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Tips on How to Start Investing

The stock market crashed in 2008 and ushered in the Great Recession. Many who had investments in the stock market sold at huge losses and have stayed away ever since. And many have avoided investing in stocks because of the perceived risk of losing everything. But, the stock market has come back and is at an all-time high! If you missed out on the run up since the crash there is still hope but there are also pitfalls for beginning investors. Here are a few tips on how to start investing.

At What Point Should You Start Investing?

If you are putting money away for a rainy day or for retirement the sooner you start the better your eventual results will be because of the exponential growth that stock investments offer. But first take care of a few essentials. How to start investing in the stock market begins with putting your financial house in order. The high points are that the stock market outperforms other investments over the long term. And before you start putting money into stocks you need to pay off your credit cards because the interest you pay on those is more than a beginner can expect to make on his money in the market. Then you need a place to live and the mortgage interest deduction on your home is an excellent investment. And last before starting to invest you need a cash fund of three to six months income so that when you change jobs or have other expenses that you do not need to pull money out of the market just after a correction.

How to Start

Several years ago we wrote about how to invest $10,000 assuming that you inherit money or have put together that much.

In deciding how to invest 10,000 dollars let’s look at investment horizon, risk tolerance, growth versus income, and diversification as the first considerations on the way to deciding what is a good investment for our first stock. How we envision our investments will help us focus on the stocks that fit our needs. If we are looking to save money for retirement we may choose different investments than if we are saving for a down payment for a house and hope to have built up a substantial amount of capital in, lets’ say, five years. Our risk tolerance should be built upon our ability to absorb the loss of our investments in their entirety. Someone close to retirement may want to look at dividend stocks more closely than growth stocks and a younger investor will certainly want to cash in on the exponential growth of a strong growing company. Diversification is always important as it lets us benefit from growth in different market sectors and commonly cushions losses in one stock/sector with gains in another.

Once you have decided on what approach to take you need to pick stocks. Start with what you know. For example, physicians or pharmacists should be familiar with drugs and drug company products. That sort of specialized knowledge puts them at an advantage in picking stocks. Then a new investor needs to learn to determine intrinsic stock value. That is the value of a stock based on forward looking earnings. When that projected value is greater than market price the stock is a buy and when it is lower it is a stock to sell or avoid. No matter how great a stock tip may seem do your own homework before investing. Aim for a mix of dividend stocks that provide cash return as well as growth stocks with the potential for multiplying their value. And pay attention to your portfolio as you go because what was solid stock one month may be a sell the next.


Which Supermarkets Will Survive?

Amazon.com shocked the investing world by acquiring the high end grocer Whole Foods Market. Which supermarkets will survive as Amazon enters the $800 billion a year grocery market? CNN thinks the move will not work and purchasing Whole Foods will be Amazon’s Waterloo.

The one sector of the retail market Amazon does not have a significant toe-hold in is the gigantic $800 billion a year grocery market. That is until now. With the deal to buy Whole Foods, the online retailer now has a small slice of the grocery market (about 1.2%), which is dominated by a handful of firms like Walmart (14.2%) and Kroger (7.2%).

Clearly the large players are worried. The shares of the biggest supermarket chains fell by about 6% when the deal was announced.

So far, the deal has been great for Amazon. Usually acquisitions lose money for big companies. But Amazon immediately gained over $14 billion on its market capitalization when the deal was announced – that is more than the $13.6 billion the Seattle based company plans to pay for Whole Foods.

Years ago they taught at Harvard Business School that if you could manage one kind of business you could manage any business. It was that kind of thinking that led Xerox to buy an insurance company and then lose billions of dollars when a hurricane hit the Gulf Coast. Amazon accounts for 42% of all online sales. They have caused the unrelenting demise of bricks and mortar businesses. How will this work out? Which supermarkets will survive the head to head competition between Amazon and the likes of Walmart? And will any smaller operations survive? Interestingly it was the founder of Whole Food, John Mackay, who said that the grocery market will be Amazon’s Waterloo.

Are There Good Investments in This Scenario?

