A QUARTERLY

INVESTMENT

NEWSLETTER

PUBLISHED

EXCLUSIVELY

FOR CLIENTS

OF SEASONAL

STRATEGY

THE CONSERVATIVE STRATEGIST APRIL 2016 APRIL 2016

The Markets March 31, 2016 Price/Yield Gain, Qtr Gain, YTD

US Stocks (S&P 500/Vanguard Index) 2059.74 1.31% 1.31%

International Stocks (Vanguard Index) 14.42 -0.18% -0.18%

Emerging Markets Stocks (Vanguard Index) 21.89 5.33% 5.33%

Real Estate Stocks (Vanguard REIT Index) 27.83 6.24% 6.24%

Bonds (30 year US Treasury/Vanguard Index) 2.61% 8.30% 8.30%

Dollar (US Dollar Index) 94.59 -4.10% -4.10%

Gold (London Afternoon Fix) $1237.00 16.70% 16.70%

Money Market Funds (IBC Index/7-day yield) 0.11% +0.05% +0.05%*

*change in yield

The Conservative Strategist is researched, edited, and published quarterly by Robert J. Gavrich of Seasonal Strategy, an Investment Adviser registered with the Securities and Exchange Commission. All contents contained herein are derived from data believed to be reliable, but accuracy cannot be guaranteed. Bear in mind that past performance does not guarantee future results. The officers of Seasonal Strategy may from time to time hold positions in securities mentioned in this news-letter. The information and opinions herein are subject to change without notice. Reproduction in whole or in part without the express written consent of Seasonal Strategy is prohibited. Form ADV-II available upon request.

Robert J. Gavrich Registered Investment Adviser President, Seasonal Strategy

1517 Fountain Street • Alameda, CA 94501

©2016 Seasonal Strategy

Phone 415.956.1721

Fax 415.956.1722

Email bob@seasonalstrategy.com

It’s an election-year like no other, with brash-talking billionaire Don-ald Trump hogging much of the

media spotlight. The focus has been on Trump’s xenophobic stances and insulting behavior. He has come under much criticism for his views toward women, Mexicans, Muslims and others. He harbors what can mildly be termed non-consensus views about immigra-tion, climate change (which he calls a hoax), healthcare, the use of torture (he wants to go beyond waterboarding), and our role in the Middle East.

So too on trade policy. Trump seems ready to initiate a trade and currency war with China, Japan, and other adver-saries. He talks again and again about how China manipulates its currency and suggest that we should do it too if Chi-na persists. “We don’t win anymore,” he says at nearly every campaign stop. Trump seems ready to engage in what is called competitive devaluation — de-valuing the Dollar to make our exports more competitive. (He also is ready to rip up trade deals, impose punitive tariffs on Chinese imports and force companies such as Apple to bring manufacturing back to the US, as CNBC reports).

It may not be a coincidence that as Trump has assumed Republican front-runner status these past few months, the US Dollar has begun to decline, Gold has climbed $200 an ounce, gold miners are up 50% from their lows, and real assets everywhere have revived. Investors, after all, are taking notice and beginning to lay bets on the prospect of a Trump presidency.

Who does this benefit? Well, for one, Donald Trump.

Forbes magazine estimates that of his $4.5 billion fortune, Trump’s portfolio

consists of 80% real estate holdings, roughly 10% in licensing arrange-ments, and approximately 10% stock investments and cash. Of the 90% in real estate, nearly all of it is in prime US properties. Think Trump Tower, Trump World Tower, Trump Plaza, and ten domestic golf clubs, among many other holdings.

So what happens to prime US real es-tate as the US Dollar falls? It gets easier for foreign investors to afford. Even if we engage with China and Japan in a currency race to the bottom, a lower Dollar means more attractive US real estate to Europeans, Russians, Aus-

tralians, and many others. And to the extent we can successfully devalue rela-tive to the Renminbi and the Yen, the Chinese and Japanese will also better be able to buy or lease Trump property.

The strong US Dollar of the last few years has held foreigners back from buying luxury real estate in the US. Has frustration with the strong Dollar helped shape Trump’s trade policy? About a man who has turned at least one of his primary victory speeches into a bizarre infomercial for his brand items, one must ask: Where does Trump the businessman end and Trump the politician begin? ■

How Donald Trump can profit from his own campaignA C C R U I N G T O T R U M PS P E N T B Y T R U M P

$4 million+Paid so far to Trump companies affiliated

with his campaign.

