A momentous event occurred on November 8, 2016. This event was predicted by our firm in the letter sent to you on September 16, 2016 when we stated “I believe Donald Trump will win the Presidential election by a large margin (2%+ points).”
On the second page of that letter I went on to say “Trump brings a different refreshing business view to bear (like Governor John Y. Brown Jr did for Kentucky in the 80’s) with an awareness of the danger of our porous borders and the need to make businesses competitive on the global stage. These factors I believe will lead to his inevitable election. What happens after that, from our detailed analysis, should be a very long and sustained economic advance that raises real incomes for American families, produces significant job growth (unlike the slow crawl we’ve seen for the past 8 years) and that puts American jobs, opportunities and safety ahead of political considerations and global governments.” I further explained that history was repeating itself and we were going to see not only the election of President Trump, but, more importantly, a new era that would mirror the Reagan revolution in job creation and real income growth, as well as economic prosperity being extended to all Americans and a new-found respect for the greatness of America among both our allies and our enemies. I guess you could say I’d seen this movie before.
Without Defense, You Don’t Have A Country
Back in 1981, following President Reagan’s inaugural, I was a B-52 pilot. I had been flying operationally for about a year and a half as a young lieutenant. Our military under the Carter administration had become as depleted as our military has under President Obama. Each day when I took my crew into the skies on training missions our lives were truly in jeopardy. They were jeopardized by a lack of spare parts, a lack of maintenance, and a Presidential administration that had a policy of starving the military very much like President Obama. The B-52s I flew were either on fire, or had lost hydraulic pressure (or were having control problems) literally every other flight. One time on short final, on fire, I watched two engines burn off my eight-engine bomber into a field. On another occasion, after landing the aircraft, my crew chief came in and asked me to go back to the airplane with him while we were debriefing the flight. He said he “wanted to show me something”. Boy, did he! The wing of my airplane, a huge eight-engine bomber, had fallen off. Had that occurred while I was flying the airplane, all aboard would’ve died. That’s what a hollowed-out military looks like. That’s where our military is now! This hollowing-out will end shortly because America has spoken and said “No More!” The result of this change in the political winds will be a stronger military, a more respected international presence, allies that trust us, enemies that fear us, and a renewed greatness in the soul, spirit, and character of our nation. Springing out of that will be renewed economic independence and greater economic freedom. Every academic study I’ve read shows that throughout the history of the world, freer societies find themselves with higher levels of economic growth, real income growth, job growth, etc. Expansive government bureaucracies don’t help us – they hinder us and eventually deprive us of our God-given rights.
Long Term Performance Matters
As I dictate this letter at 2:25 p.m. EST, the S&P 500 index is up .78%. However, our average client portfolio is up over 6%! That means that since we called the market’s low, in a letter to you dated February 11, 2016, our client’s assets have grown, after allexpenses, over 23.81% compared to the S&P 500 index return of 18.27%! One of our holdings, Correction Corporation of America, is up by itself at this time 48.81%. Our single largest portfolio element, bank stocks, which make up approximately 40% of our holdings are up between 3.45% and 6.11% at this moment.
With the election of President Trump, we are likely to see what I have predicted in previous newsletters, which is the diminution or repeal of ruinous Dodd – Frank banking legislation which has severely crippled banks’ abilities to lend and has solely been responsible for the near destruction of a large part of our local community banking industry. That’s one reason why we believe our bank stocks are likely to more than double in the next few years.
Our firm underperformed, somewhat, between June of 2015 and February 11th of 2016 as I sought to position our portfolios for this inevitable election result and its equally inevitable long-term economic result. Folks, I believe we are getting ready to repeat the Reagan revolution’s economic miracle – but we’re doing so without Reagan’s economic handicaps. Reagan’s handicaps included the highest oil prices and interest rates in our nation’s history. We are now experiencing the lowest oil prices we’ve seen in many, many years and near the lowest interest rates in our nation’s history. Those two factors become huge tailwinds for our economy over the next 8 or 9 years.
Here’s where I’m going with this line of thought. We are very likely to see our cyclical portfolio, which we’ve worked so hard to build and preserve even during a difficult time in the markets, to see continued significant long-term upside movements. These movements will be powerful and we should see large gains in our single largest portfolio sector -banking. All our holdings, which include a majority in cyclical stocks, should experience similar upside price movements. We do not believe this is a short-term event! We believe this is a long-term event!!If you have cash on the sidelines we recommend you get your money invested now!
Bonds Are Doomed!!
It is also critical that we avoid bond elements at all costs. Bonds (and bond mutual funds) are the biggest investment bubble, in my opinion, of all time. They will decline in value precipitously in the years ahead! In December, at the Federal Open Market Committee meeting, I expect interest rates to be raised again for only the second time in the last 9 years. After that interest rate increase, I expect to see regular interest rate increases which should propel bank stocks upward as will the repeal (or diminution) of Dodd-Frank legislation. The additional promised reduction of unwise, unnecessary over-regulation, (which has made it impossible for bankers to lend to successful businesses and new enterprises) – should lead to long-term significant job growth and wage growth.
During the Reagan revolution, we saw a low out of the Carter era of approximately 700 on the Dow Index. Nine and a half years later that index had risen to over 12,000. Think about that! An increase of 17 times! That’s what happens when you get rid of burdensome overbearing regulation, allow people the freedom to establish a business without crushing bureaucracy, and allow the economy to work its will instead of imposing socialistic philosophies that have failed in every country they’ve ever been attempted in the history of the world. Freer economies consistently have higher GDP growth, higher job growth, and higher wage growth. Our portfolio, by design, was uniquely positioned by our firm to prepare for the event that happened last night. We’ve only just began to see the beneficial long-term results. Invest now!
Our kids won last night. Our grandkids won last night. Our country rejected socialist policies and the policies of appeasement and weakness that have displaced tens of millions of people in the Mid-East and literally led to the murder and rape of hundreds of thousands. Massive illegal immigration has plunged Europe into a path of cultural destruction as immigrants (who bear no allegiance to or tolerance of Western society) attempt to oppose their will, customs and beliefs (very much like the Islamic radicals in the Middle East desire to do) on our European neighbors.
My experience in life is that faith, hope and love always win. And that’s what took the field and won last night. It only takes the courage to try and Donald Trump, a flawed human being and man whose redemption is every bit as assured as mine if he wants it, had that courage. No one is perfect. I know I’m sure not and I don’t assume my company is either. No one looks at the world from the same prism. We have the privilege of working with many “liberal” clients who I deeply respect and love. We were so fortunate to have your trust and your patience as went through a short period of underperformance which, unfortunately, will likely happen again sometime in the next five to ten years. But we will always maintain the long view and a consistent investment philosophy that provides you the best opportunity for excellence in the wealth management of your hard-earned dollars.
Your success is our mission and professionally it’s all we care about. Hold on tight folks because it’s going to be a really, really fun ride! God Bless, Warmest Regards, and God Bless America.
Kelly Buckley, MBA, CFP®
Managing Director for Asset Management