Knowing where Amazon’s boss, Jeff Bezos, is going to take this project is difficult because what Bezos does is experiment until he finds out what works and then he does more of that while continuing to experiment. It may be that every Whole Foods store will be an Amazon distribution point. The eternal problem for those wanting to develop an online grocery business is the perishability of produce, the fickleness of customers and the labor intensive nature of the business. There will certainly be losers as Amazon takes on Walmart but knowing who and what right is difficult. The New York Times sees Whole Foods as sustainably sourced guinea pig.

Amazon almost certainly doesn’t know yet how exactly Whole Foods will fit into its long-term plans. You can expect it to make few dramatic changes to Whole Foods in the near future. Instead, Mr. Bezos and his team will most likely spend years meticulously analyzing and tinkering with how Whole Foods works. They will begin lots of experiments. When something works, they will do more of that, then more, and then even more. They may take over the world all the same – and, in the process, probably usher in big changes to large swaths of the economy, affecting everything from labor to urban planning – but they’ll do it in ways we won’t be able to predict now.

What we do know from past history is that Jeff Bezos tends to succeed over time. The stock market saw this when all major grocery chains took a price hit on news of the Whole Foods takeover. Perhaps the ones who should worry are the big stores where Amazon’s automation experience will make inroads. And perhaps the smaller, neighborhood-based chains will do just find as economy of scale will not apply to their businesses so much as proximity and service.

Which Supermarkets Will Survive? DOC

Which Supermarkets Will Survive? PDF

Which Supermarkets Will Survive? PPT


Herd Effect on Global Investing

We recently asked why aren’t you investing offshore. US markets are overpriced and Europe and other regions may have more room to grow.

Buy low and sell high is the age old mantra for investing. With all the hype about bringing jobs back home, reducing taxes and spending on infrastructure, the best deals in stocks today are not in the USA but in foreign markets. Why aren’t you investing offshore?

But can you really get better results outside of the USA? Harvard Business School discusses the issue and says that global investments are still a good bet but there is more to the story. There may be a herd effect on global investing.

Investors in global equity markets have traditionally hedged their bets, casting their investments far and wide across the world. That way, if the market in one country or region stagnated (think Japan in the 1990s or Europe in the 2000s), they could make up the difference in other sectors that are booming.

However, as markets in different countries have increasingly moved in tandem or correlated, from 50 or 60 percent in the 1990s to more than 90 percent after the financial crisis of 2008, that strategy has seemed less and less worthwhile.

The world has become a smaller place. A given country may be experiencing growth but their stock prices may also have been already driven up removing any benefit for you to invest. If all markets are moving together then you might as well stay at home, right? According to the article home bias is short sighted and they site recent research.

The other possibility for increased market correlation is not because national economies have become more intrinsically similar, but because investing has become more global overall, so large equity firms are moving their money together based on the same sentiments. “Today, we have truly global asset managers that make it easy and cheap for any investor to invest in every market. This facilitates the transmission of investor sentiment across markets,” says Viceira.

This is the herd effect. The way to beat the herd is to know what you want, examine the fundamentals and invest accordingly. The writers say this:

“Being globally diversified is basically making a bet that the global economy will be in a better position in 20 or 30 years than it is today”

This is an approach for long term investors mimicking the likes of Warren Buffett who looks at economic growth as the engine that drives stock prices.

Don’t Follow the Herd over the Cliff

When commodities were hot everyone wanted to invest in the BRICS nations (Brazil, Russia, India, China and South Africa). Commodities are not hot and a lot of money was lost in pursuit of huge profits before the economy tanked. On the other hand those who invested for the long haul, putting a little into stocks every month and staying the course with solid companies did not lose much at home or abroad with the 2008 crash or when commodities collapsed. And most of them have recouped any losses and made profits with the recovery. Beware the herd effect on global investing and pick your stocks carefully, ideally sticking to American Depositary Receipts and looking for intrinsic stock value.

Herd Effect on Global Investing DOC

Herd Effect on Global Investing PDF

Herd Effect on Global Investing PPT


What Do You Do When Market Winners Start to Lose?

