Author Topic: Timing the market thanks to Trump?  (Read 7225 times)

fuzzed

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Timing the market thanks to Trump?
« on: July 26, 2016, 12:19:48 PM »
Hello,

Yes, I know over the long term you cannot time the market, but I have an idea, not original I am sure and I am looking for feedback.

This is not political, and I am not debating the merits of either party.  I am Canadian, and my money is held with a Registered Retirement Savings plan which means I do not pay income tax until I withdraw.
My plan is this:
1.  My "retirement savings" are largely distributed between four low cost index funds (less than 0.5% MER),  a Canadian, a US, an International and a Canadian Bond fund (I am Canadian).
2. Selling the equity ones sometime in September and wait out the US Election.   
3.  If Trump were to win, the markets would over react to a level not seen since... who knows.... eventually cooler heads would prevail and things would return to "normal".  How long that is, I am not sure.   The Brexit shock lasted about 2 days, but i think this will be longer.     At a point once things have calmed down, I would just rebuy those same index funds.   Total cost of this transaction would be 3*9.99 * 2  so not much.
4.  If Hilary wins, odds are "the market was already priced for a Democratic win" and I buy the funds back.   I would lose the transaction fees, and any potential appreciation on my investments for the time I am sitting in cash.

As these are within my RSP, I do not have to worry about any tax implications.

To me, it seems like a cannot really lose, and if Trump were to win, and the markets fall, I would think, in hind-site it would just makes sense to take that gamble.

I realize that Trump is not going to turn the USA into North Korea.   I realize that the Brexit leave vote would never win, the NDP would never win in Alberta and the NDP would never be elected in Ontario in the early 1990's etc...


So, without getting political, what is the major flaw with this "strategy"?


Zoot Allures

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Re: Timing the market thanks to Trump?
« Reply #1 on: July 26, 2016, 01:38:28 PM »
I've had the same thought, but I realize that it's just another half-baked "I know you can't time the market, BUT..." idea.

You make a big assumption in point #3 of your plan. Many people think the market will fall if Trump wins, but no one knows. As for point #4, sure, the market may hold steady if Hillary wins, or it could surge 500 points out of sheer relief. Again, no one knows. Which is why market timing gets its well-deserved bad rap. That said, this particular election does seem well-suited to this kind of experiment.

Mother Fussbudget

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Re: Timing the market thanks to Trump?
« Reply #2 on: July 26, 2016, 02:25:46 PM »
Would BONDS do well regardless of the outcome? 

IMHO, do whatever helps you sleep at night even if it smells of market-timing.

frugledoc

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Re: Timing the market thanks to Trump?
« Reply #3 on: July 26, 2016, 03:00:41 PM »
Would BONDS do well regardless of the outcome? 

IMHO, do whatever helps you sleep at night even if it smells of market-timing.

Kind of bad advice, given that market timing has been repeatedly shown to be a losing strategy,

If you are worried about stocks falling x percent then you you should adjust your asset allocation to include more fixed income and then stay the course. 

In the UK, the usual suckers panicked and sold after the Brexit vote, when they would have done much better by holding anything which wasn't cash.


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Re: Timing the market thanks to Trump?
« Reply #4 on: July 26, 2016, 03:46:02 PM »
If you really want to make some money out of the Presidential election, why rely on some second or third derivative strategy based on the presumed collateral and  knock-on effects on equity markets?

Go right to the well and put some money down on the predictions futures market.  Your maximum exposure will be known to you from the outset as will the potential upside.  Sure, it is gambling.  Wasn't that what you were talking about to begin with?

Eg.:

http://www.paddypower.com/bet/politics/other-politics/us-politics?ev_oc_grp_ids=791149


arebelspy

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Re: Timing the market thanks to Trump?
« Reply #5 on: July 26, 2016, 10:45:43 PM »
So, without getting political, what is the major flaw with this "strategy"?

The market prices things in.  It'll have priced in, based on the latest polls, the expected outcome. 

Such as Brexit. There was a drop simply because it was unexpected/unlikely.. but the odds of it happening x the amount the market should be "worth" was valued in.  Since it did happen, it then dropped to that expected amount. 