$22.5 million5% improvement in worth of Trump’s licensing deals, as

a result of free worldwide publicity.*

$175 million5% improvement in Trump’s real estate income and

valuation as a result of US Dollar decline from currency devaluation fears.*

Donald Trump has a history of making deals and ventures that benefit Donald Trump, in ways both tangible and intangible. The biggest prize would be a reduction or elimination in estate taxes — a possibility under a Trump presidency, combined with a Republican Congress.

<$27 millionNearly all of it in the form

of loans from himself, potentially reimburseable

in whole or part.

* Seasonal Strategy estimates as of March 2016

Stocks like Democratic presidents (though again, it’s not that simple)

Conventional wisdom has it that Republican presidents are better for the economy and the stock

market than Democratic presidents. Conventional wisdom is wrong.

President: Democrats beat Republicans

When it comes to the Dow Jones Industrial Average, it has fared far better when a Democrat occupies the White House (see graph). In fact, the only three significant drops during a Presidency since 1921 have come dur-ing the terms of Republican presidents — Hoover, Nixon, and George W. Bush.

In all three instances, a case can be made that the stock market weakness wasn’t due to the President alone.

Hoover, for instance, came into office just months before the crash of 1929. Nixon was unfortunate enough to preside over the OPEC oil embargo that sent oil prices up ten-fold and triggered a deep recession. And George W. Bush not only took office in the midst of this century’s first great bear market, but also endured the housing bust and the 2008/9 banking crisis.

But as strong a case can be made for Presidential responsibility. Herbert Hoover’s disastrous trade policy (the Smoot-Hawley tariff), Nixon’s Water-gate debacle, and George W. Bush’s financial deregulation, two unnecessary wars, and tax cuts for the rich, all con-tributed to or accelerated the market declines during their tenures.

Congress: A different story

Investors seem to like their executive branch Democratic and their legislative branch Republican. Stocks do quite well when Congress is controlled by Repub-licans (both houses net Republicans), whether the President is a Democrat or a Republican.

Further, investors don’t even mind that Congress is controlled by Democrats (or split) when a Democrat also controls the White House. This has occurred for 38 years since 1926, and the market is up low double-digits on average during those years.

The one scenario that the stock market has trouble with is a Republican in the White House combined with either a Democrat-controlled Congress or a split Congress. Since that’s the least likely outcome of the 2016 races, there’s at least one less worry for equity investors.

Meanwhile, the overall most bullish combination — a Democratic President combined with a Republican-controlled Congress — is a real possibility coming out of this election year.

And then there’s the Fed …

Again, these findings are to be taken with more than a grain of salt, not only because of the small sample, but because of the influence of extraneous factors. When interest rates have been at extremes, as they are now, economic power tends to flow from the branches of government toward the Federal Reserve. In the next few years, Janet Yellen’s decisions may matter more than those of politicians for the economy and markets. ■

Is Donald Trump talking his own book?

Stocks like DemocratsAverage annual Dow Jones Industrial Average gain since 1901

The US stock market does four percentage points per year better under Democrats than Republicans — a big edge. But here, too, we have an insufficient sample: Since 1901, we have seen only eight Democrats and eleven Republicans in the White House. Statistically, we’d need at least 20 of each for a significant conclusion (and we can’t go back to the 19th century, because the parties didn’t stand for the same principles that they do in the 20th and 21st centuries). Source: Bespoke Investment Group

DJIA Percent Change (%)

President Start End Change as President Annualized Return

T Roosevelt 9/14/1901 3/4/1909 21.6 2.7Taft 3/4/1909 3/4/1913 -1.3 -0.3Wilson 3/4/1913 3/4/1921 -6.9 -0.9Harding 3/4/1921 8/2//1923 17.4 6.9Coolidge 8/2/1923 3/4/1929 255.9 25.5Hoover 3/4/1929 3/4/1933 -82.8 -35.6FDR 3/4/1933 4/12/1945 194.4 9.3Truman 4/12/1945 1/20/1953 81.7 8.0Eisenhower 1/20/1953 1/20/1961 120.3 10.4JFK 1/20/1961 11/20/1963 12.2 4.1Johnson 11/22/1963 1/20/1969 30.9 5.3Nixon 1/20/1969 8/9/1974 -16.5 -3.2Ford 8/9/1974 1/20/1977 23.4 8.9Carter 1/20/1977 1/20/1981 -0.9 -0.2Reagan 1/20/1981 1/20/1989 135.1 11.3Bush I 1/20/1989 1/20/1993 45.0 9.7Clinton 1/20/1993 1/20/2001 226.6 15.9Bush II 1/20/2001 1/20/2009 -24.9 -3.5Obama 1/20/2009 12/31/2014 124.1 14.5Average 60.8 4.7Average Republican 44.8 3.0Average Democrat 82.7 7.0

