When I first heard Donald Trump’s “call to arms,” I laughed.
Make America great again!
He said it with a straight face, and millions of his supporters repeated it without question.
It was quite bizarre.
Certainly I understood the frustration of so many folks in the United States, watching other people build wealth while they continued to struggle. But the idea that something as simple as “Make America great again,” would rally the troops was, for lack of a better word, comical.
But who’s laughing now?
Donald Trump is now the 45th president of the United States, and his rallying cry to make America great again was enough to push him over the top and into the White House. Say what you want about Trump, but if there’s on thing the guy knows how to do it’s work a crowd. Unfortunately, one thing he doesn’t know how to do is strengthen the U.S. economy. And investors would be wise to take advantage of this.
Market Uncertainty Breeds Opportunity
It’s no secret that the market doesn’t like uncertainty. But as we head further into this administration, it’s uncertainty that we’re likely going to get.
Let’s start with the recent Muslim ban.
Without a doubt, this will absolutely affect a number of U.S. companies that rely on the skills and talents of Muslim immigrants. And I’m talking about big companies. Companies like Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MFST) , GE (NYSE: GE) and Goldman Sachs (NYSE: GS).
It also affects the tourism and finance industries, which, as a result of this ban, could lose tens of billions of dollars this year alone.
No one knows if this ban will hold, but based on the uncertainty of it, it should cause some concern for investors who understand that a jittery broader market can crush anything in its path.
The possible deportation of undocumented immigrants – or even attempt at deportation – could also be a huge problem.
If Trump is somehow successful in following through on deporting 11 million undocumented immigrants, he would almost immediately shrink the economy by 2 percent, according to the American Action Forum, which is a very conservative and very pro-business think tank. By immediately removing 7 million workers, thousands of businesses would be affected resulting in a loss of between $400 billion and $600 billion in GDP. The market would not like that. Even the possibility of such a thing being done is something the market will not act kindly to.
Tinkering with Tariffs
President Trump’s call for an across-the-board 10% tariff on all imports is not likely to do any wonders for our economy as well.
Daniel Ikenson from the Cato Institute commented on this, noting the following concerns …
1.) A 10% import tariff would reduce imports, but at the same time result in the dual threat of foreigners with fewer dollars to spend and retaliatory measures that would end up curtailing exports.
2.) With an increase in tariffs will come an increase in production costs for companies operating in the U.S. And this results in giving foreign companies a cost advantage. Tariffs would actually strengthen US competitors while impeding investments in the US.
3.) Adding a 10% tariff on top of a roughly 2 percent tariff that already exists would make it nearly impossible for a number of manufacturers to stay viable. As Ikenson points out, raw materials, intermediate inputs, and capital equipment account for about half of the more than $2 trillion of imported goods.
Exercises in protectionism will only work to strengthen competition while forcing most US citizens to pay a lot more for all the things they can buy right now – at a reasonable cost. Ikenson writes …
Tariffs are very regressive taxes — they disproportionately affect people on the lower ends of the income spectrum. Lower income families spend higher proportions of their budgets on goods than on services, and many of those goods are imported — clothing, shoes, food, etc.,.
The tariff would be akin to a 10 percent tax added to the bill at Walmart.
On top of everything else, consider the following …
Repealing and replacing the Affordable Care Act, but with no real tangible solution to fix this gigantic mess known as Obamacare.
Repealing without a replacement would result in a nightmare scenario were hospitals would likely lose hundreds of billions of dollars while the potential for a public heath crisis could emerge.
Building a giant border wall that will likely cost taxpayers more than the $15 billion estimate.
An estimate from MIT engineers indicates that Trump’s proposed wall would run about $31.2 billion. And this is for a wall that really isn’t going to be very effective.
The bottom line is that supply and demand dictates the flow of undocumented workers, not walls or fences.
While there are plenty of Trump supporters who want to blame the country’s problems on undocumented workers, the truth is, without those workers, everything they buy – from food to clothing – soars in price.
Want to get rid of undocumented workers? Great, get ready to pay 30 percent more for your next box of cereal, pack of ground beef or “affordable” fitted sweatshirt.
As long as we require a steady flow of inexpensive food and clothing items, we will also require a steady flow of undocumented immigrants. So that $31.2 billion wall isn’t helping anybody but the companies that end up building it. And that, my friend, is called an indirect subsidy.
A Blueprint for Incompetence
Donald Trump’s economic plan is essentially a blueprint for fiscal incompetence, continued crony capitalism, and really bad ideas based on little more than protectionist policies that have already been proved to be giant failures.
So as a result of such an economic plan, eventually, the market’s going to respond by sending the bulls out to pasture while waking the bears from their long hibernation. And that’s why, just to play it safe, it’s a good idea to start finding ways to short the market.
A great way to do this is through inverse ETFs, which allow you to protect yourself from a market meltdown that, make no mistake, is coming.
These ETFs come in three flavors: Short (small-risk), Ultra Short (high-risk), and UltraPro (very high-risk).
If you suspect that the market is about to move forward on a negative trend, but you don’t expect it to happen quickly, a Short ETF offers the least amount of risk.
Some of these include:
- ProShares Short Russell2000 (NYSE: RWM)
- ProShares Short SmallCap600 (NYSE: SBB)
- ProShares Short S&P500 (NYSE: SH)
- ProShares Short MidCap400 (NYSE: MYY)
- ProShares Short Dow30 (NYSE: DOG)
- ProShares Short QQQ (NUSE: PSQ)
If you’re a bit more enthusiastic about the market imploding, here are some UltraShort ETFs to consider:
- ProShares UltraShort SmallCap600 (NYSE: SDD)
- ProShares UltraShort Russell2000 (NYSE: TWM)
- ProShares UltraShort MidCap400 (NYSE: MZZ)
- ProShares UltraShort S&P500 (NYSE: SDS)
- ProShares UltraShort Dow30 (NYSE: DXD)
- ProShares UltraShort QQQ (NYSE: QID)
And if you believe that the proverbial poop is going to hit the fan within the next week, check out these UltraPro ETFs
- ProShares UltraPro Short MidCap400 (NYSE: SMDD)
- ProShares UltraPro Short Russell2000 (NYSE: SRTY)
- ProShares UltraPro Short S&P500 (NYSE: SPXU)
- ProShares UltraPro Short QQQ (NYSE: SQQQ)