If is looking likely to win (and if, as you postulate, the market will drop if he wins..notice all the ifs I'm saying), the market will edge lower.  If Trump wins, it'll drop to the expected value of him winning, and if Hillary wins, it'll jump to the expected value of her winning.

And there's the math mistake you made:
4.  If Hilary wins, odds are "the market was already priced for a Democratic win" and I buy the funds back.

The market would not price it as a 100% Hillary win.   It'll hedge between the two based on the percent liklihood.   So when you say "I'll buy the funds back," okay, fine, but you'll buy them at a higher price, and lose money.

So (making up numbers to illustrate a point, and they're round, for easy maths).  If candidate A has a 25% chance to win, and the markets should be 1000 if they win, and candidate B has a 75% chance to win, and the markets should be 2000 if they win, then the markets just before the election should be at 1750 (75% of the way between the two, because that's pricing in each liklihood..if they were each 50/50 to win, it'd be at 1500, halfway between the two outcomes).  If Candidate A pulls out that 25% chance, the markets drop, but from that 1750 (it's not at 2000, even though candidate b is "expected" to win--it's priced in that win according to the odds).  If candidate B pulls it out, as expected, it'll jump to 2000 (it won't already be there, again, because they priced in the chance that candidate B loses).

So if you sell at 1750, hoping to rebuy if candidate A wins, and thinking you'll just rebuy in at no loss if B wins, because they're "expected" to win, you'll lose out when B actually does win, and the market moves up.

Does that make sense?

Here's the other big problem with your plan:
3.  If Trump were to win, the markets would over react to a level not seen since... who knows.... eventually cooler heads would prevail and things would return to "normal".  How long that is, I am not sure.   The Brexit shock lasted about 2 days, but i think this will be longer.     At a point once things have calmed down, I would just rebuy those same index funds.

How are you going to time this end of it?  It's another market timing problem.

Now, all this to say, maybe the markets will drop either way, whatever outcome (but will drop more from one outcome versus another).  Theoretically the market should have priced in each one winning, and that shouldn't happen, but markets aren't always 100% efficient (though likely efficient enough that John Q. can't exploit them).

But that's the mathematical answer to the problem with your idea--thinking that a Hillary win is "priced in" so you can rebuy for the same, when the market is pricing her winning times her odds of winning, and that'll get more accurate the closer we get via polling and such.

Hope that helps.  :)
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Heckler

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Re: Timing the market thanks to Trump?
« Reply #6 on: July 26, 2016, 11:36:50 PM »
I got lucky with Brexit, and happened to be contributing a fair chunk and had it cash in my account waiting to buy.   Yup, I waited till the crash and bought in during the dip, and now it's up 5.08% since June 29. I hope to do the same with the upcoming election, although my regular 42% contributions will still come off my pay and direct into index funds twice a month.  I'll also save up and wait for the election to buy in the rest of my after tax savings.  I'll even try to pull Decembers after-tax contributions to have them ready to go to work in November if needed.

No way in hell will I sell any of what I have now though.
« Last Edit: July 26, 2016, 11:38:54 PM by Heckler »

arebelspy

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Re: Timing the market thanks to Trump?
« Reply #7 on: July 27, 2016, 12:47:57 AM »
I got lucky with Brexit, and happened to be contributing a fair chunk and had it cash in my account waiting to buy.   Yup, I waited till the crash and bought in during the dip, and now it's up 5.08% since June 29. I hope to do the same with the upcoming election, although my regular 42% contributions will still come off my pay and direct into index funds twice a month.  I'll also save up and wait for the election to buy in the rest of my after tax savings.  I'll even try to pull Decembers after-tax contributions to have them ready to go to work in November if needed.

No way in hell will I sell any of what I have now though.

That's awesome it worked out.  Market timing does work out sometimes.

But if Remain had won, and the market had gone up, you'd have lost out (and paid more).   It was a gamble that worked out.

Sometimes gambles pay off.  Here's a whole thread with examples: http://forum.mrmoneymustache.com/investor-alley/market-timing-wins/

On average though, and in the long run, they tend not to.  Caveat emptor and all that.

