In the past few weeks, my inbox has been blowing up with email messages with big bright headlines advising me what to do with my portfolio before the midterm elections. These pundits and prophets are suggesting all sorts of clever things that you need to do right now to protect yourself from all the changes that could happen if the Republicans either keep or lose control of the House of Representatives.
If you get such an email, do us both a favor and just hit delete.
Three Problems with “The Prediction Machine”
- They look at the short term.
- They look at sensational stories, not at numbers.
- They draw correlations that aren’t actually there.
The arrogance of someone making a confident prediction about election outcomes in the muddled mess that is the state of American politics right now is stunning. Right now, the forecasters and gamblers have the Democrats gaining the House and the GOP retaining control of the Senate. Keep in mind we have 4 weeks to go, and most of these same forecasters had Hillary winning the election and the Kavanaugh confirmation being denied.
The world of politics has been much harder to “game” since 2016. In fact, it’s almost as difficult to accurately predict electoral outcomes as it is to predict stock market moves.
However, as a self-confessed political junkie and undefeated market strategist, I have figured out the one thing you need to do to make money no matter what happens on November 6.
Ignore The Faulty “Prediction Machine,” And Just Do This…
For the sake of argument, let’s say the prediction machine gets it right and the Democrats have control of the House and the GOP holds the Senate. What happens then? There will be a whole lot of noise to be sure as the Democrats talk of impeachment and try to pass bills to roll back some of the things the Republicans have passed in the last two years. Horrifying right?
Not in the least. Even if they can push legislation through the house, the Senate simply won’t sign off. Even if they somehow got the votes to impeach the President, he would not be convicted in the Senate. They will not have anything even close to an impeachment proof majority, so it’s all going to be Kabuki Theatre of the highest order. It will be gridlock, and neither party will be able to push forth its agenda.
Gridlock has historically been very bullish for the economy and the markets. Bill Clinton had congressional gridlock with the GOP controlling Congress and so did Barack Obama for much of his second term. Both saw historic stock market rallies. Democrats held the House while the GOP held the Senate during the Reagan years as well and that decade turned out pretty well for the stock market as well.
What will happen if that scenario plays out? Or what will happen if the GOP retains control of both houses of Congress? How will the stock and bond markets react? Damned if I know. There are lots of opinions, and some are pretty confident and think they know exactly what will happen.
I learned my lessons on “has to happen” outcomes back in the First Gulf War when the start of the ground war meant oil had to soar and stocks would certainly collapse. From the minute the first US tank fired up its engine and began to roll the exact opposite happened. I had to spend a few days dodging the margin clerk and was dependent on the kindness of bartenders for my daily fare unit I scraped up enough to pay off my losses on that “had to happen” situation that never happened.
I learned my lesson then, and now I’ll be kind enough to share it with you.
Here is exactly what I want you to do to get your portfolio ready for the next election.
Go read a book, play with your kids, watch the MLB playoffs, knock back a few bourbons (no carbs) and quit worrying about the short-term noise.
If the collected morons, idiots, and blowhards we elect to serve in 116th Congress starting in January pass something that creates an extraordinary opportunity for us to make money, the numbers will show it and we will buy. If the machinations of the Washington DC version of the Confederacy of Dunces causes one of our stocks to soar to outrageous prices, we will sell it.
We do what works and rely on the numbers and not the stories. Do you for one minute think Warren Buffett is sitting in Omaha worrying about what to do with his portfolio before the election in November? How many trades do you think Carl Icahn made based on his political expectations in the past 60 days? Do you think the honchos and shot callers at top-performing private equity funds like KKR (KKR) and Apollo Global (APO) bought or sold companies based on who may or may not control Congress for the next two years?
The answer to all the above is “No, none, and absolutely not.”
If something needs to be done, the numbers will tell us. We won’t make any money trying to predict what the markets might do, but we can make a big old fat stack of cash reacting to what it actually does.
If you want a crash course in relying on numbers and not on stories, you should make sure you’ve watched my Heatseekers video. It contains the secret to my undefeated track record (thanks to baseball!) and shows you how you can start racking up your own.
To the Max,