Julien B. Booth

Principal & Portfolio Manager

jbooth@forestcapital.net

Dana Christner

Operations Manager

dchristner@forestcapital.net

 

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Two Days Out

January 19, 2017

Good Evening:

 

Election drama past, Inauguration drama to come, we find ourselves in a land far different from the past 8 years.  Opinions and hyperbole aside, Change has arrived.  The Media experts/DNC poll-keepers/Nate Silver/Newsweek may have eternal egg on their faces.  

 

The human mind (investor behavior) often has difficulty adapting to change, preferring biases or ideology to pervert rational decision making.  Love or Hate, we have a new President and a dramatic new policy set.  

 

The following note (see below) from Mark Grant is especially pithy at capturing what matters - the future.  

 

The investment field is littered with the pedigreed, "smartest guy in the room" types who have a major behavioral blind-spot; being able to understand tectonic changes right in front of their eyes.  

 

Mark Grant gets the joke.  Enjoy.  

 

JBB

 

 

“I do not insist," answered Don Quixote, "that this is a full adventure, but it is the beginning of one, for this is the way adventures begin.” 

 

             -Miguel de Cervantes Saavedra

 

 

With Mr. Trump becoming President, on Friday, we are off on an adventure. That is how I am looking at it. Many people, however, do not share my opinion. That is fine. Everyone is entitled to their viewpoint and everyone is entitled to respect.

 

 

It could be argued that it makes no difference, whether you are ready for an adventure or would prefer to wring your hands in anguish and stay home. I would beg to differ here. If you are ready for the adventure then you are active, optimistic and prepared for the new sights and sounds to come. If you cannot bear the thought of losing the old ways, then you are despondent and ill prepared for what may happen next.

 

 

I do not make this argument in stasis. While it is applicable to the world in general, I do not write my commentary for the masses. I make my comment this morning as it applies to professional investors, money managers and those who plot the course for their firms. Whatever your choice may have been on November 8, the decision has been made and off we go, whether you like it or not.

 

 

“Life is two things. Life is morality – life is adventure. Squire and master. Adventure rules, and morality looks up the trains in the Bradshaw. Morality tells you what is right, and adventure moves you. If morality means anything it means keeping bounds, respecting implications, respecting implicit bounds. If individuality means anything it means breaking bounds – adventure.” 

 

               -H.G. Wells

 

 

The key, you see, is preparation. You must try to understand Mr. Trump, what he wants to do and how he is going to get there. If you can grasp this, then you can begin to figure out how to win at the Great Game. If you cannot figure this out, then pull your capital, buy an X-Box and take up computer gaming. 

 

 

You will be better off.

 

 

For me, my first take is that America is going to be run as a business. That is what Mr. Trump knows. That is what Mr. Trump understands and America is going to be run that way.

 

 

I see the biggest change coming in the energy sector. This would be the American energy sector which will then impact all of the rest of the world. It will begin with “Buy American, Sell American and Grow American.” The Permian Oil Basin, in my opinion, will be at the center of this viewpoint and I expect a giant shift in taxes, regulations and tariffs to be a part of this process. As Mr. Trump exclaims, “America First,” again and again and again, I believe he means exactly what he says. Consequently, I am quite bullish on American energy companies both in bonds and equities. 

 

“Step right up,” I say.

 

I am also bullish on the banks. There are likely to be, in my estimation, less regulations, business people at the Fed, lower taxes and this sector should thrive as P/E multiples dive with improved earnings. I also expect ratings to improve markedly as a result of this. You may wish to consider the lower rated banks as an option as we head into this new cycle. Mr. Trump is about to declare a “bank holiday” of a very different sort.

 

 

“Sometimes to change a situation you are in requires you to take a giant leap. But, you won't be able to fly unless you are willing to transform.” 

 

               -Suzy Kassem

 

 

Where I am bearish is on the flip side of some of Mr. Trump’s comments. “America First” also means “Them Second.” This would be other countries, the oil producing nations, the Emerging Markets, foreign banks and foreign manufacturing companies of all types. They will not, in my opinion, fare so well under Mr. Trump’s Presidency and I wave the flag of caution about these diverse groups. There is little doubt in my mind that as Mr. Trump encourages American enterprises that he will discourage foreign enterprises and the carrot and the stick will both be used with full force.

 

 

The “Days of Yore” will end on Friday and a “New Age is Dawning” that will have to be reckoned with in earnest.

 

 

“History is all around us and you, my lucky few, are living in some of it.” 

 

             -M.J. Colewood

 

 

In one particular sense, nothing has changed. Fortunes will be made and lost. The only real question then is which side of that fence you are going to be on? If you recognize the break with the past and invest based upon the new era to come you will win. If you cannot let go of the past, then I am afraid you may lose. The choice is yours.

 

 

Choose wisely.

 

            Mark J. Grant
            Chief Strategist
            Managing Director
            Hilltop Securities    
            Mjgrant@Bloomberg.net
            U.S. 954-463-6001

 

 


Hilltop Securities Inc (Hilltop)prepares this material for institutional investors only. This material may change without
notice, and it does not constitute a research report, solicitation nor financial or legal advice from Hilltop. Hilltop does not verify the accuracy of this material. Hilltop, its affiliates, officers, directors, shareholders, associates, and their family members may invest in noted securities. Hilltop may trade these securities as principal or agent and may perform or seek to perform a range of underwriting and financial services for issuers noted. Securities' prices and availability are subject to change. For more information on noted securities, contact Hilltop Securities.

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