(I'm sure you know that, based on your wording of "I got lucky during Brexit" and the acknowledgement that you wouldn't sell to try it, just clarifying for others reading. :) )
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2Cent

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Re: Timing the market thanks to Trump?
« Reply #8 on: July 27, 2016, 01:10:23 AM »
The funny thing is that actually the market may go down no matter what. About half of Americans think the Trump is the worst possible president, and the other half feels the same about Hillary. Now when the actual election comes both sides will go into denial of the other party's chances and be sure their party will win. So after the election half of America will be in a panic. Internationally I think you're right the market already priced in a Clinton victory as they can not imagine Trump getting elected.

But if you're going to time the market, better wait and see what happens in the polls before the election and what are the sentiments in the media. I think it's too early to tell. I do think there is a good chance of either candidate getting assassinated after the election, so that might spoil strategy.

arebelspy

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Re: Timing the market thanks to Trump?
« Reply #9 on: July 27, 2016, 01:14:05 AM »
The funny thing is that actually the market may go down no matter what. About half of Americans think the Trump is the worst possible president, and the other half feels the same about Hillary. Now when the actual election comes both sides will go into denial of the other party's chances and be sure their party will win. So after the election half of America will be in a panic. Internationally I think you're right the market already priced in a Clinton victory as they can not imagine Trump getting elected.

But if you're going to time the market, better wait and see what happens in the polls before the election and what are the sentiments in the media. I think it's too early to tell. I do think there is a good chance of either candidate getting assassinated after the election, so that might spoil strategy.

I very much agree with your first sentence (but I'm not so sure as to bet lots of money on it, which would be a gamble), not as much your final sentence.
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fuzzed

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Re: Timing the market thanks to Trump?
« Reply #10 on: July 27, 2016, 05:20:35 AM »
I realize the errors of my ways.   It just seemed like one of those things, on a high level which could have been very obvious in hindsite.   

I was not looking to time the market down to the second, just more at a higher level.  For example, I left a large corporation last year and the money within my pension took quite a while to make it's way to me.  It eventually showed up mid January of this year, at that time I bought 4 index funds (Canadian Couch Portfolio) which at least for the 6 months since then seemed to have timed well.   I was unable to predict the fallout out of mortgage backed security, or the impact on the markets of the financial super power Greece's downfall, but seeing a colourful character elected to the Presidency see, I can at least see where that is a possibility, so I thought hmmm why not.

I have a commerce degree, albeit from the 80's, and a fair bit of recreational investing experience, so I know the futility of market timing.  I was not looking to get "Tommy Vu" rich off this scheme. :)

Thank you all for you replies.


« Last Edit: July 27, 2016, 05:33:53 AM by fuzzed »

2Cent

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Re: Timing the market thanks to Trump?
« Reply #11 on: July 27, 2016, 08:24:57 AM »
The funny thing is that actually the market may go down no matter what. About half of Americans think the Trump is the worst possible president, and the other half feels the same about Hillary. Now when the actual election comes both sides will go into denial of the other party's chances and be sure their party will win. So after the election half of America will be in a panic. Internationally I think you're right the market already priced in a Clinton victory as they can not imagine Trump getting elected.

But if you're going to time the market, better wait and see what happens in the polls before the election and what are the sentiments in the media. I think it's too early to tell. I do think there is a good chance of either candidate getting assassinated after the election, so that might spoil strategy.

I very much agree with your first sentence (but I'm not so sure as to bet lots of money on it, which would be a gamble), not as much your final sentence.
Coincidence? https://www.washingtonpost.com/local/public-safety/would-be-reagan-assassin-john-w-hinckley-jr-to-be-freed-after-35-years/2016/07/27/04142084-5015-11e6-a422-83ab49ed5e6a_story.html
Anyway, I'm always amazed that with such an angry and well armed mass of people, there are so few high level assassinations in the US.

TheAnonOne

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Re: Timing the market thanks to Trump?
« Reply #12 on: July 27, 2016, 09:18:25 AM »
The funny thing is that actually the market may go down no matter what. About half of Americans think the Trump is the worst possible president, and the other half feels the same about Hillary. Now when the actual election comes both sides will go into denial of the other party's chances and be sure their party will win. So after the election half of America will be in a panic. Internationally I think you're right the market already priced in a Clinton victory as they can not imagine Trump getting elected.