The stock market rally this year has been largely driven by the high tech darlings known as the FANG (Facebook, Amazon, Apple, Netflix and Google). The first take of many investors after Trump’s election was that industrial, construction related and bank stocks would benefit from his proposed economic stimulus measures. However, all of that has been slow to come if not absent as scandal and inefficiency drag the White House into the muck. Now the realization seems to have hit the market that the high tech darlings may be a little too highly priced and they have all dipped together. Our concern is what do you do when the market winners start to lose? Do you hold on, buy put options or sell and bank your profits? First here is an update on the state of high tech. The Financial Times writes that US tech stocks extend their losses as the week opens.

US technology stocks were under pressure early on Monday, leaving the sector that has led Wall Street’s gains this year poised for another day of losses after Friday’s abrupt rout wiped $140bn in market value.

Market strategists have for some time pointed to potentially stretched valuations for some of America’s biggest tech names, which have enjoyed a blistering rally this year. Until Friday the S&P 500 tech sector was up 21.9 per cent for 2017, compared with 8.7 per cent for the broader benchmark.

Investors have raced into tech, which is thought to provide vigorous revenue expansion even amid a lackluster economic climate, as expectations that a fiscal stimulus plan from Donald Trump’s administration will galvanize the US economy have faded.

Investors have put money into the high tech stocks because these companies are increasing their revenues and profits while other sectors such as retail have flat lined or fallen off. Nevertheless the eventual price of a stock is determined by its forward looking income stream and by the health or weakness of alternative investments. Interest rates are low so bonds are not an especially attractive option. When these market winners start to lose will they fall precipitously or will they merely correct by a few percent? The answer to that will determine whether you sell or wait for a bottom and buy more shares.

A Vote of Correction

Business Insider reports that another Wall Street bank downgrades Apple.

Apple’s stock price is falling after another analyst downgraded the company Monday morning.

Mizuho’s Abhey Lamba downgraded Apple from a buy to a neutral and lowered its price target from $160 to $150.

“We believe enthusiasm around the upcoming product cycle is fully captured at current levels, with limited upside to estimates from here on out,” Lamba wrote in a note to investors.

This analyst does not see disaster looming for Apple but does see the stock as overpriced. If you have been buying Apple in expectation of continual price appreciation you may want to rethink your strategy. Nevertheless Apple pays a decent dividend as in not going away so it can be looked at as a blue chip with dividend instead of a growth darling.

1999 All Over Again?

When the FANG stocks buckled at the end of last week CNBC commented that big tech companies look too much like 1999 not to sell and take a little profit. An asset manager discusses what to do when now and 1999 look all too similar.

How do I handle [tech sector overpricing]? By selling off little pieces of these winners at a time, by rebalancing into other sectors outside of technology, and cash. If I miss upside because of this, so be it. The latter side of the year 2000 was painful for investors. WorldCom, Qwest, Global Crossing, Lucent, JDS Uniphase, AOL, Yahoo, Excite and other hotties of their day, which had multi-hundred billion-dollar valuations, literally saw their values evaporate.

Remember the old saying that you do not have a profit until you have taken a profit no matter how a stock has run.

What Do You Do When Market Winners Start to Lose? DOC

What Do You Do When Market Winners Start to Lose? PDF

What Do You Do When Market Winners Start to Lose? PPT

How to Make Money and Not Lose Your Savings

Anyone who has a little extra cash should be routinely putting something away for a rainy day, college for the kids, retirement or simply a better life. Traditional advice is that you can accept more risk and invest entirely in stocks when you are young and you should convert to less risk as in buying bonds as you age. But what are people really doing to make money and not lose their savings? CNBC writes about the way to invest in your 20s, 30s, 40s, 50s and 60s.

Needs change over time, and the investment mix that worked in your 20s might not be ideal as you get older. But one thing is clear from 401(k) plan data: Investors of all ages are increasing bets on the stock market compared to the way Americans invested for retirement in previous decades.

A useful vehicle for this approach is called a target date fund. These are commonly used for 401k plans.

