2017 marks the beginning of a pivotal period for the global economy and geopolitical landscape. Over the past 40 years, the underpinnings of expanding global trade — globalization — has led to unprecedented economic growth. The remarkably uneven distribution of that growth and wealth creation, however, has finally caught up with the system. The world is facing a rise of populism with overt nationalist leanings in many countries — much like the period between World War I and World War II. Onto that stage, enter President Trump.

Fair Warning

Most financial firms try to stay away from politics in order to avoid offending anybody. Under most circumstances that is a good idea since politics usually have an ebb and flow, or a give and take, that balances out over time. I am not sure that is true today. In fact, I am fairly convinced that America and much of the world is flirting with heading down a very dangerous road. 

In this, my annual letter for 2017, I will spend quite a bit of time on political and geopolitical matters. I will offend both liberals and conservatives on some points. My overall message however, is that if we can meet near the center, with inclusive ideas and policies that benefit the vast majority of people, not just a few percent, then we can avoid the consequences of the dangerous rhetoric that threatens us all. 

My views are not wrapped around ideology. I am a deliberate centrist who leans left or right depending on the issue. I believe that dogmatic ideology is among the most dangerous human traits threatening the world. I believe that extremism rises from inflexibility. I think that anybody who can not at least reach near the center in an attempt to compromise, is part of the world’s problems, not solutions. 

In this letter, I will attempt to interweave economics, politics, history, psychology, central banks, industry, technology, geopolitics and other important topics into a story about how we can in fact, all just get along and find happiness. I will probably fail.

My View of President Trump

President Donald J. Trump is a businessman with an insulated view of the world. He was born rich and made his bones in New York real estate after watching his father. He is an amazing promoter, especially a self-promoter. He is not a great businessman however. As Warren Buffett has pointed out, if Trump had just gone and sat on a beach with his inherited money invested passively, he would be far richer. That is not to say that President Trump did not build some amazing things. He did. I’ve been to Trump buildings and seen the golf courses (through the eyes of my former caddy self). Truly amazing accomplishments, even if just middling financially. 

In my opinion, as a lifetime student of economics, President Trump does not have an informed and circumspect view of the global economy. What he does have, is a view of America’s problems through the lense of a critic. I am concerned that combination causes him to take actions that are at odds with his own stated goals which are wrapped in the mantra of “make America great again.” 

I want to be clear here. I think America is great. But, I think that we have a major systematic problem with supporting the idea that opportunity is for everybody. That has led to a monumental disparity in wealth accumulation. Right now, about 1% of the population owns about 70% of all productive assets, real estate and financial assets. That’s not a meritocracy. That’s a system that is skewed, through persistent manipulation, to keep wealth in the hands of the few. That system needs fixing and “trickle down” economics is not a fix worth failing at again.

For President Trump to be successful, he will have to navigate special interests, resist the ideological viewpoints of his adopted Republican party, overcome the incessant criticism from partisans on the other side, not submit to dangerous nationalistic impulses, negotiate firmly with a willingness to compromise and control a staff that is already under duress. It will be a tall order. As Americans, we can support our President by working to overcome our own emotions, resist our need to self-validate through ideology and remember to always walk in other people’s shoes.

The key risks I see with President Trump, are that he neither understands the global economy, nor the global geopolitical realities. I fear he has in an ignorant, sheltered, arrogant and entitled view of the world. While he has traveled, he has stayed within a privileged bubble his entire life. I hope he is not the entitled and abusive idiot son that movies are made about. 

The idea that many President Trump voters cling to is that he is a very successful businessman and that’s what we need in the Oval office right now. As I mentioned above, Donald Trump is not that good of a businessman. And, I’m not so sure we want business people in the highest office of government anyway. Business people generally have a view of the world seen through their job and company, that’s really a pretty narrow view. So, while it might make sense to have a banker at the U.S. Treasury, having a real estate developer as President is a stretch to me.