But if you're going to time the market, better wait and see what happens in the polls before the election and what are the sentiments in the media. I think it's too early to tell. I do think there is a good chance of either candidate getting assassinated after the election, so that might spoil strategy.

I very much agree with your first sentence (but I'm not so sure as to bet lots of money on it, which would be a gamble), not as much your final sentence.
Coincidence? https://www.washingtonpost.com/local/public-safety/would-be-reagan-assassin-john-w-hinckley-jr-to-be-freed-after-35-years/2016/07/27/04142084-5015-11e6-a422-83ab49ed5e6a_story.html
Anyway, I'm always amazed that with such an angry and well armed mass of people, there are so few high level assassinations in the US.

That's because things are really, REALLY good for most people in the USA. There is almost no hunger, or homelessness in comparison to most places. The safety net that gets bashed for being poor, tends to save quite a number of people from themselves.


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Re: Timing the market thanks to Trump?
« Reply #13 on: July 27, 2016, 10:29:52 AM »
Hearing about Trump vs Hillary in the news makes it seem like that's the only event in the news - but it's not the only thing that can move the stock market.  Things you don't anticipate are the larger problem.  Did you consider third quarter earnings will be released while you're out of the market?

If you decide you can plot the election better than the markets, remember you have to time getting back into the market as well.  You could buy back into the market in November, only to realize not much happened.  The market could be waiting past January to gauge the impact of the new Congress and next President.
« Last Edit: July 27, 2016, 10:32:49 AM by MustacheAndaHalf »

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Re: Timing the market thanks to Trump?
« Reply #14 on: July 27, 2016, 11:19:20 PM »
In case nobody's noticed, Trump is actually a businessman who hangs out with the likes of Mr. Burns, Scrooge McDuck, and Mr. Monopoly.  Despite what he blathers to the masses, I see no reason why big business would be anything but absolutely gleeful at his becoming president.  You think once he's elected he wouldn't be like, "The little guy?  Hahaha...  Fuck him--I can't believe they bought that crap!  Hello, corporations--what do we want to do today?"  Hell yes, he would.  I'm absolutely convinced markets would rocket up.

Roland of Gilead

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Re: Timing the market thanks to Trump?
« Reply #15 on: July 28, 2016, 06:04:49 AM »
Biotech will go way up if Trump wins.  Buy IBB

Scandium

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Re: Timing the market thanks to Trump?
« Reply #16 on: July 28, 2016, 07:57:32 AM »
In case nobody's noticed, Trump is actually a businessman who hangs out with the likes of Mr. Burns, Scrooge McDuck, and Mr. Monopoly.  Despite what he blathers to the masses, I see no reason why big business would be anything but absolutely gleeful at his becoming president.  You think once he's elected he wouldn't be like, "The little guy?  Hahaha...  Fuck him--I can't believe they bought that crap!  Hello, corporations--what do we want to do today?"  Hell yes, he would.  I'm absolutely convinced markets would rocket up.
He has "proposed" to scrap trade deals and impose 40% tariffs on Chinese imports, and punish business leaders who outsource work. Yeah maybe these are all lies, but FWIW he sounds pretty sincere to me..

From what I know his main businesses are real estate, hotels etc, not producing widgets. So these insane policies would likely not be that bad (or at least not as bad) for him. Remember that "Business" isn't really a homogeneous group with aligned interest. Many would suffer under a Trump regime (think it's fair to call it that).

And if you think Trump care much about the success of his friends you're giving him more credit than I'm willing to..

Scandium

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Re: Timing the market thanks to Trump?
« Reply #17 on: July 28, 2016, 07:58:26 AM »
Biotech will go way up if Trump wins.  Buy IBB
Ehh, why? Sale of hair restoration products?

Kaspian

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Re: Timing the market thanks to Trump?
« Reply #18 on: July 28, 2016, 08:45:28 AM »
And if you think Trump care much about the success of his friends you're giving him more credit than I'm willing to..