Vanguard’s most recent How America Saves report, which uses figures from 3.9 million defined contribution plan participants, showed investors younger than 25 had an average of 88 percent of their defined contribution assets allocated to equity. Equity exposure dropped to 75 percent for those age 45 to 49, and 50 percent for 65- to 69-year-olds. Vanguard target-date funds have more than $500 billion in assets.

The problem, unless you have earned so much money that you are filthy rich is to balance risk and potential reward. Ideally you would arrive at retirement and only need bonds and a few dividend stocks. But with interest rates as low as they are many need to keep at least half of their investments in stocks as is done by the Vanguard fund.

Safe and Secure Investments

Warren Buffett has famously said that the first rule of investing is not to lose money and the second rule is to always remember rule number one. Thus any investor should look to safety first and not lose their savings, especially in retirement. Here are thoughts we previously published about safe investments for retirement.

How much money can you spend every year in retirement and not run out? How long will you and your spouse live? And do you want money to be left over for the kids? Forbes writes about safe withdrawal rates so that you won’t run out of money in 30 years.

Traditional safe withdrawal rate literature regularly makes the assumption that retirees will choose a withdrawal rate that will leave precisely no wealth after the final withdrawal in the thirtieth year of retirement. Retirees cling to the inflation-adjusted withdrawal amounts, which leaves them playing a game of chicken as their wealth plummets toward zero.

The writer looks at three scenarios:

  1. The classic case in which wealth is depleted after thirty years,
  2. The case in which the nominal value of retirement date wealth is preserved after thirty years, and
  3. The case in which the real inflation-adjusted value of retirement date wealth is preserved after thirty years.

Read the article for the calculations. In regard to the three scenarios what are safe investment for retirement? You will want growth, cash and stability. That takes us back to solid dividend stocks but also bonds and a portion in cash. But the bottom line is to look at what you are doing, not pay excessively for someone to manage your money and only spend what fits in your live thirty more years and beyond budget.

And always remember to pay attention to what you have, what you are spending and whether your pool of assets is appreciating or being used up.

How to Make Money and Not Lose Your Savings DOC

How to Make Money and Not Lose Your Savings PDF

How to Make Money and Not Lose Your Savings PPT

When Do Terror Attacks Demolish Your Investment Portfolio?

Terrorists hit London just weeks after an attack in Manchester and investors look to see which way the markets will go. At the beginning of this year we asked, “Does extraordinary uncertainty lead to extraordinary market risk.” At the time we were writing about Trump’s plans for economic stimulus and the associated voodoo economics of his proposals. Today we are looking at frequent terror attacks and their effects on markets. In short, when do terror attacks demolish your investment portfolio and when are your investments secure in the face of random acts of violence motivated by politics and religion? Market Watch notes that stocks look for direction in the wake of U.K. terror attacks.

U.S. stocks were little changed near record levels on Monday as investors grappled with a variety of geopolitical issues, both domestic and abroad.

This week will deliver testimony by fired Federal Bureau of Investigation Director James Comey, as well as the U.K. general election, and a European Central Bank meeting. Separately, the recent terror attack in the U.K. could amplify concerns, while a rift among Gulf states, which led to a rise in crude-oil prices, could further dictate investor sentiment.

[T]he fact that we’re not down more after an attack like this is a sign of strength. So long as these kinds of attacks are fairly contained, they won’t change the economic picture.

The issue regarding risk in the market with terrorism or other factors is the presence of growth stocks and leverage strategies. As bad as a terrorist attack is for those affected these events do not change how much Coca Cola we drink, how many Snickers bars we consume or how much laundry detergent we use. Our vacation destination may change from Paris to San Francisco but we will probably still take the family on a getaway. Stocks that typically go up when there are terror attacks or saber rattling across the globe are defense stocks. Stocks that may be hurt a little are airlines, hotels and restaurants in areas that people decide not to visit for the time being. A greater risk to the market now is the ongoing drama in the Trump administration and the investigation into contacts with Russian hackers during the election campaign. It is not likely that Trump will be forced out of the White House but it is likely that his ability to govern and influence the direction of the nation will be greatly reduced. This, more than terror attacks, is likely to hurt or damage your portfolio if you are too heavy into growth stocks or hedge funds that have prospered with the promise of economic miracles from Trump and the Republicans.