I am sure I have offended President Trump supporters. I’m sorry. I try to call it as I see it. So, here is something else I believe. I believe that President Trump is at a juncture in history where he could become a great President. Is that in conflict to how I have described President Trump. No. In every life there are crossroads. President Trump is going to come to several very important ones in the next year or two. If he chooses direction wisely and prudently, he could help lead America and the world to a more prosperous and peaceful time. 

How Did President Trump Win?

This is a question that many people, especially media pundits, have been asking for over two months now. I think I have a short answer that is right. You might not agree, but despite not voting for President Trump, I did predict his winning through my locally famous among several hundred people “Halloween mask indicator.” 

What is my Halloween Mask indicator? Glad you asked. Since the 1988 Presidential election, I have always worn a Halloween mask of the candidate I thought would win the Presidency at local Halloween parties. It works out pretty well since the election is just over a week later. I will admit that my big Halloween party days are behind me (for now?), so confirmation of my Halloween mask indicator is limited.

For this election, I was only “on the record” with a few dozen people who were at a local bar and at a friend’s house party where we handed out a lot of candy for “trick or treat.” I wore a Donald J. Trump mask. It marked the 8th consecutive time I picked the President right. I’ve never gotten one wrong. Believe me.

In picking my masks, I do try to pick the candidate I think would win, although I think the quality of the masks has something to do with it too. Back in 2000, despite voting for Al Gore, I wore a George W. Bush mask. Why? Well, I didn’t really have a great idea about who would win as it seemed like a toss up (I got that right). So, I picked my mask based on which one I liked better. The G.W. Bush masks were a little more fun than the Al Gore masks. Selection made.

I suspect that the mask makers have some magical power that ends up in their mask design. Maybe it’s a secret suggestive spell to sway the election. The cooler the mask, the more votes a candidate gets. I don’t know for sure, but it’s a thesis worth exploring by some curious grad student. For this just passed election, the Donald J. Trump masks were a lot cooler than the Hillary masks, and it wasn’t really close.

So, despite every poll saying Hillary Clinton would win the Presidency, I chose a Donald J. Trump mask. It really wasn’t just that the mask was better though. I get around quite a bit by car. In 2015 and 2016 I traveled to and through 19 states, including most of the Midwest and Great Lakes regions, and talked to a lot of people (my daughter wasn’t with me but I could feel her eye rolls and could hear being called “such a nerd.”). What I came away with was that a lot of people felt left behind by the changing economy. It was that clear and simple to me. 

People from Pennsylvania to Missouri and almost everywhere in between and around, intimated to me that they felt the Government had favored certain groups, particularly fat cat bankers and Wall Street types, over them. They believe that while technology is good, that it should make their lives better, not worse. They hate that industries have left, shrunk or been automated, and that there has been too few new jobs to fill the void. I’ll go further back than last year on that note. 

Back from 2009 to 2012, I drove from Milwaukee to the east coast a few times. On one trip with my kids, I blew a transmission line and had to stop for repairs in Beaver Falls, Pennsylvania. After being towed through town and then driving back out later, it was crushing to see how the main street at the time was doing. There were closed shops up and down the road. The number of boarded up and empty buildings in the area shocked me. The Brighton Hot Dog Shoppe was one of the lone restaurants hanging in there. We stopped and ate there, it was awesome.

Driving around Beaver County, after the folks at the local dealership helped us out (they really were very nice and fair, I hope they are still in business), I irritated my daughter as I weaved in and out of dead ends (my son generally sat in the back and glanced out the window once in a while as he played a game). That is the vision of emptiness a lot of people are still living with 8 years after the financial crisis. Now, I don’t know what is going on in Beaver Falls and Beaver County, Pennsylvania today, but, I suspect it’s like a lot of other places between here and there, not quite what it should be. 

I’ve seen similar scenes to post Great Recession Beaver Falls throughout the middle of the country. I remember driving state highways in Ohio four or five years ago and counting the closed malls. Just two years ago I was surprised that a few places I stopped in Indiana were still really struggling. Missouri the same thing. Michigan, especially around Detroit is still struggling. My own upstate Wisconsin isn’t progressing like we’d hope. Do you notice which way those states went in the election?

