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Is The Market Positioned For A Substantial Correction?

|About: America First Multifamily Investors, L.P (ATAX)


As a result of his election, President Trump boasts the market has attained an all-time high.

Can we rightly credit Trump for this present market success?

What has he promised and what has he produced to warrant this praise?

What might happen to the market in the event it is proven to be No Action but Talk Only- NATO?

Most of my past and present followers are well-aware of the fact that I am no fan of President Donald J. Trump; however, I'm forced to admit that the market, both common and preferred, has soared to an all-time high under his watch. This article is my attempt to determine what portion of this market euphoria can be credited to Trump and what part can we credit to the forward momentum of what had begun and taken place during the Obama administration. More importantly, I want to discuss what might happen to the market going forward.

The impetus for this article is the result a statement made by the CEO of America First Multifamily Investors' (ATAX) Chad Daffer during its Q2 2017 Earnings Conference Call. As follows:

The third quarter domestic market performed well with equity setting new highs on the shoulders of solid corporate earnings and the possibility of a [indiscernible]. Health reforms, tax reforms, infrastructure spending, deregulation of the financial sector all played its roles and let market and equity space with a new high at the end of the quarter.

Let's examine the above statement. I can't argue with the reported solid corporate earnings, which most of us benefited by. What I can dispute is the effect the Trump administration had on those solid earnings. Recall, when Obama became president in 2009, the market continued to slide for several months before he could put in place policies to stem the slide, reverse humongous reports of monthly job losses, and get the economy moving again. And during those first few months, Obama actually accomplished quite a lot. What has Trump accomplished legislatively thus far? Nothing of consequence. He might have nominated Gorsuch for the Supreme Court, but it was Mitch McConnell and the GOP Senate majority that got him through. Yes, Trump has signed lots of executive actions, but few of any consequence concerning business, the GDP, and as far as the general market is concerned.

In fact, health care reform and the repeal and replacement of the ACA, Obamacare, was a complete bust. It's still the law of the land. Tax reform? As yet, not even addressed. Infrastructure, the one thing Trump could have easily passed with Democrat help has yet to be addressed or discussed. Consequently, Mr. Duffer's claim that ATAX benefited from the fantastical Trump promises is fallacious. ATAX might have had a profitable quarter, which I applaud, but it certainly was no result of unfulfilled promises.

However, I have to admit that the market did react positively to those promises and is soaring as a result of them in addition to the strong earnings reports Mr. Duffer spoke of.

Going forward, the question yet to be answered is how will the market react when investors finally accept the sad truth that our wannabe emperor has no clothes, specifically no formulated policies and no way of passing them even if he were to have any. Proven Russian collusion or not, the Trump administration is buried neck-deep in the ongoing investigation with no end in sight. Trump has not only picked fights with the Democrats; the judiciary; the mainstream press; Arnold S.; with AG Jeff Sessions; Paul Ryan, House Speaker; and now Mitch McConnell, the GOP leader of the Senate, how are we to expect him to get anything legislatively accomplished at all?

What will happen to the market that has risen as a result of his promises that, most probably, will not be kept? Will it fall back to where it was prior to his election? Worse yet, what will happen if the Russian investigation results in a constitutional crisis brought on by the very real possibility of the firing of Special Counsel Robert Mueller? Already, it appears that President Trump is maneuvering to move AG Sessions to John Kelly's now vacated Secretary of Homeland Security post. Once replaced, is it farfetched to believe Trump will not replace Sessions with a Bork-like AG ready to fire Mueller at Trump's behest? Even Senate Republicans have warned him against that move, but can we be certain he will listen?

And what about all the Trump saber-rattling? First North Korea, and now Venezuela? Are these distractions meant to take our eye off the Russian collusion ball? Is this president prepared to sacrifice potentially millions of lives to avoid impeachment? I believe yes, but that's just my opinion. If I am right and any of these scenarios, from the least to the worst come to pass, how will it affect our portfolios? Not in a good way I'm certain. 

Frankly, I'll feel a lot more confident being primarily a preferred investor with the resources that will allow me to survive even a drastic market correction. Prior to Trump's election, I was heavily on margin, today I'm in cash even though I remain heavily invested in the market. How many of you can say the same? Will you survive the calamitous event of a limited nuclear war with North Korea that will most certainly devastate South Korea, the world's eleventh largest economy? What will happen to Japan? How will China react?

I suggest we all investigate the sectors we are invested in to determine how well they performed as a result of the Trump bump. If so, I believe they will reverse themselves as a result of the Trump slump that, as far as I'm concerned, is likely to occur.

This article is presented to provoke thought and discussion, hopefully, an honest and deliberative discourse without the invective of the past. Please, don't kill the messenger if you don't agree with the message. I readily confess my aversion to Trump, which might have colored my thoughts and claims. I welcome any disagreement and thoughtful responses that might prove me wrong. I've stated my case and my prognostications, which are admittedly gloomy. Talk me down, I welcome it.