Investing in a Time of Trump

If there's one notable feature of investing in the nascent Trump Presidency, it's uncertainty.  Although macroeconomic statistics are generally good, we are startled every day by a spinning kaleidoscope of tweets, leaks, executive orders, allegations, innuendoes, news stories, fake news stories and occasional court rulings that splatter across our field of vision and further contort the cognitive dissonance in the political scene from the recent election.  When all news and news-substitutes seem to be open to challenge, what can an investor rely on?

The ever-rising market only makes things worse.  With such political confusion, it's far from clear that the economic and tax policies espoused by President Trump will be implemented any time soon.  Why does the market persistently climb higher?  One can only suspect that some market participants have conflated optimism with delusion.  The background music to today's market may not be the Grand March from Aida (https://www.youtube.com/watch?v=TX0qN6QEvGg), but rather Jimi Hendrix's Purple Haze (https://www.youtube.com/watch?v=cJunCsrhJjg).

What can an investor make of all this?  Bear in mind that you can't see a lot of what's going on in the market.  There are major undercurrents, often computer driven, that cause daily market schizophrenia.  Large investors can push the market one way or another in the course of making large purchases or unwinding large holdings.  Mom and Pop investors won't see this or hear about, except maybe after the fact.

Computerized trading can be particularly scary.  It no longer consists of following pre-determined algorithms.  Much of today's computerized trading is dynamic, using artificial intelligence-type programs that try to figure out as the trading day progresses where prices are headed and buy or sell to take advantage of the anticipated market move.  Since much of the trading these programs are observing is done by other computers, we have computers reacting to other computers.  Price, which traditionally has been a judgment call made by intuitive and irrational humans, is now the product of chains of logic.  That logic tends to respond to short term stimuli, such as price movements in the last few minutes, seconds and even milliseconds.  It doesn't factor in the uncertainty in Washington.

People know the future is cloudy.  But the computers don't.  Computers don't feel fear, nor do they have to save for retirement or build up a cash reserve to guard against a layoff or a large unexpected expense.  People may hold onto their cash, wondering if the market is too bubbling given the chaos in the White House.  But a computer may boldly keep buying, egged on by the trades of the past 20 milliseconds.

If you're hesitant about the market, keep your powder dry and your cash in an FDIC guaranteed bank account.  There's no computer program that can understand and explain Donald Trump.  Today's stock market may be too heavily driven by short term inputs, without a full understanding of longer term risks.  Remember the old computer adage: garbage in, garbage out.  If today's computerized trading is pushing the market up based on an incomplete picture, prices will eventually rise too far, if they haven't already.  Then, le deluge.