Trump will do what's good for Trump, not the country.  He has investments outside his own shenanigans.  He will answer to his own lobbyists and those who paid the most to get him elected.  Data's hard to find, but so far in 2016:

Top Donors data for Donald Trump, 2016 Cycle
John Powers Middleton Companies    $150,000
Philips International Realty    $100,000
Kushner Companies    $100,000
Manchester Financial Group    $50,000
AON Corp    $28,950
AJD Construction    $25,000
US Government    $15,357
Snow Leopard    $13,500
US Army    $12,121
American Airlines Group    $11,404
Bank of America    $11,392
Stark1    $10,800
MDC Holdings    $10,800
Acorn Advisors    $10,800
Americas Catch Inc    $10,800
Sotheby's    $10,600
Genie Energy Ltd    $10,000
In Mocean Group    $10,000
Crown Acquisitions    $10,000
Adjfam Management    $10,000
Rainbow Apparel Companies    $10,000
McKool Smith PC    $10,000
Midtown Equities    $10,000
Brach Eichler Ll    $10,000
Braha Brothers LLC    $10,000
Iron Hound Management Co    $10,000
Thor Equities    $10,000
Centurion Realty    $10,000
Atalanta Corp    $10,000

Source:  https://www.opensecrets.org/pres16/contrib.php?&id=N00023864

Other article:  Donald Trump is now accepting the kind of big-money donations he thinks corrupts politicians
« Last Edit: July 28, 2016, 08:47:19 AM by Kaspian »

fattest_foot

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Re: Timing the market thanks to Trump?
« Reply #19 on: July 28, 2016, 08:52:46 AM »
Trump will do what's good for Trump, not the country.  He has investments outside his own shenanigans.  He will answer to his own lobbyists and those who paid the most to get him elected.  Data's hard to find, but so far in 2016:

You realize you can do the same with Hillary, right? The big banks own her, for significantly more money than what you've got listed under Trump.

I see absolutely no reason why it's a "certainty" the markets will go down with a Trump win. Or a Hillary win. This really is market timing, but without any logic behind it, despite what you may think.

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Re: Timing the market thanks to Trump?
« Reply #20 on: July 28, 2016, 06:07:43 PM »
I'd recommend against it but I think the arguments you are getting for why are wrong.

What you are ultimately proposing is to hedge your portfolio in low cost way.  e.g. go to cash so your portfolio value can't decline on a news event.  The thing is hedges have costs (for you commissions and opportunity cost of not being in the market) and are ordinarily expected to reduce long term performance, not enhance it.  This is a reasonable strategy is you are highly risk averse and need to hedge so you can sleep at night and possibly not sell in a panic in a market crash at the bottom, and a not very good one if you are trying to produce a market beating return.

If someone was selling a insurance product that protected your portfolio from a Trump related market decline, would you buy it?  At what price point?  These are the questions you really have to answer to decide if you want to take this action.

arebelspy

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Re: Timing the market thanks to Trump?
« Reply #21 on: July 28, 2016, 06:37:30 PM »
If someone was selling a insurance product that protected your portfolio from a Trump related market decline, would you buy it?  At what price point?  These are the questions you really have to answer to decide if you want to take this action.

That's a good thought experiment.
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Burghardt

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Re: Timing the market thanks to Trump?
« Reply #22 on: July 29, 2016, 02:42:05 AM »
i don't think either of them would make much of a true impact, but one has potential for media-made short-term panic on the stock market, both national and international.

With the short time left until the voting is done, i don't think there's much to lose by waiting it out. Just be careful not to go from this to the next "just wait for event x" and then the next and the one after that and...

Kaspian

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Re: Timing the market thanks to Trump?
« Reply #23 on: July 29, 2016, 08:04:56 AM »
I'm sure all those investment firms are donating millions of dollars out of the goodness of their hearts and they won't ask Hillary for any favors if she is elected.  $150,000 will buy favors from Donald, but $2,000,000 - $10,036,238 won't buy favors from Hillary.

^^ Wow, yeah--holy fuck!  My list wasn't *against* Trump, it was just to point out that he's likely to return favors to the corporate world.  Obviously, she'll be doing even more of that.