We commented on these pages some time back that having the same party in charge in the White House and both houses of congress is not always a recipe for success. Jimmy Carter called congress an Albatross around his neck when the Democrats in control congress rarely agreed with his policies. Growth and leverage are great in an increasing market but can become dangerous when things like terrorist attacks cause concern and a possible correction.

When Do Terror Attacks Demolish Your Investment Portfolio? DOC

When Do Terror Attacks Demolish Your Investment Portfolio? PDF

When Do Terror Attacks Demolish Your Investment Portfolio? PPT

Will Politics Kill Wind Farms?

We just wrote about the bleak future for coal usage for electric power production. This is primarily because natural gas is cheaper and cleaner.  The Trump administration has promised to bring back coal production and appears to be intent to achieving that goal by any means possible. But natural gas is not going away as an energy source. That leaves nuclear and renewable energy sources as the remaining opponents of coal. From the U.S. Energy Information Administration here is the breakdown of U.S. electricity generation by energy source.

In 2016, about 4.08 trillion kilowatt-hours (kWh) of electricity were generated at utility-scale facilities in the United States.  About 65% of this electricity generation was from fossil fuels (coal, natural gas, petroleum, and other gases), about 20% was from nuclear energy, and about 15% was from renewable energy sources. The U.S. Energy Information Administration (EIA) estimates that an additional 19 billion kWh (or about 0.02 trillion kWh) of electricity generation was from small-scale solar photovoltaic systems in 2016.

Here is the breakdown.

  • Natural gas = 33.8%
  • Coal = 30.4%
  • Nuclear = 19.7%
  • Renewables (total) = 14.9%
    • Hydropower = 6.5%
    • Wind = 5.6%
    • Biomass = 1.5%
    • Solar  = 0.9%
    • Geothermal = 0.4%
  • Petroleum = 0.6%
  • Other gases = 0.3%
  • Other nonrenewable sources = 0.3%
  • Pumped storage hydroelectricity = -0.2%

If Trump wants to beef up coal production he needs to reduce nuclear or renewables. The only significant renewables are hydroelectric dams and wind turbine farms. In this light the Department of Energy will be studying whether electricity production credits for wind energy as well as solar are harming other parts of the electric energy sector (coal). The New York Times discusses the political cloud over wind power

Wind farms, with their rapid geographic spread and technological advances, are reshaping the electric system, defying skepticism that they are steady or reliable enough to displace conventional power plants.

“The fuel of choice right now, certainly for us, is wind,” said Ben Fowke, the chief executive of Xcel Energy, which shut down a large natural-gas plant in Colorado for two days in January and let wind fill, on average, half of its customer demand.

Now politics, not skepticism, may be wind power’s biggest barrier. Under new leadership with ties to conventional energy interests, the Energy Department is scrambling to complete an internal study in the next month that could lead to an upending of the policies that fostered the rapid spread of solar and wind.

At issue are electricity production credits for wind and well as solar electricity production. The rationale for these credits was to help a fledgling energy sector compete and develop in order to reduce CO2 emissions, acid rain production and human caused warming of the atmosphere. The point of view of the Trump administration is that coal production is down and jobs in that sector have been lost. They believe that cutting subsidies for renewable energy sources will help their constituency. But how will it help or hurt your investments? From the viewpoint of coal, look at our bleak future for coal article. If tax credits for solar and wind electricity generation go away it will hurt those sectors and probably help natural gas. It will likely not help coal production or bring companies like Peabody out of bankruptcy.

Will Politics Kill Wind Farms? DOC

Will Politics Kill Wind Farms? PDF

Will Politics Kill Wind Farms? PPT

Bleak Future for Coal

A strong message from Donald Trump during the presidential campaign was that he was going to reduce environmental regulations and bring back jobs in the coal sector. That is probably not going to happen. In the USA coal mining companies like Peabody Energy, Arch Coal, Cloud Peak Energy and Alpha Natural Resources produce about 491 million tons of coal a year. This may be the peak of their production and not the trough because power companies are relying more on natural gas and renewable energy sources. They are even closing coal burning power plants. And that includes are areas where coal is mined! There is a bleak future for coal despite the hype of the Trump presidency.