Portfolio

Planning

SuperDiversified

Portfolios (SDPs)

How the Sectors

Performed

P I C K S & P A N S

Asset Mutual Performance PerformanceClass Fund 1st Quarter ’16 Last 12 Months

SuperCash PIMCO Instl Low Duration 0.48% 0.31%

Merger 0.98% -1.24%

Calamos Market Neutral 0.16% 0.66%

US Stock Vanguard Index Trust 500 1.31% 1.65%

US Bond Vanguard Long-Treasury 8.30% 2.58%

US Small Stock Vanguard Small-Cap Index 0.97% -7.25%

Intl Stock Vanguard Intl Index -0.18% -8.24%

REIT Vanguard REIT Index 6.24% 3.75%

Real Assets Oppenheimer Real Assets 0.00% -22.33%

This quarter was a tale of two ‘eighths’

Risk assets had their rockiest start to a year since 2009, with most major asset classes (except bonds) down 10% to 14% in the first six weeks of 2016. Then, start-ing February 12, all major asset classes began a rebound that took them all the way back to end-of-2015 levels by late March.

Emerging markets finally outperforming

Bank loan CEFs: Cheap enough?

SDP1 Conservative SDP2 Moderate

20%Real Assets 30%

SuperCash

10%REIT

10%Intl Stock 10%

US Small Stock

10%US

Bond

10%US Stock

20%Real Assets

20%US Stock

10%REIT

20%Intl Stock

20%US Small Stock

10%US Bond

Best

Worst

Emerging markets stocks have for some time been the cheapest of the major equity asset classes. But for some time, they’ve continued to languish relative to both US stocks and developed foreign stocks. That may be changing.

In the six-week swoon to start the year, emerging markets followed US stocks down in almost lock-step fashion. But in the rebound of the quarter’s last six weeks, they have outperformed both US stocks and developed foreign stocks by a substantial margin.

Senior secured bank loans are a skittish person’s way of investing in high-yield bonds. First, bank loans don’t carry the interest

rate risk of conventional high-yields, because their income payments float with the prevailing level of rates.

Second, the bank loans are highly collateralized, so in the unlikely event of default, recovery rates tend to be pretty high, historically averaging 60% to 80% of par value.

Third, the yields are attractive to today’s income-starved investors, especially in a closed-end fund format. Take a typical bank loan paying a 4.5% yield at par value. Recently, such loans sold for about 90 cents on the dollar, thus raising their average yield to roughly 5%. Closed-end bank loan funds combine dozens, even hundreds of loans un-der one roof. These closed-end funds (CEFs) them-selves recently traded at an average 10% discount to their own Net Asset Values (NAVs), thus raising the underlying yields further while diversifying risk. Some mild leverage can enhance yield even further, toward 7%.

Bank loan funds are reasonably priced today, but carry risk (see below). We’d like to see them get cheaper. That will happen at the leading edge of a recession or early in one, when investor concerns about default rates are at a fever pitch. We’re not there yet.

The above model portfolios are not intended to indicate the performance of any real account, but reflect the composite performance, before fees, of the percentage alloca-tions in the asset classes and funds listed in the table below. Seasonal Strategy’s actual allocations vary from these models, and among portfolios.

1st Quarter Last 12 Months 1.83% -5.22%

1st Quarter Last 12 Months 1.87% -6.53%This V-shaped rebound was quite un-expected, though somewhat consistent with election years when an incumbent isn’t competing (see page 2). Most asset classes were overvalued at year-end and in need of a substantial correction, and the late-quarter climb has put them again in overvalued territory.

Election years and the US stock market

I’ve been asked lately: “How do you think politics (the election/campaign season/Donald Trump)

will affect the stock market?” The question is simple. The answer is trickier.

Election years mildly positive, but…

There is a distinct pattern to the four-year election cycle, with pro-nounced strength in Year Three (as the President moves to stimulate the economy prior to campaign season). That’s followed by mild strength in Year Four (election year), and a distinct letdown in Year One, the post-election year, after the stimulus is fully spent, and when campaign optimism gives way to the realities of governing.

First term/second term

That’s the pattern when an incum-bent runs for re-election. But what

about when he doesn’t? What about election years at the end of two-term presidencies, so-called ‘eighth years’?