A lot of Midwesterners voted for Donald J. Trump, because they still feel left behind and are pissed. Folks around the country need to understand this angst. For three generations, these are the people who built a lot of the things that the rest of the country used: cars, ships, machinery… People aren’t just hurting financially in the heartland either, their pride is hurt and they feel disrespected. There is a view, that the east coast takes from the center of the country and that the west coast is in it’s own bubble. I think the reality is more subtle than that, but I understand the sentiment.

People who voted for President Trump wanted the government shook up because status quo isn’t good enough anymore, and they are scared for their futures and their kid’s futures. Donald Trump, despite offering little in the way of coherent policy substance, went state to state and said he “felt their pain” in no uncertain terms and reflected their emotions in a classic sales move. It was just enough empathy to get just enough votes.

There were obviously other groups who voted for President Trump than the economically disenfranchised. The biggest clearly were cradle to grave Republicans. That’s about a third of the country. Smaller groups included some racists who got out to vote this time, small minded nationalist nutjobs who loudly spout their ignorance and the “I’ll never vote for that bitch” crowd who really seem to be covering up deeper prejudices. There’s a lot of overlap in those three groups. In the end, while their votes certainly counted, they seem to have only barely offset “never Trump” Republicans who sat this one out.

The real swing vote were people who are only loosely affiliated with a party, primarily Midwesterners, who felt left behind by a government that’s too damn proud of itself and the self-interested people who make up too much of that government. “Those people” want the government to get shaken up. And if I’m right, it will be. Unfortunately, I think it’s a coin flip if things work out for the better. 

One a side note, if Democrats don’t understand what I just said or are too arrogant to admit it, then they are in big trouble as a party. The Democrats must reach out to Americans across the nation, not just in the big cities. And, they must tailor their ideas to helping Americans cope with an evolving economy that will change even faster in coming decades. Arrogance, simplistic ideas about economics, geopolitical ignorance and a lack of social realism pervade both sides of the political aisle. Whichever party gets over themselves first could have the bigger role in American direction for a long time.

My fear is neither party wakes up and we scuttle our chance to vault to higher standards of living while reducing inequality. I know that many people feel America is in a dark place, but they are wrong. At this juncture in history, we are truly at a crossroads that could either lead us to a very good place or very bad place.

From a purely analytical standpoint, America has never been in a better position to improve the quality of life here and abroad. Our combination of energy, technology, natural resources, geographic diversity, military strength, political stability (relatively speaking), historical work ethic, legal rights and American moral values really is giving us every opportunity to overcome the forces of “slow growth forever” that I have talked about. We have to choose to overcome the psychological and real hurdles so that we can make our lives better, our children’s lives better and our grandchildren’s lives better. We certainly can do that. The question is: will we?

My hope is that both parties wake up, set partisanship aside, reject their ideologues, crush their demagogues, embrace reality and stop being a bunch of arrogant, greedy, power hungry pukes. We need two strong parties in America or we’ll end up with the type of fragmented, (more) corrupted and ineffective government that much of the world has. We need to understand what has helped make America great. It has been when the two party system reaches to the center despite our differences. 

Threats and Opportunities Under President Trump

President Trump is in a pivotal point in history. America is struggling to adjust to technological change which is impacting the economy, aging demographics that is threatening our finances and a growing inequality between haves and have-nots. President Trump is also faced with a rising extremism around the world, particularly from ISIS and other terrorists, who have largely been triggered by the same forces we are struggling with. It is vital that he understands that it is poverty, pain and hopelessness that plants the seeds of terrorism, not religion. For Donald J. Trump to be a great President, he will have to face down enemies while building alliances that focus on a vision of a better world and not punishing old enemies. He will also have to guide the economy to a place where growth is sustainable, even if it is only the 2% per year that was normal before WWII. He must also address inequality which is already driving society to breaking points.

We Must Overcome Nationalism

Maybe the most important thing that President Trump will have on his plate is taming the growing tide of nationalism. That might be hard for him, as he has described himself as a sort of nationalist. That is a dangerous self description.