Coal to Natural Gas

According to Forbes the US electrical system is switching from coal to natural gas.

For coal, a smashing combination of low gas prices and increasing environmental regulations has caused power producers to choose gas (and other sources) over coal. Since 2010 alone, gas for power is up nearly 33% to 9.7 Tcf a year.

Through July this year, gas power burn is up 10%, when the hottest summer ever recorded (here) surged demand to an all-time record of 38.2 Bcf/day. In stark contrast, coal demand for power is down 25-30% since 2010. Gas now supplies some 35% of our electricity, double its share 15 years ago.

 

Electric companies have been switching plants from coal to natural gas and closing coal plants. Big consumers like GM and Toyota insist on clean energy and won’t use coal even if environmental regulations are relaxed. That is the bleak future of coal.

Coal Mining Stocks

Peabody Energy is the largest coal producer in the USA as well as in Australia. The stock sold for $27 a share in 2013 and then steadily fell down to $2. It spiked briefly in late 2015 to $24 and then fell again. The company entered bankruptcy in early 2016. Seeking Alpha refers to Peabody Energy as a hedge fund hotel.

  • Peabody went into Chapter 11, wiping out the stockholders and giving little value to unsecured bondholders.
  • The company is now a “hedge fund hotel”, with 80% of its stock held by six funds.
  • One of the funds, Elliot, continues to aggressively add to its position.

Peabody Energy (NYSE:BTU) is one of the saddest stories in recent SA history. The name was followed, and probably owned, by tens of thousands of SA readers. The company extended its leverage for growth, particularly in Australia. When the downturn for the coal industry came, bankruptcy followed. This is typical of many companies in the energy business.

What followed was not typical. The bankruptcy settlement reserved much of the proceeds to certain of the stakeholders, notable a core group of creditors and Peabody management. Stockholders were wiped out and retail unsecured bondholder`s received much less than they expected.

Considering the bleak future of coal and the strong hand that management and hedge funds have in these matters, there seem to  be good stocks to avoid if you don’t own them and to get out of it you do.

Bleak Future for Coal DOC

Bleak Future for Coal PDF

Bleak Future for Coal PPT

Moody’s Debt Downgrade Will Only Make China’s Problem Worse

For the first time in thirty years Moody’s has downgraded China’s debt. Bloomberg discusses the ramifications of China’s downgrade from A1 to Aa3.

The downgrade of China’s debt by Moody’s Investors Service may push Chinese companies to borrow even more money from domestic banks as overseas debt becomes more expensive, increasing risks for the nation’s finance industry.

With growing indebtedness at home, compounded by a slowing economy, there’s a risk of a “negative feedback loop,” said Khoon Goh, head of Asia research for Australia & New Zealand Banking Group who sees state-owned enterprises and property developers feeling the biggest impact. The downgrade will particularly hurt airlines and shipping companies, said Corrine Png, chief executive officer of Crucial Perspective in Singapore.

China’s economy kept going during the 2008 financial crisis and thereafter by borrowing money. Corporate debt was 100 percent of GDP in 2008 and today it is 156 percent. State owned companies took on most of this debt so the government is at risk in case of defaults.

The underlying problem for China is its business model. For decades the land of managed capitalism has borrowed and grown as its markets expanded. But there comes a time when markets are saturated and add in the worst recession in 75 years. Then you have an obsolete business model and a lot of leftover debt. A lower debt rating means higher interest rates at a time when China’s debt is at historic highs. This could descend into a negative feedback loop in which companies borrow more and more money at higher and higher interest rates until they go bankrupt. What does this mean for the rest of us outside of China?

Economic Size versus Growth

The problem for the rest of us if China’s economy tanks is that China has been the growth engine for the last decades. Forbes notes that while China is 15% of the global economy it has constituted 25-30% of global growth. We can see now that this growth has come on the back of ever increasing debt.