As you might suspect, the pattern here is markedly different. With-out the customary pre-election stimulus from an incumbent up for re-election, the economy tends to languish and the stock market tends to sag.

Eighth year pattern

Eighth year stock markets tend to follow a recurrent theme: Investors hate uncertainty.

First, since the incumbent is not running, the presidency is seen as ‘up for grabs’. Prevailing investor anxiety is why the average eighth year is a down one for the stock market (see graph).

Second, the path the stock market takes in Year Eight traces the waves of political uncertainty. As the year begins, the uncertainty of the pri-mary races heightens investor anxi-ety, pressuring prices. In the spring, as the primary races clarify, prices bounce back. Then, as investors refocus on the general election race and the possibility of two radically different outcomes, stocks tend to decline anew right into the elec-tion month of November. Finally, only once that election removes uncertainty does price tend to find a bottom.

Reasons for skepticism

While the election year pattern is powerful, there are reasons to doubt its predictive power. First, with only eight two-term presiden-cies since 1901, statisticians would say that there’s not enough of a sample to draw any conclusions. Second, fundamentals tended to overwhelm seasonals, with two presidents (Teddy Roosevelt, Tru-man) dying in their eighth year, and with bubbles bursting/recessions oncoming in two others (2000, 2008). Finally, even reliable patterns can be arbitraged away by antici-pating traders, as has occurred with other seasonals.

But overall, the history of eighth years certainly is not supportive of stock prices for the remainder of 2016. A particularly divisive general election battle ahead will not warm investors’ hearts, at least until it’s resolved. And as we show with the evidence on Page 4, investors should be concerned as to just how it is resolved. ■

Eighth year anything but the charmComposite performance of Dow Jones Industrial Average since 1901 All elections years vs. eighth years of Presidential terms

Note that the US stock market tends to sag at the beginning of eighth years (as it has this year), then come all the way back or nearly so (as it has also), then sell off again from mid-April to mid-November as the uncertainty and acrimony of the general election campaign takes hold. Source: Stock Trader’s Almanac

A safe yield?Some caveats about bank-loan CEFs

■ A recession may be overdue, and may be a doozy.

■ When default rates rise, they can rise swiftly and dramatically.

■ Many recent bank loans were made with cove-nant-lite provisions, favorable to the borrowers.

■ Leverage in some funds will accentuate losses.

8

6

4

2

0

-2

-4

-6

-8

-10

-12

-14

-16

-18

PE

RC

EN

T

CH

AN

GE

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

All Presidential Election YearsEighth Years

Portfolio

Planning

SuperDiversified

Portfolios (SDPs)

How the Sectors

Performed

P I C K S & P A N S

Asset Mutual Performance PerformanceClass Fund 1st Quarter ’16 Last 12 Months

SuperCash PIMCO Instl Low Duration 0.48% 0.31%

Merger 0.98% -1.24%

Calamos Market Neutral 0.16% 0.66%

US Stock Vanguard Index Trust 500 1.31% 1.65%

US Bond Vanguard Long-Treasury 8.30% 2.58%

US Small Stock Vanguard Small-Cap Index 0.97% -7.25%

Intl Stock Vanguard Intl Index -0.18% -8.24%

REIT Vanguard REIT Index 6.24% 3.75%

Real Assets Oppenheimer Real Assets 0.00% -22.33%

This quarter was a tale of two ‘eighths’

Risk assets had their rockiest start to a year since 2009, with most major asset classes (except bonds) down 10% to 14% in the first six weeks of 2016. Then, start-ing February 12, all major asset classes began a rebound that took them all the way back to end-of-2015 levels by late March.

Emerging markets finally outperforming

Bank loan CEFs: Cheap enough?

SDP1 Conservative SDP2 Moderate

20%Real Assets 30%

SuperCash

10%REIT

10%Intl Stock 10%

US Small Stock

10%US

Bond

10%US Stock

20%Real Assets

20%US Stock

10%REIT

20%Intl Stock

20%US Small Stock

10%US Bond

Best

Worst

Emerging markets stocks have for some time been the cheapest of the major equity asset classes. But for some time, they’ve continued to languish relative to both US stocks and developed foreign stocks. That may be changing.

In the six-week swoon to start the year, emerging markets followed US stocks down in almost lock-step fashion. But in the rebound of the quarter’s last six weeks, they have outperformed both US stocks and developed foreign stocks by a substantial margin.

