Influence Investing - April 23, 2015

Click Here For this Week's Full Letter - April 23, 2015

      

Greetings,

          The Fed’s QE program had the stated goal of pushing investors further out on the risk curve, and after seven years of historically loose monetary policy there’s not much further they can go. Junk bonds are yielding less than 4.5%, mutual funds are pouring record amounts of money into start-ups and the biotech sector looks more than frothy. However, the wealthiest citizens are finding attractive valuations in a market that wasn’t available until 2010: politics.

          In 2010, the Supreme Court ruled in favor of Citizens United, which essentially opened the floodgates for unlimited funding of political campaigns by corporations, labor unions and other associations. The 2016 Presidential election is expected to be the most expensive in history. In 2012, candidates spent $2.6 billion but several experts believe that figure will double this time around. Now that several candidates have formally announced they’re running for President, the “VC donors” are stepping up to the plate looking to secure dividends in the form of policy influence. “Value donors” won’t get involved until after the first few primaries take place, and the “trend followers” won’t place their bet until nominations are secured.

          To be clear, this is an issue where neither party has the moral high ground. For every George Soros or Jeffrey Katzenberg funding the Democratic Party, there’s a Koch brother or Sheldon Adelson supporting Republicans. The problem is that these Kingmakers are essentially hand-picking their preferred candidates – not the voters.

          For Democrats, where Hillary Clinton is the runaway favorite for the nomination, donors don’t have many options. It’s a different story for Republicans. The Koch brothers appear to have settled on Wisconsin Governor Scott Walker as their nominee, although Jeb Bush will be given the chance to audition. The Koch’s have said they plan to spend nearly $900 million during the 2016 campaign cycle. Adelson, who is worth an estimated $37.9 billion, hosted several potential candidates at his Las Vegas casino in March but has yet to declare a favorite.

          Last September, there was an “Umbrella Revolution” in Hong Kong involving sit-in protests and mass civil disobedience. The protests started after the Chinese government proposed reforms to the Hong Kong electoral system, whereby they would pre-approve candidates in the 2017 Chief Executive election. The Umbrella Movement died down after a few months, but the protestors are almost guaranteed to re-emerge before 2017. Americans think of the Chinese government as an oppressive regime, but similarities in the electoral process between the US and Hong Kong are obvious. Then again, if you had tens of billions sitting around, investing in a President would deliver much better returns than allocating capital to stocks or bonds.

        

The Cup & Handle Fund is up +0.5% on the year, and +14.5% since inception. My investment pick for February is up +19% since recommendation. My two picks for March are up +18% and 23%, respectively. And my latest letter, sent out on Monday, has already rallied 4%. It’s quite a hot streak that I’ll try to keep going in May. If you’d like to start receiving these letters click here.

Today’s letter will cover several topics, including:

  • Signal or Noise?
  • Concentration of Risk
  • The Russian Abyss
  • Chart of the Week

     

With that, I give you this week's letter:
April 23, 2015

         

As always, if you have any questions or comments or just want to vent, please send me an email at mike@cup-handle.com.

Until next time, tread lightly out there,

Michael Lingenheld

Managing Editor – Cup & Handle Macro

Posted to Cup & Handle Macro Research on Apr 22, 2015 — 4:04 PM
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