"There's a Horse Loose in the Hospital!"
What's the best investment strategy?
For those of us who have spent most of the last month open-mouthed and bewildered as we absorb the latest initiatives from America’s new president, the most helpful guidance may come from the comedian John Mulaney, who captured the first Trump Administration in this vivid metaphor. (Do yourself a favor and watch a few minutes of this comic genius at work.)
You may think it’s horrifying to have an unpredictable equine presence in the Emergency Room, or you may believe that only a horse can finally get everyone’s attention. If you are an investor developing a strategy for this uncertain world, you have no choice but to assume a horse.
An important disclaimer, of course, is that investment returns are overwhelmingly determined by economic conditions, industry competition and discounted cash flows. So far this year, the U.S. economy continues to fire on all cylinders with strong corporate earnings, healthy household balance sheets and inflation that still looks headed lower. But sharp policy and geopolitical departures can distort levels of demand and profit margins in important ways.
Let’s first consider a list of investments that will benefit from an American horse determined to take the global economy in a fundamentally new direction.
Everything that is mostly made in the United States, especially semiconductors, steel and aluminum.
U.S. automobile manufacturers (which, if you think about it, is ironic for a horse to protect.)
Defense firms, because America needs more for defense even as it cedes the defense of Europe - to Europe.
Construction firms, which may benefit from lighter regulation and more infrastructure investment.
Hospitality and leisure. (The horse loves hotels)
Financials, which benefit from higher rates and fewer rules.
Oil and gas exploration, although refineries that depend on Canadian crude may have some problems.
Coal, even if the benefits of less regulation won’t fully make up for the fact that natural gas is cheaper.
Minerals and mining, which should all trade higher in a mercantilist world in which countries want to own supplies.
Gold, which even after a recent run looks good amid global uncertainty and inflationary government deficits.
Dollars may lose value against precious metals, but they will gain against other currencies as the U.S. economy runs hot.
Crypto, as the U.S. regulatory framework loosens to embrace the industry. (Recall, the horse issues his own meme-coin, too.)
And watch out for the other horse now loose at Health and Human Services.
Then there are businesses to consider that the horse won’t hurt even in his most disruptive moments.
Industries that mostly source and sell domestically. These may include food, beverage and light manufacturing.
Business services, which aren’t subject to tariffs and will be busy advising clients on how to navigate the horse’s new rules.
Artificial Intelligence will sweep through the economy regardless of policies or preferences in Washington. Blockchain, too.
Eldercare and retirement services, as the class of older spenders continues to grow.
Climate mitigation. Even if you don’t believe in subsidizing clean energy, think of water rights, sea walls and fireproofing.
The investments that look most vulnerable to the horse’s agenda include:
Bonds that will suffer from inflationary pressures fueled by tax cuts and a persistent government deficit.
Exporters in Mexico and Canada, which face a renegotiation of the U.S.-Mexico-Canada Agreement that will not leave them better off.
Wind and solar firms that still rely on subsidies to compete with hydrocarbons.
Health care, if insurance subsidies are cut. (And watch out for the other horse now loose at Health and Human Services.)
Washington, D.C. commercial real estate as the government workforce cuts progress.
Soybean, beef and other farmers that rely on exports are likely to get caught up in the looming trade war.
China, which will face more tariffs and restrictions on its U.S. exports even if the horse negotiates some interim deal.
Other emerging markets, for much the same reason, as even important friends like India look vulnerable to new tariffs.
But if you really, really believe in the horse, there are some wildcards to consider.
U.S. shipping firms that may just get a break on Panama Canal fees.
Real estate in Greenland (or Gaza!)
Bitcoin in advance of the Strategic Bitcoin Reserve.
Betting market contract that Canada will become the 51st state, although beware the odds have fallen from 5% last month to 2%.
Kennedy Center for Performing Arts. Just wait for the IPO.
Or you could just buy the S&P 500, which rose 68% the last time there was a horse in charge, the fifth-best performance during a presidential term since 1981.