If someone was selling a insurance product that protected your portfolio from a Trump related market decline, would you buy it?  At what price point?  These are the questions you really have to answer to decide if you want to take this action.

That's a good thought experiment.

Right?  Nah...  Anti-Trump insurance?  If you wouldn't buy that then don't fuck with your portfolio.

Polish_Hammer

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Re: Timing the market thanks to Trump?
« Reply #24 on: July 29, 2016, 12:19:58 PM »
Just to add to the what-if I timed the market discussion.  It doesn't matter who wins. All the Market cares about is predictability and stability. The best outcome (Market only)  is a close race where the democrats win but Republicans maintain control of the House and senate so that very few big changes can happen. Status Quo is what favors the Market , all social and equality issues aside. If I were to time I would wait until after the election towards end of year and move to cash and wait and see what policy changes if any happen that impact wall street.

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Re: Timing the market thanks to Trump?
« Reply #25 on: July 29, 2016, 02:31:57 PM »
"Status Quo is what favors the Market , all social and equality issues aside. "

and all of us as well, in addition to the Market - most of the people I talk to really think gridlock is good. the less corrupt folks in DC beltway are messing with our lives , the better.

for the original poster , as others said, there is no way to know
1) what would happen
2) what it would mean

the media story is all about Hillary, how great she is , how horrible Trump is ,etc. it gets to the point that it generates the opposite reaction given how much 'average american' trusts media.  again, in circles I talk to, Trump is incompetent populist clown who cant keep his mouth shots and confuses politics and entertainment , while Hillary is incredibly corrupt, incompetent, and extremely stupid and weak politician. corrupt beyond belief with both highly questionable 'donations' from foreign interests and powers, $220k secret speeches she gives to wall street (pay to pay), very incompetent in every position she had (what are her accomplishments as US senator? how exactly first lady of Arkansas becomes a senator from NY? what are her accomplishments as secretary of state beyond loss first US ambassador on foreign soil in two centuries, and stupid beyond any measure (if you want to make history you dot the i's and cross t's , have compliance triple sign off on it, not run personal servers for government email as example, is there any judgement in that head??). so the choices aren't great for November

as for market reaction , who knows? so unpredictable. from viewpoint of person that reads news beyond its US/EU angles , US is doing everything it can to start WWIII with both China and Russia at the same time - running warships near islands China considers hers, forceful overflow of Ukrainian government in Europe and destruction of that state , NATO exercises in Poland now moving closer and closer to Russia's border. in middle east , full on sponsorship of ISIS while labelling it 'Syrian opposition to Assad',  now Turkey accusing US of organizing a coup in its country. I live in US, and I want none of it due to risk of some crazy head abroad deciding they have nothing to lose and risking major war. with thousands of nuclear warhead, asset allocations , and market timing would be last of our worries then..
 

RangerOne

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Re: Timing the market thanks to Trump?
« Reply #26 on: July 29, 2016, 02:40:26 PM »
Trump will do what's good for Trump, not the country.  He has investments outside his own shenanigans.  He will answer to his own lobbyists and those who paid the most to get him elected.  Data's hard to find, but so far in 2016:

You realize you can do the same with Hillary, right? The big banks own her, for significantly more money than what you've got listed under Trump.

I see absolutely no reason why it's a "certainty" the markets will go down with a Trump win. Or a Hillary win. This really is market timing, but without any logic behind it, despite what you may think.

Well no it is totally different. The financial industry and corporations know Hillary. Her donors know she will kick back in whatever way she can to those who help her. They know she will tow the line and maintain the status quo. The people may not like Hillary because she has had very inconsistent views and legislative votes. But she has a great record in working amicably with and remaining loyal to Wall Street, Banks and the financial industry in general. No one of any consequence in the financial world is afraid of Hillary winning. They are dying for her to win.

The financial risk and uncertainty behind Donald Trump has nothing to who he takes donations from. It has to do with his atrocious business record summed up by a mile long trail of lawsuits, debts, bankruptcies and highly questionable business ventures. He shows a complete lack of understanding of our financial system, in as little as can be gathered from his interviews, which many feel could lead financial instability. There is also likely great uncertainty that the Republican party can keep him in check.