Nationalist impulses have been among the most destructive forces in history. Nationalism has led to wars, poverty, famine and genocide too regularly throughout human history. It is imperative that we avoid wrapping ourselves in the banner of nationalism, as that rarely turns out well. If we are truly concerned with our own interests, then it is important we understand what is good for us and what is bad. Overt nationalism is clearly bad by any historical analysis.

President Trump must deny a group that pushes a nationalist narrative which could bring back a protectionism and intolerance which is eerily reminiscent of the 1920s. While there was a short boom during the “roaring 20s,” ultimately, we saw the Great Depression and World War II triggered.

The rise of nationalism is being caused by two primary conflicts. The first is an inability and unwillingness of people to understand what I have described in the media as “slow growth forever.” This is the idea that global economic growth can never again be maintained at the levels we saw from the post World War II era to the early 2000s. It is vitally important that citizens and politicians alike understand and accept the simple mathematical facts that support the “slow growth forever” reality. So far, most do not and that is very problematic. 

The second cause for the rise of nationalism is the fear and suspicion of foreigners and immigrants, particularly Muslims that many hold around the world. It is ironic that from nation to nation, people look down upon people from other nations. And, while I will not deny there is a radical terrorist faction within Islam, the reality is that most Muslims do just want to get along and live happily like everybody else. Failure of non-Muslims to recognize this is pure ignorance.

The idea of “America first” is one that has a horrible history. Global trade, which has been the engine of economic growth for decades, has never faced such serious threats. The inward looking nationalist agendas that many seek to enact, have the potential to spiral out of control and cause hugely damaging unintended consequences. President Trump’s greatest challenge might be to avoid those unintended consequences of ideas that are well intentioned or seem to make sense at the time.

Globalism is Good

Here I will begin by stealing from Adam Smith Institute author Dr. Madsen Pirie:

Over the course of decades globalization is turning the world into an integrated economy instead of what it has been for most of its history, a series of relatively isolated economies.  The more trading that takes place, the more wealth is created, and global trade across international frontiers has created more wealth than ever before in human history, and had helped lift more people out of mere subsistence than ever before.

To poorer countries globalization brings the chance to sell their relatively low cost labour onto world markets.  It brings the investment that creates jobs, and although those jobs pay less than their counterparts in rich economies, they represent a step up for people in recipient countries because they usually pay more than do the more traditional jobs available there.

To people in richer countries globalization brings lower cost goods from abroad, which leaves them with spending power to spare and a higher standard of living.  It also brings opportunities for productive investment in high growth industries in developing countries.

Those adversely affected by the global exchanges are the people in rich countries whose output is now undercut by the cheaper alternatives from abroad.  They often need to find new jobs or to be retrained to do work that adds higher value.  The extra wealth generated by globalization has brought an increase in service sector employment, which provides many of the new jobs needed.

Competition from abroad forces firms to become more efficient and to use resources more efficiently.  Often they choose to go upmarket, seeking higher added value products that face less competition from relatively unskilled labour.  Thus firms which once sold cheap textiles move into fashion and design, and find customers among the rising middle classes in developing countries.

The integration of the world economy has brought with it an interdependence.  As countries co-operate in trade with each other, they get to know each other and grow into the habit of resolving disputes by negotiation and agreement instead of by armed conflict.  The 19th Century French economist Frederic Bastiat expressed this pithily: “Where goods do not cross frontiers, armies will.”

And there is the truth that we run from. The more we are connected, the less likely we are harm others or be harmed by others. I cannot put it more simply than that. 

Ultimately, we must accept and realize that even in an America that is imperfect and far from equal, our standard of living has risen for decades as the world became more interconnected economically. The idea that globalism and global trade are bad is a fallacy. The idea that the deals that America has gotten are bad are uninformed. Most deals that America has made from NAFTA to the scuttled Trans-Pacific Trade Partnership are good for the aggregate wealth of America. It is up to us to make sure that everybody has an opportunity to benefit from that greater national wealth. Denying the wealth outright is a foolish idea. 

