Oh, what a November we have in store for us. The financial markets seem to have settled on the cheery consensus that a Biden ‘blue sweep’ is on the cards.
Personally, I think there’s no show like the Trump show. I don’t think there’s anything clear cut about this result.
I’m not saying that’s a good thing. But I’m not investing a penny on the assumption that Biden is president-elect within a month.
What’s interesting about this is that a Trump upset could have the complete opposite effect compared to his 2016 win.
The US markets surged after that election. A Trump win now could send them diving.
Why so? Because Trump has no agenda for his second term. Nobody would know what to price in.
Perhaps we could make one exception to this — the US hard line against China would become more extreme.
Trump already accuses (and apparently believes) China of deliberately unleashing COVID on the world for commercial advantage.
His promise in 2016 to end the trade deficit with China is a failure. And the US military establishment wants to place missiles in the Pacific.
There are shades of the Cuban missile crisis on that last point.
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What’s in Store for Aussie Investors if Trump Wins?
Imagine if the American economy weakens as the previous stimulus wears off and COVID keeps crushing employment and industry. Trump can keep directing voter anger at China for causing it.
Such a scenario leaves Australia in a very awkward position. The Chinese are now said to be hostile to coal and cotton imports from Australia. They also hold the ‘Trump’ card on iron ore.
Any move against this sector and the current share market consensus of a V-shaped recovery gets smashed.
What I do not have a clear understanding on, is why China is targeting Australian goods aggressively.
I cannot help but think they are warning against further military posturing from the Australian government — especially hosting those US missiles.
US troops in Darwin is one thing. But the missiles mentioned above that could hit Chinese cities would be provocative in the extreme.
And yet an aggressive Trump would have no time or patience for a security ally that did not fulfill their obligations.
He already condemns Europe for not paying their share into NATO. Why would a Trump US protect Australia if they don’t do what he wants?
Trump has no time for niceties or diplomacy. His default position, to me, is you are either with him or against him.
That outline, if correct, leaves both the ASX and the Australian economy delicately poised right now.
Of course, the opposite could happen. A Biden win would be seen as a return to international normalcy, traditional statesmanship, and possibly a large stimulus for the US economy in 2021. That, however, looks like it’s in the price already.
It’s hard to see much upside to the stock indices either way in the short term.
Certainly, I expect both the US and Aussie equity rallies to stall as the election gets closer. Markets don’t like uncertainty.
However, I speak of the general market there. Down in the small-caps sector, the riotous party continues.
Take the stock Douugh Ltd [ASX:DOU], for example. It hit the market this month after its IPO and rose 900% in about nine trading sessions.
It’s a ‘neobank’ whose recent account shows it made more money from government grants than customers.
That is to say the current valuation is beyond idiotic.
Broadly speaking, there are two approaches you can take in the small-cap sector.
One is to hunt for the kind of momentum that drives moves like Douugh’s.
You don’t have to quibble about what the stock is worth…you just want to own the one punters are going to bid up next! That’s not as easy as it might look…but it can be done.
A more sure-footed approach is to take the one my colleague Ryan over at Australian Small-Cap Investigator uses.
He finds small companies with bright prospects but makes sure you’re not getting sucked into a ridiculous rally like Douugh right now.
He knows perfectly well it likely will flame out just as quickly as it rose. The odds of making money on it now are terrible.
But a great little business that could power along for years? That’s what the team at Australian Small-Cap Investigator found with Afterpay and bagged a 2,000% return.
While not all small-caps will have the same success as Afterpay, or even succeed at all, Ryan is on the hunt for the next big one.
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
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