Riley: President Trump Helps Magaziner to First Positive Annual Return
Tuesday, January 24, 2017
We are still awaiting then final numbers for both Providence and the State Pension Fund but it's certain both portfolios had impressive returns in November and December, thanks ironically to the election of President Donald Trump. The defeat of Magaziner and Raimondo pal Hillary Clinton and the exit of one of the most anti-business Presidents in U.S. history understandably boosted the economic prospects of businesses across the nation.
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.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST1. 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.
Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC.
Related Slideshow: Trump’s Win - What Does it Mean for Rhode Island?
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