While President Trump might just be a very shrewd negotiator, there is a danger, which his words clearly demonstrate, that he doesn’t understand global trade is a primary, maybe the primary, determinant of the United States wealth and higher standard of living. He also does not seem to understand the role of international trade and interconnected economies on maintaining global peace (we have had less war the past 10 years than any other period measured by military deaths and deployments).

I hope President Trump is a shrewd negotiator, because if he tears down the global trade and economic system, then America is nothing short of doomed to a massive recession and probably war.

Slow Growth Forever and Health Care

The “slow growth forever” global economy and health care are joined at the hip so to speak. The general failure to accept that slow economic growth is normal is preventing good solutions to health care. President Trump has talked about GDP growth of 4% to solve the nation’s financial problems, but the reality is that a 4% GDP growth rate is simply not sustainable. By trying to pull growth forward through deregulation, tax cuts and government spending, I believe we are just setting ourselves up for another 2008-like event several years down the road.

It is easy to understand economic “slow growth forever” by just knowing two things. First, people earn and spend the most money during their household formation years, or family raising years. When there are more people entering that phase of life versus maturing out of it, the economy grows faster. The opposite happens when fewer people are entering those peak spending years than leaving. For the next few decades, in most of the world, more people will be maturing out of their peak spending years than maturing into those years. That will be a drag on economic growth.

Here are some charts that pound the point home that we have a major aging demographics issue.

 

Of course with the population aging, not only will we have less consumer spending, but we will have more health care obligations. For a long time, our politicians have kicked the can down the road on how to deal with the health care that an aging population will need. President Obama started to address the health care issue, but when he had Congress they put forth a halfway solution and of course we’ve seen the stalemate since.

The quicktake here is that just as the economy is approaching a second decade of slower economic growth than the post WWII period, we need something to help pay for rising healthcare costs. President Trump is talking about faster economic growth as a way to solve America’s financial problems, which are largely healthcare induced. That approach is doomed to failure even if it works short-term.

What President Trump must do is find a way to contain healthcare costs outright. If he doesn’t, not only will the healthcare system become divided even more by wealth, but the country will spiral deeper into debt.

Here’s the real problem of healthcare, it is essentially a monopoly. More technically, it is impacted by “monopoly pricing pressure.” In short, that means because there is no substitute for healthcare — you can’t buy a new car or home instead of getting that treatment you need and live to enjoy the car or house very long — the price of healthcare goods and services are pressured upward. 

I am not saying there is gouging in the healthcare system… wait, yes I am. There is gouging in the healthcare system because of the monopoly pricing pressure. The profit motive to exploit the fact that you don’t have a real choice on healthcare is immense. For that reason, a lot of people believe in a single payer healthcare system, i.e. socialized medicine. That won’t work either.  

I know, if any Bernie Sanders supporters read what I just said about a single payer healthcare system, they are going nuts right now. “What about Canada, Australia, France, Norway, Finland, the UK, Spain and blah, blah, blah…” they are saying. I have two questions for those who support single payer. First, how do those systems get paid for? Second, what are quality and access like? 

I’ll answer the second question first. In much of the world there are single payer or hybrid healthcare systems. Some of them are good, but most suffer from lack of access, lack of high level care options and shortages in general. In the places that single payer has been successful, and this gets me back to question number one, the countries were generally rich from natural resources or had historical wealth that will not be recreated (like from being an empire a century or two ago). Norway is already facing declining revenue from oil. Will they be able to pay their generous benefits in 10 or 20 years? Probably not.

Some of the hybrid plans on the other hand have done very well. Take Switzerland for example, they do not allow an insurance company to make a profit on the basic portion of somebody’s plan. But, profits are allowed on plan supplements. Sound familiar? It should, that’s how our Medicare system and Medicare Supplements work. 

So, there is a simple and already existing way to fix healthcare in America. Allow Medicare to compete with private insurance. This would act like a natural regulator to the system without having to employ more government regulators. Because Medicare already has an effective pricing system in place that holds down profits to healthcare providers, for-profit insurance companies would find more ways to be more efficient and hold health care costs down as well, relying on the standard pricing that Medicare has set. 