Much of Chinese growth simply has to do with producing, buying and selling within China. However, China has been the world’s second largest importer next to the USA according to OEC report on China.

In 2015 China imported $1.27T, making it the 2nd largest importer in the world. During the last five years the imports of China have increased at an annualized rate of 2.3%, from $1.1T in 2010 to $1.27T in 2015. The most recent imports are led by Crude Petroleum which represents 9.4% of the total imports of China, followed by Integrated Circuits, which account for 7.48%.

How Moody’s debt downgrade matters to the rest of us depends on what we want to sell to China. Australia, for example, hurts every time China reduces iron ore and coal imports. And while the USA has a negative trade balance with China there are American companies that make money in China. For example General Motors’ largest market is China and not North America as it increases sales to 10 million vehicles per year. China’s problems with its debt may get worse and the fallout will affect companies and countries across the globe.

Moody’s Debt Downgrade Will Only Make China’s Problem Worse DOC

Moody’s Debt Downgrade Will Only Make China’s Problem Worse PDF

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What Would a Pence Presidency Mean for the Economy?

As troubles mount in the Trump White House the talking heads on TV have started to utter the “I” word, impeachment. As the independent prosecutor investigation proceeds into the question of coordination between the Trump campaign and Russian hackers this issue will linger. No one is really predicting a Trump exit and a Pence presidency just yet but a year ago no one was predicting a Trump presidency! On the outside chance that things go from bad to worse for the 45th president what would a Pence presidency mean for the economy and for the stock market?

Different Economic Messages

The stock market has rallied after Trump’s victory based on the hope that his economic plans will stimulate the economy. For the time being tax cuts, stimulus spending, repatriation of offshore corporate cash and massive deregulation are largely on hold due to dysfunction White House. If tomorrow we all wake up surprised to find Pence in the White House what will be different regarding the economy? Politico said during the campaign that Trump and Pence are peddling competing economic messages.

Donald Trump looks at the economy and sees a “crippled” America, a nation ravaged by incompetent leaders who’ve betrayed the working class – especially in the rust belt, ground zero for the loss of manufacturing jobs.

But one of those rust belt governors, Indiana’s Mike Pence, has spent years touting his state’s economy, noting a drop in unemployment, an increase in factory jobs and a growing workforce.

The problem for Trump is that talk is cheap but getting legislation passed through congress can be difficult, especially when you have routinely insulted everyone with whom you need to work. But what happens if Trump leaves and Pence comes in? Pence will not feel obliged to follow through on all of Trump’s rhetoric. And the Governor from Indiana has experience in crafting legislation and working toward its enactment. The mere thought of a functional White House could be a boost to the stock market. And Pence is more likely to be happy getting something tangible instead of wishing for everything and getting nothing.

Will There Be a Sigh of Relief?

The Trump presidency has been one of continuing drama, lots of talking and little accomplishment. Whatever one thinks of Pence, a Pence presidency would probably be less flashy and more centered on getting the job done. As such one might expect the stock market to react positively. On the other hand if Pence takes over and dumps most of Trump’s economic promises as unworkable the market could correct strongly. We could see a post-Trump economic slump as all of the wishful thinking attached to his promises evaporates.

What Is Pence Doing Right Now?

Business Insider gives us a hint as to what is on the VP’s mind as he started a PAC.

Vice President Mike Pence launched a political action committee last week, which raised eyebrows amid fresh turmoil in the Trump administration.

Some have questioned whether the vice president’s new leadership PAC, which was noted on the Federal Elections Commission’s website Wednesday, was aimed at promoting a possible future presidential bid at a time when some conservatives have started whispering about the possibility of President Donald Trump’s impeachment.

“No Vice President in modern history had their own PAC less than 6 month into the president’s first term,” Roger Stone, Trump’s longtime political adviser and confidant, tweeted Friday. “Hmmmm.”

This does not necessarily mean than Pence is getting ready to be president but on the other hand it does look suspicious.

What Would a Pence Presidency Mean for the Economy? DOC

What Would a Pence Presidency Mean for the Economy? PDF

What Would a Pence Presidency Mean for the Economy? PPT


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