Your Pre-Inauguration Market Briefing

In his famous soliloquy, Hamlet ponders whether the Great Unknown is better than the familiar misery of life on earth. Eventually, with the help of a poisoned sword, he finds out.

Tomorrow we will find ourselves in a very similar position.

Donald Trump's inauguration is a big day. We're getting rid of a failed president, but we have big questions about the man replacing him. Mr. Trump's track record is a blank slate and his policy statements are often contradictory and inconsistent. Though highly intelligent, he's not a deep thinker; he's instinctual, spontaneous. These may be good qualities for a businessman, but statecraft requires vision, patience and discipline. We have yet to see our President-elect exhibit these qualities.

Trump is pro-business and pro-tax cuts but he's also pro-chaos, and markets don't like chaos. Many of Mr. Trump's policy statements, regardless of their merit, are destabilizing and would be better handled privately or diplomatically, not in the media.

For instance, in a recent pair of confounding interviews with London's Sunday Times and Germany's Bild, Trump called NATO obsolete, predicted that "more countries" would leave the EU (he is correct but this is not something an American president should say to the press), and threatened to impose a 35% import tax on BMW's Mexico-made cars. Perhaps most alarmingly, in an interview with The Wall Street Journal, Mr. Trump departed from a long tradition of presidents refraining from commenting on the dollar – and if they do from talking it down – by saying the dollar is "too strong." This resulted in the dollar falling 1.3%, which means it has given up half its post-election gains. Talking down the dollar is not what markets were expecting of the man who wants to make America great again.

Markets crave stability and they're not getting it from the President-elect. So far he's been somewhat constrained, but became more aggressive in his comments as inauguration day came closer. When he's president there will be little to constrain him.

The bottom line is that Trump constitutes a monumental policy shift, not just away from Obama but from all previous presidents. On foreign policy he is saying some very disruptive things as he breaks not only from Obama's disastrous policies but also from George W. Bush's failed policies of nation building in the Middle East. He is challenging the status quo on trade which may prove to be enormously damaging to markets. And he may cut taxes as much as Reagan but would be doing so with the United States in a much weaker economic position than in the 1980s and little way to pay for it, resulting in much larger deficits that would freak out the bond market.

There is honestly no way to predict what this man is going to do, but I can tell you one thing for certain.

Here's what I know we can expect as we move into these uncharted waters.

This Is the Only Number That Can "Switch Off" the Bull Market

The stock market has enjoyed quite a run since Election Day. But even before Donald Trump surprised the world and won the U.S. presidency, stocks were on an epic run that began in March 2009 at the depths of the Great Financial Crisis. The most impressive aspect of this bull market is that it defied the worst economic recovery in the last century and survived eight years of Obama administration policies that were hostile to economic growth and markets.

Rather than building on a solid economic foundation, the bull market benefited from zero interest rates, lower corporate tax payments, wage suppression and financial engineering in the form of epic levels of debt-funded M&A, stock buybacks and dividend increases. These factors have little if anything to do with the fundamental financial condition of American corporations.

Eight years later, this leaves the markets (which really means the individual companies comprising it) overvalued and overindebted.

The only important question for investors, however, is not where the market has been but where it is going. The answer to that question lies in whether the serious valuation, growth and debt headwinds facing stocks are more powerful than a set of structural forces that developed over the past two decades that pushed stock prices to extremely high valuation levels today – as high as we've seen in the last one hundred years.

Here's why we're being inexorably sucked into a bull market right now.

And here's the only thing that can stop it…

Two Ways the Government Is Lying to You Right Now

We live in an inauthentic world, yet people perceived to be telling the truth are demonized and shunned by the establishment. The fact that it took everybody so long to figure out that mainstream media promoted "fake news" to support their own political agenda is testimony to the fact that we claim to seek authenticity […]

Don't Throw Money at This Piece of Garbage

While struggling retailers like Macy's, Kohls, LBrands and others took it on the chin after reporting lousy fourth quarter results, investors marked up the stock of Sears Holdings, Inc., which pre-announced another quarter of double digit same store sales declines and sold one of its last crown jewels, Craftsman, and borrowed another $1 billion from its controlling shareholder to stay afloat.

By Friday, however, Sears stock was dropping hard again.

The same thing is about to happen to this garbage stock.

This Investment Strategy Is Completely Driven By Fake News (And It's A Real Danger)

"Fake news" is a particularly provocative concept applied to market forecasts now that central banks have destroyed free markets and free thought after the financial crisis.

Guesses about where the market is going – and believe me, they are only guesses, some more educated than others – may appear to be grounded in facts and figures but ultimately tell us more about the psychology of the forecaster than anything meaningful about the markets.

My Full 2017 Market Forecast

My 2016 call for the S&P 500 to drop 10-15% occurred within the first month of last year; stocks spent the rest of the year recovering until they rallied strongly after the election.  That's a fancy way of saying that my year-end call was wrong by a long-shot.  I thought growth would be slow and that the Federal Reserve would move slowly to raise rates, both of which were true.  But markets surprised me by shrugging off signs of economic stress as well as the Brexit vote and rejection of the Italian constitutional referendum.

2016 was a year of surprises – and no doubt we'll see a few in 2017, too.

But after doing a good deal of studying and thinking, I've finalized my market outlook for the next 12 months.

My 2016 Report Card (The Good, The Bad and The Ugly)

A rising tide lifts all boats, so some of the toxic stocks I pointed out last year haven't crashed yet, or haven't fallen as far as I expected. (Some have gone up, though only negligibly). However, you'll still see a generous amount of red in our shorts column (one stock dropped 75% this year) and an even more generous amount of green in our longs column.

I hope you've made some money on these – especially on the long plays. Drop me a line in the comments and let me know how you did.

I try to pick stocks that are so good or so bad that even a year-long nonsense rally can't conceal their true colors. Judge for yourself how well I've done.