Boris Trumps-on

I took an early morning drive with my son this morning. He had basketball trials.

As we drove through the fog, I flicked on talkback radio…

…and heard Donald Trump reflect on Boris Johnson as the UK’s new PM.

‘They call him “Britain Trump” and people are saying that’s a good thing…They like me over there. That’s what they wanted. That’s what they need. He’ll get it done. Boris is good. He’s gonna do a good job.’

So beautifully narcissistic, it’s funny.

But as a long-term investor in the FTSE and Sterling, the interesting question is what this means for the markets?

If BoJo is indeed Britain’s Trump, at least in the stock market, we could be in for a rich ride.

Since November 2016, shortly after Trump gained power in the US, the Dow has surged from around 17,800 to over 27,300. A jump of over 50% — one of the fastest upward spikes in DJI history. All fuelled by courage. Tax cuts, expansionist and deregulatory policy.

BoJo has promised tax reductions and ‘free ports’ to boost UK growth.

Yet, much of the mainstream financial media seems to be focused on Brexit risk and no-deal doom and gloom for the UK. I seem to remember similar commentary denouncing Trump as the arbiter of American devastation.

Stock prices

Now, I believe most stocks on the market are overpriced.

You must wait for some cataclysmic sort of event to bring them back to their intrinsic value. That is the time to buy. Of course, most investors cannot wait for years to see this. And investment advisors and the funds industry — who undertake most stock trading — cannot wait around at low rates of return on their cash.

Such an event could be Brexit and the long lead-up we’ve been having.

Look at the pricing of a blue-chip British company, hundreds of years old, that I topped up on the other night:

In my upcoming Lifetime Wealth Investor newsletter, I’ll be providing some analysis and research on these sorts of stocks and opportunities. But more on that next week…

Meanwhile, how has the market reacted to the rise of BoJo?

Well, he was the frontrunner in the Tory leadership contest, so to a large extent it’s been priced in. Yet, one interesting thing — many mainstream analysts predicted further weakness in the pound and further wobbles on the FTSE as a no-deal Boris Brexit became more likely.

This hasn’t come to pass. At least not by today’s numbers.

The FTSE blipped upward last night.

The pound held steady against the USD but is up against our NZD and, crucially, the euro.

Seems to me the markets have eaten the no-deal risk now, have digested it and are starting to get hungry again.

And they seem to prefer Boris running the kitchen.

Of course, there’s still going to be volatility as Boris comes up against the ever-difficult EU. But in that volatility will be buying opportunity.

The sort of opportunity that could allow you to buy stocks at below their intrinsic value. A rare event.

EMH warning

Some investment advisors and financial professors will tell you that you can’t really buy stocks at below their intrinsic value. Since the Efficient Markets Hypothesis (EMH) means a stock price holds all available information.

This is sometimes correct. But in times of volatility, it can be patently wrong. Then stocks might be regularly mispriced.

Don’t buy into witchcraft and the hidden agendas of the have-nots.

The Brexit FTSE has already provided examples of neglected, great value, high dividend-paying stocks.

Of course, they are not without risk. The UK economy remains prone to a potential shock. And the no-deal path could be a painful one.

But a good investor will do their homework. Then follow their gut.

And right now, the guts seem to be with Boris.

Regards,

Simon Angelo

Editor, Money Morning New Zealand

Important disclosures

Simon Angelo holds Sterling and positions across the FTSE.