May has not been a friendly month for our nation’s equity markets. Through yesterday’s close, the S&P 500 Index is off 5.33%. This means that, for the first five months of 2019, Spectrum clients have annualized returns, net of all costs, of 12.53%, but also have seen some settling from higher levels during April.
Three events this month have largely influenced short-term investment results. The largest, by far, has been China trade issues. As I mentioned in our recent communications, the upcoming G20 summit, in Japan on June 28th and 29th, will see a sit-down, face-to-face meeting between President Trump and China’s President Xi. While both sides are talking tough at this point, it is our belief that behind-the-scenes trade discussions are still proceeding based on official statements, both from the US and China. It is also our belief that a settlement of these trade issues will occur in the very near future – likely on, about, or within a month of the G20 Summit. That will definitely trigger a major upside move!
The second factor that is causing short-term market angst is last night’s announcement that the Trump administration is imposing a 5% tariff on all imports from Mexico to encourage the Mexican “government”, a pure narco-terrorist enterprise, to take strong action to stop what is clearly now an invasion, by thousands of people per day, at our southern border. This is occurring not only with the knowledge of the Mexican government, but with their explicit cooperation in transporting/busing illegal immigrants all the way up from Mexico’s southern border to cross over points at our southern border. This news did cause a slight downside opening this morning and the market has continued moving sideways as we enter the afternoon. The tariff would rise incrementally to 25% by October 1, 2019 unless Mexico stops this harmful public influx through their entire country and into our own.
Third, the markets this month have been unsettled due to presidential impeachment talk. Aided and imbedded by some very angry Hillary Clinton supporters on Robert Mueller’s team, Mueller has, once again, attempted to muddy the waters on what clearly was a “no Russia collusion and no obstruction” finding in his own DOJ report. So, let us look at the graph below to determine how Former President Clinton’s impeachment affected the values.
09/09/1998 – Report sent to Congress by Kenneth Starr having 11 possible grounds for impeachment
11/09/1998: A House subcommittee hears from legal experts on whether President Clinton’s behavior in the Lewinsky affair rises to the level of an impeachable offense.
01/07/1999: With ceremonial flourishes, the perjury and obstruction of justice trial of President Bill Clinton begins in the Senate, with the swearing in of Chief Justice William Rehnquist to preside and the senators as jurors.
02/12/1999: President Clinton is acquitted of the two articles of impeachment. Rejecting the first charge of perjury, 10 Republicans and all 45 Democrats vote “not guilty.” On the charge of obstruction of justice, the Senate is split 50-50. Afterward, Clinton says he is “profoundly sorry” for the burden he imposed on the Congress and the American people.
Please note the events listed, as well as the chart attached to those events. From the time of Ken Star’s report being sent to Congress on September 9, 1998 until Clinton’s acquittal in the U.S. Senate (the current U.S. Senate will also acquit by not even taking up a potential action – according to Senate Leader Mitch McConnell), the S&P 500 rose 22.25%!
Looked at over a different time period, from the time of the Star referral to the House of Representatives to the end of 1999, the S&P 500 rose 46.02%!
Impeachment is a losing game for liberals. Vainly and foolishly trying to unseat a duly elected president, and defy the will of the American people, not only will not succeed, but with a conservative majority in the U.S. Senate it will take precious time away from solving real problems, which our “courageous” politicians do not want to consider. You know – problems like President Trump is taking on with trade policies that were allowed by our government, for 40 years, to benefit our allies and enemies overseas while plundering jobs of middle class Americans, policies like confronting the thievery of our industrial and defense secrets carried on by the Communist Chinese for decades with absolutely no serious effort made to stop their thievery by American presidents – both Republican and Democrat, and policies pertaining to the protection of our borders and the very American way of life that protection helps guarantee. So impeachment is likely to be not only good for your investment account, but it will also lead, inevitably, to accelerate the continuation of rational and pragmatic policies that have been put forth by a president who has finally put his countrymen first and stopped apologizing for America’s leadership and wealth.
Play the Long Game
The title of this letter is “Play the Long Game” because that is exactly what our firm does well in the growth and preservation of your assets. Playing the long game means holding onto our significantly undervalued positions that have appreciated at a rate well above the market (after all client expense) but that are, by my estimation, 30-40% undervalued once the Chinese trade issue is resolved. Playing the long game means fleeing from the market only in recognition of a lengthy recession, but embracing short-term corrections, like we saw in the month of May, knowing that they inevitably end short-term as rationality returns to the investment equation.
Your account is performing superbly, relative to the market, and is extremely well positioned for powerful upside movements as well as strong downside protection. Remember that playing the long game means staying invested, fleeing only from the market in cases of an incipient recession, and ignoring short-term turmoil that distorts market values and then recovers quickly when those distortions are removed. As always, please feel free to call me or any of our professionals if you have any questions and thank you for the privilege of helping preserve and grow your family’s wealth.