First and foremost, THOR employs a disciplined approach to investing that is based on valuations, not political outcomes.  Many individual investors have a tendency to make emotional investment decisions, some of which are based on political outcomes.  More times than not, these decisions hurt their portfolio returns over the long term.  For example, after President Obama was elected, many investors sold their US domestic equities and either held cash or moved the proceeds overseas.  This could not have happened at a worst time.  At the same time, we looked to the fundamentals and what our models were indicating in making our decisions.  This is what we wrote in THOR’s market update days before the 2008 election:

“Going forward, there are some fundamental criteria that we monitor frequently that are very positive for the stock market the next few months:  1) The US Federal Government and central banks around the world are doing everything they can to avoid a depression.  The printing presses are running to ensure that there is liquidity in the system.  2) The yield curve in the United States is extremely steep (short term rates are much lower than long term rates).  A steep yield curve is very positive and is a sign that the economy will rebound in the months ahead.  3) Historically, the stock market starts rising 3-6 months before the economy recovers.  4) Europe is far behind the US in cutting rates.  In fact, the UK still has an inverted yield curve (short term rates higher than long term rates) which is a drag on the economy.  Europe has a lot of room to cut rates and we believe they will again cut rates in the near future.  Such action helps fuel growth and also makes the dollar more attractive on a relative basis.  5) Stock prices are cheap, not only fundamentally, but also in comparison to the return on US Treasuries.  The stronger the relative growth prospects equity investments have to fixed income investments, the more likely we will see net inflows into the stock market and there is a huge amount of cash on the sideline at the current time.”   10/31/2008

So, fundamentally, how does the market look today?  In stark contrast to 2008 and as we have mentioned in recent market updates, we believe large US companies are expensive at a time when earnings are falling.  Therefore, we are underweight equities overall (especially US large companies) and overweight alternative investments (investments not correlated to the movement of the stock market).  We have found more compelling values in energy, gold miners, business development companies (“BDCs”), emerging markets and master limited partnerships (“MLPs”).  We have always maintained that you can make money in any investment – stocks, art, coins, real estate, etc. – it all depends on the price you pay for the investment.

Before we give our opinion on the election, please keep in mind that it is only an opinion and not fundamentally driven.   There are two things we believe will occur regardless of who becomes President: US large companies will become more fairly valued and interest rates will rise.  However, we believe the timing of these events will differ under Trump and Clinton.

If Trump is elected, we believe the adjustment to US large company valuations and rising interest rates will happen at a faster pace because of:

• Uncertainty (especially on Wall Street)
• Trade policies
  • Large U.S. multi-national companies will be negatively impacted as investors revalue those companies on the belief that trade between countries (whether real or perceived) will slow due to Trump’s trade policies.
• Animosity toward the Federal Reserve
• Lower taxes
  • Lower taxes increase economic growth which in turn will cause interest rates to rise faster.
  • Small company stocks may become more attractive if corporate taxes are lowered because these companies don’t employ lobbyists or tax teams that large companies do to help them reduce or avoid the high U.S. tax rates.
• More volatility
  • With more volatility, there tends to be more opportunity.

If Clinton wins, we believe the re-alignment of US large company valuations and rising interest rates will be more gradual because of:

• Stability (especially as Wall Street sees it)
• No disruption in trade or perceived trade wars
• Continued Federal Reserve policies
• Higher taxes
  • This will reduce economic activity and the Federal Reserve will have a more gradual pace to raising interest rates.
• Less initial volatility in the markets

If the value of large US company stock continues to rise after a Clinton victory, we believe there may be a more severe correction in the stock value over the next couple of years, at least in part because the Federal Reserve will likely increase rates at a slower pace under those circumstances.

THOR believes we have structured our portfolios for growth in the aforementioned areas such as BDCs and MLPs.  And, we are “risk-off” when it comes to US large company stocks.  Investors that have all or a significant portion of their portfolio in US large companies should be concerned.  Our process is driven by a disciplined strategy, fundamentals and valuation.