In my most-recent Seeking Alpha update, I said that “investors can find big winners amid the rubble of recent tax-loss losers. On top of the move being overdone, it’s becoming clear that tax reform may not come until 2018 (due to the time and challenges involved with repealing/replacing Obamacare). Thus, a reversal could be looming. I’ll be presenting my selections as they present themselves via my Instablog, here on Seeking Alpha.”
It was a wild week in the market. The foiled attempted to repeal Obamacare whipsawed stock prices and reversed some trends that had been in place since the election.
Through it all, our largest positions performed very well. Simultaneously, our hedge (a short position against the Russell 2000) has also paid off recently (see chart below). At times like this, this is how I like to play the market — SAFELY — only buying into the most attractive risk/reward opportunities and protecting myself against a market correction by shorting broader indexes (usually the Russell), buying puts, or selling call options.
Regardless of one’s political bias, it should be acknowledged that this week events dealt a blow to the heart of the Trump trade. Some are trying to sugarcoat it as good news, because “Republicans can now start working on the tax reform”. However, without the cost savings that would come from replacing Obamacare, tax reform will now prove to be a more daunting challenge. FYI, UBS had this to say on Friday AM:
“If the health care bill fails, Washington cannot simply just jump to tax reform as a next issue in the queue. Before Congress wrestles with tax reform in any meaningful way, it must pass a fiscal year 2018 budget resolution that gives tax reform the reconciliation protection that will allow it to pass in the Senate with a majority vote instead of the 60-vote threshold required in most votes. Tax reform has always been and will continue to be an issue considered mostly in the third and fourth quarters of this year with possible spillover into next year. A lack of progress in health care would be a setback, but not a fatal one, to any progress on tax reform legislation late this year.”
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