If Medicare were open to all, we could set up a sliding scale premium system to account for the poor that would cover all Americans with basic coverage. Mind you, I’m not saying that enrolling in Medicare would be mandatory, just that it would be available to all and a default setting for anybody without insurance. 

Large employers like GE or Google or Apple or GM, might choose to keep their group health care plans, or they might let their employees enroll in Medicare. If employers started steering people to Medicare, which is a real possibility, they should have to be on the hook for a fully paid for Medicare supplement — Medicare Part B only pays 80% of claims. Employers would also still be charged with collecting the Medicare premiums out of payroll. Small employers, say under a million paid work hours per year (rough equivalent of 500 full time employees) could be exempt from employer requirements.

I know some people will say “well that sounds like single payer.” It’s not, because people are still on the hook for 20% of their covered health care expenses. I robust supplement market would be needed. And remember, or know, because I know most people don’t know this, Medicare is actually administered by private insurance companies on contracts awarded within geographic jurisdictions.

Medicare already uses the best aspects of private health insurance to operate. That is a significant reason Medicare is so efficient with most premiums going to health care and administrative or other costs. We should simply offer the Medicare alternative to the entire population. President Trump wants an easy solution that’s it. Well, except for getting any Republican to vote for it.

By the way, yes, I know what Bernie Sanders plan is. Do you?

Debt

While many would focus exclusively on U.S. debt, the reality is that global debt impacts markets and the economy, so by extension America. According to the International Monetary Fund (IMF), global debt has set a new record. 

This is dangerous because anything more than a mild recession could set off a domino effect on defaults like we saw in 2008. It is imperative that we not have an event driven deep recession like 2008 or the consequences could be dire at home and abroad. Disrupting the global trade system would be a way to create a deep recession.

On the home front, presuming no event triggered deep recession, we do need to finally address our looming debt issues. By most estimates, by 2030, we are going to be in big trouble, let me correct that with capitals, BIG TROUBLE, if we don’t get our budget to be near balanced. We don’t need a balanced budget due to population growth, but if we could balance the budget without hurting economic growth, we should. A balanced budget that doesn’t cause a deep recession would help to reduce long term debt and unburden future generations.

President Trump’s ideas about wildly increasing military spending, which is already by far the highest in the world, makes it impossible to come close to balancing the budget. But, he wants to increase military spending for what I believe is a very specific mission.

Iran and Terrorism

An area of focus for President Trump’s campaign was terrorism and dealing with Iran. In my opinion, he is right to focus on both issues. Terrorism is on the upswing after a long down period and Iran has never kept a promise to the west since 1980. I believe that President Trump, inspired by his chief advisor Steve Bannon, has every intention of putting a lot of pressure on Iran and that a war is likely. That explains the military buildup.

Donald Trump has made it clear that he expects Iran to dramatically change its behavior in the not distant future. One of his chief advisers, Steve Bannon, is on the record as believing that a conflict is coming. How that conflict occurs and resolves is very important. 

If we bomb Iran and invade, that is a recipe for disaster, particularly if Russia takes umbrage. There is reason to believe that Russia would stand down though, as they want higher oil prices and a U.S. led conflict with Iran would certainly cause higher oil prices. 

What would be best is if the Iranian people rose up to overthrow the Ayatollah and the mullahs who have made Iran a theocracy with only pretend democracy. That did almost happen in 2009 and I believe marks President Obama’s greatest failure. We did not support that uprising and we should have. Now, we have a strengthening Iran, with an even more entrenched leadership and military to try to do away with. 

I don’t have enough words left in this column to list all the reasons why dealing with Iran is important, but they are one of leading state sponsors of terrorism and that should be enough. Also, I have no doubt in my mind that they continue to move towards building or acquiring nuclear weapons.

President Trump will have to deal with the rise of ISIS, the continued threat from other groups and a belligerent Iran. How he navigates that will be what his Presidency becomes known for.  

