black Swan" has been used to describe unlikely and unexpected events that could disrupt the markets. Some predicted that a Trump victory or Brexit could be Black Swans but they were not. Last week Barons Roundtable described the new current consensus expectation of Wall Street pundits, indicating muted returns and volatility. For a different view, below are some thoughts about what could go wrong from Credit Suisse.
1. The S&P hits 2,500 before falling back to 2,000. Core view: the S&P 500 rises to 2,350 mid-year before falling to 2,300.
2. EURUSD hits 0.90, before strengthening to end the year at 1.20. Core view: Credit Suisse’s house view sees the euro declining to 1.03 on a three-month view and down to 1.00 on a 12-month view.
3. Chinese GDP growth slows to 5% and with it the RmB weakens to 8. Core view: 6.8% GDP growth in 2017 and the RmB weakens to 7.33 at year-end.
4. A Le Pen victory in France’s presidential election. Core view: Francois Fillon becomes president.
5. European defensives outperform by 15%. Core view: we are a small underweight of defensives, though we did add to them in our Outlook.
6. President Trump’s policies disappoint the market. Core view: corporate taxes will be cut, inflation expectations rise and protectionist policies toned down.
7. The oil price hits $75pb by end 2017. Core view: The oil price will rise to $62 by the end of the year.
8. The Nikkei rises to 25,000. Core view: we have a mid-year target for the Nikkei of 20,500.
9. The European pharma sector underperforms by another 10%. Core view: we are overweight pharma and believe it can outperform modestly from Q2 this year.
10. US 10-year Treasury yields hit 4%. Core view: CS US rates strategists have a 3% year-end target.
But perhaps these professional opinions don’t matter because no one has a crystal ball. My experience tells me that investing in the market is all about risk vs. reward and preservation of capital. That’s why my Beach Street Buffers will beat all comers. In 2017 we will beat the Treasurer and all his paid consultants by a mile. We will use a low-cost index ETFs like SPY or IWM and hedge each index for one year using options and short duration corporate bonds producing a mathematically certain “defined outcome."
If the S&P 500 is up 5% one year from now Magaziner and Rhode Island do not actually know how they will perform. We do. Most people do not know, nor do their advisers. And if you have an advisor, ask him. He won’t be able to tell you. However, I know we will make 7.5% in that scenario. Let’s say the S&P 500 is down 5% in 2017 your adviser will not know how you will perform one year from today. But using a Beach Street Buffer assures you will lose nothing with the S&P 500 down 5% and that is comforting and preserves capital.
So, use the entry form below the table and pick your mix of assets or ask your current advisor. If you or your advisor beat both me and the Treasurer, then you are eligible for a $500 prize (only one winner the best performance that beats us both). For a guide to how Rhode Island, Providence and pension funds across the United States manage their assets see the table directly below:
Cut and paste, fill out and send to [email protected].
Good luck, the contest begins with closing prices on Tuesday January 31, 2017 and ends with closing prices on Wednesday January 31, 2018.
Related Slideshow: Trump’s Win - What Does it Mean for Rhode Island?
"We don't really know what a Trump presidency means for the nation, never mind the smallest state. One of the unintended consequences of last night's results is that Sen. Jack Reed won't be chairman of the Senate Armed Services Committee. Chalk that up as a loss for RI."
Head of Ocean State Taxpayers' Association
"Trump’s win means that his signature issue, illegal immigration, could have a big impact on RI, hopefully reversing our course as a sanctuary state and saving the state taxpayer millions of dollars. While we agree with his 'repeal and replace' Obamacare stance, we have no idea what that means to the RI debacle known as UHIP. It is not a stretch to believe that federal funding for this kind of system will be off the table so, will RI be stuck with this massively expensive system that still doesn’t work and that is expected to cost another $124 million to fix?
Trump's belief that there is significant fraud in the Food Stamp program and the policies that may come from that belief could have a negative impact on RI's local economy since there are businesses in certain cities that rely heavily on this program, fraud and all. On the upside, we may be able to ditch the UHIP program if there is significantly less need for processing welfare program requests (ie. Medicaid and food stamps) resulting from fewer illegal immigrants and less fraud. While we are ambivalent about his touted child care policies, if enacted, it may force our legislators to revisit the ever growing state cost of subsidies in this area and possibly reduce the fraud and abuse in this system."
Professor at Rhode Island College
"With a Republican President and Congress, Rhode Island will probably be excluded from the 'fruits of victory."
The congressional delegation will be able to vocally make their presence felt, but in the long term it's more symbolic than substantive.
For Rhode Island it's a matter of holding on and waiting until '18 or '20 and a surge in Democratic influence."
Professor at American University
"The RI congressional delegation just became even less powerful than it was. With unified government, Trump doesn’t need to quell Democrats’ concerns or acquiesce because he’s worried about a Democratically-controlled Senate.
His appointments will reflect that. His executive orders will affect that. And the conservative policy agenda he puts forward will affect that."
Professor at University of Rhode Island
"Well there's a few things -- because there's not going to be gridlock, that's a big difference if it had been Hillary and a GOP Congress, in which nothing would got done. We'll at least get a half a billion in infrastructure that's going to pass which will have an impact.
I think you'll see there will be reduced reliance on government nationally -- and that's where we'll stick out like sore thumb. We've relied way too much on government -- and our government is highly inefficient and ineffective. Maybe, just maybe, in this who cycle of things we might be forced to be small and more efficient for once.
A couple of other things -- interest rates jumped. The one to follow is the ten year government bond rate -- which is tied to mortgages. It went from 1.7% to 2.05% in one day. The point is -- if the ten year stays high, mortgage rates will start going higher -- and in the short time people will run to re-finance.
That's the short term impact -- but then if rates stay hight, that will make mortgages more out of reach. And we just passed a bond issue to limit open space -- housing has limited upside here.
The next thing -- the Fed Reserve will go ahead with tightening next month. A strong dollar will hurt manufacturing. When the dollar is strong our exports become more expensive overseas.
Our goods production sector -- manufacturing and construction -- in the near term will do a little better, but as time goes on will be more limited. But something you won't hear, is there are lags in fiscal policy, of six months to year. So we won't really see the effects until the third our fourth quarter of 2017, going into 2018."
RI Center for Freedon and Prosperity
"As the unbelievable turned into reality this morning, it struck me that the presidential election was not really all about Donald Trump and Hillary Clinton. It was about a fed-up people, revolting against a corrupt system - the "beast" - that relentlessly favors insiders. Hillary personified the beast, while Donald personified the slayer.
Sadly, based on election results in our state, Rhode Island's version of the beast lives on. I fear our political class has not learned the lessons from the Bernie Sanders and Donald Trump movements - and will continue with their government-centric, anti-family, anti-business status quo."
Kristina Contreras Fox
VP of Young Democrats of America
"A Trump Presidency means the validation of the ugliest part of America. In RI, as with the rest of the country, the hammer of his hatred will fall hardest on minority communities. Being a blue state doesn't make us immune from this danger.
Trump won over 35% (39.5) of the vote here! We need to look in the mirror, and not lie about what the reflection shows us. No more hiding underneath a blue blanket. I expect those who claim Democratic values to be true to those values. The gulf between words and actions have turned into fertile ground for Trump's message to grow here in RI. If you call yourself a Democrat, if you claim to stand in opposition to Trump, now is the time to prove it. Show up and fight back."
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