Investing for a Trump Presidency

I have short, intermediate and long-term investment game plans. It’s important to have all three because the world changes quickly in the short-term, but the long-term eventually gets to us.

Short-term (13 years), I am very concerned about a flipping of the economy that creates significant volatility. As such, my asset allocation includes about 25% cash or money market holdings since bonds are unattractive. That asset allocation might not hold through the next correction because I do sell out of the money cash-secured puts on stocks and ETFs I like in order to generate income and potentially buy assets I like at lower prices than a recent price.

Within the volatility likely to develop by next year, there will be opportunity. I will want to focus on quality and investing in assets that have been winning in the “new economy.” 

Among the “new economy” companies that will keep winning are technology companies, companies that apply technology effectively, some healthcare and consumer stocks. I have been clear that I like the PowerShares NASDAQ 100 ETF (QQQ). It is made up of some of the leading tech, consumer and biotech companies in America. This cheap ETF has been a leader versus every other diversified index over multiple time frames including the S&P 500 by a lot.

QQQ is a good core holding for virtually everybody who holds equities. I may put as much as 25% of a the equity portion of a portfolio into this fund at the right price. For now, I am out of QQQ, but on the next correction, even a small one, I will start adding to it. On a large correction I would buy up the 25% I just mentioned.

I am also looking at natural gas and oil stocks to buy in the next few months. With the FED raising interest rates that should put another level of pressure on stocks in the energy sectors. I have price levels set to open or add to positions. There are multiple economic, financial, political and currency factors, on top of a balancing supply and demand equation, setting up what I believe will be a significant bull market in energy starting soon. Remember that I expect more conflict in the Middle East soon.

I like the SPDR Oil & Gas equipment & services ETF (XES) because as shale drills more, the thinned out service and equipment sector will be able to charge better rates and generate strong margins. I like the First Trust Natural Gas Stock ETF (FCG) because while the name implies natural gas focus, many of those companies also do very well in oil. I also like several specific companies in the shale space with low breakevens, good rock (acreage) and solid balance sheets (a rarity). 

Intermediate term (37 years), I’m likely to get pretty conservative in the next few years depending on circumstances. If policy develops under the Republican Congress as I expect, we’ll get a run up in the economy by pulling growth forward. That will push up stock and commodity prices. It’ll be the same sort of illusion we had from 2004 to 2007 though and will end badly.

Like I said before, there is NO way to create long-term growth rates much higher than current levels. Interestingly, I’ll repeat something I’ve noted a few times, 2% economic growth has been the norm for centuries. The higher growth from WWII to 2006 was the anomaly created by the post war rebuild and aggressive monetary conditions that drove up debt. 

I of course hope that we stay the current course and accept a middling rate of growth and deal with our debt and social issues without a smoke and mirrors economic game. One can hope.

Long term (7 years+), I want to gradually position into alternative energy and energy storage, electric vehicles (no idea how yet), smart grid, virtual or augmented reality, travel, healthcare, tech and the strongest consumer stocks. I’d love to focus on dividends, but in a higher interest rate environment, if that’s what occurs, then we have to be even more focused on growth with solid fundamentals. This is clearly an idea about how the economy will continue to develop in the coming decade. In brief, I believe the pace of technological change is about to speed up again and there will be some massive opportunities.

Closing Note

I will be changing from writing quarterly letters to semi-annual. I am doing this because 6000 word letters take a few days to write and I am already writing a lot for various publications. Use the Seeking Alpha, MarketWatch & TipRanks images on the front page for links to almost all of my articles. Also see the Multimedia tab where I am posting interviews I do and online presentations. You can expect my annual letter about the middle of January each year and my “Freedom Letter” several days before the July 4th Independence Day holiday.

Happy a month after New Year.

Kirk

 

 

P.S. I emailed this to clients on January 31st, 2017, however, I did not publish to my website until Q2 as I was afraid of any lash back. I’ve decided I don’t care about irritating people. I care about making money and saying what I think I should with the small platform I have.