Senior secured bank loans are a skittish person’s way of investing in high-yield bonds. First, bank loans don’t carry the interest

rate risk of conventional high-yields, because their income payments float with the prevailing level of rates.

Second, the bank loans are highly collateralized, so in the unlikely event of default, recovery rates tend to be pretty high, historically averaging 60% to 80% of par value.

Third, the yields are attractive to today’s income-starved investors, especially in a closed-end fund format. Take a typical bank loan paying a 4.5% yield at par value. Recently, such loans sold for about 90 cents on the dollar, thus raising their average yield to roughly 5%. Closed-end bank loan funds combine dozens, even hundreds of loans un-der one roof. These closed-end funds (CEFs) them-selves recently traded at an average 10% discount to their own Net Asset Values (NAVs), thus raising the underlying yields further while diversifying risk. Some mild leverage can enhance yield even further, toward 7%.

Bank loan funds are reasonably priced today, but carry risk (see below). We’d like to see them get cheaper. That will happen at the leading edge of a recession or early in one, when investor concerns about default rates are at a fever pitch. We’re not there yet.

The above model portfolios are not intended to indicate the performance of any real account, but reflect the composite performance, before fees, of the percentage alloca-tions in the asset classes and funds listed in the table below. Seasonal Strategy’s actual allocations vary from these models, and among portfolios.

1st Quarter Last 12 Months 1.83% -5.22%

1st Quarter Last 12 Months 1.87% -6.53%This V-shaped rebound was quite un-expected, though somewhat consistent with election years when an incumbent isn’t competing (see page 2). Most asset classes were overvalued at year-end and in need of a substantial correction, and the late-quarter climb has put them again in overvalued territory.

Election years and the US stock market

I’ve been asked lately: “How do you think politics (the election/campaign season/Donald Trump)

will affect the stock market?” The question is simple. The answer is trickier.

Election years mildly positive, but…

There is a distinct pattern to the four-year election cycle, with pro-nounced strength in Year Three (as the President moves to stimulate the economy prior to campaign season). That’s followed by mild strength in Year Four (election year), and a distinct letdown in Year One, the post-election year, after the stimulus is fully spent, and when campaign optimism gives way to the realities of governing.

First term/second term

That’s the pattern when an incum-bent runs for re-election. But what

about when he doesn’t? What about election years at the end of two-term presidencies, so-called ‘eighth years’?

As you might suspect, the pattern here is markedly different. With-out the customary pre-election stimulus from an incumbent up for re-election, the economy tends to languish and the stock market tends to sag.

Eighth year pattern

Eighth year stock markets tend to follow a recurrent theme: Investors hate uncertainty.

First, since the incumbent is not running, the presidency is seen as ‘up for grabs’. Prevailing investor anxiety is why the average eighth year is a down one for the stock market (see graph).

Second, the path the stock market takes in Year Eight traces the waves of political uncertainty. As the year begins, the uncertainty of the pri-mary races heightens investor anxi-ety, pressuring prices. In the spring, as the primary races clarify, prices bounce back. Then, as investors refocus on the general election race and the possibility of two radically different outcomes, stocks tend to decline anew right into the elec-tion month of November. Finally, only once that election removes uncertainty does price tend to find a bottom.

Reasons for skepticism

While the election year pattern is powerful, there are reasons to doubt its predictive power. First, with only eight two-term presiden-cies since 1901, statisticians would say that there’s not enough of a sample to draw any conclusions. Second, fundamentals tended to overwhelm seasonals, with two presidents (Teddy Roosevelt, Tru-man) dying in their eighth year, and with bubbles bursting/recessions oncoming in two others (2000, 2008). Finally, even reliable patterns can be arbitraged away by antici-pating traders, as has occurred with other seasonals.

But overall, the history of eighth years certainly is not supportive of stock prices for the remainder of 2016. A particularly divisive general election battle ahead will not warm investors’ hearts, at least until it’s resolved. And as we show with the evidence on Page 4, investors should be concerned as to just how it is resolved. ■

Eighth year anything but the charmComposite performance of Dow Jones Industrial Average since 1901 All elections years vs. eighth years of Presidential terms

Note that the US stock market tends to sag at the beginning of eighth years (as it has this year), then come all the way back or nearly so (as it has also), then sell off again from mid-April to mid-November as the uncertainty and acrimony of the general election campaign takes hold. Source: Stock Trader’s Almanac

A safe yield?Some caveats about bank-loan CEFs

■ A recession may be overdue, and may be a doozy.

■ When default rates rise, they can rise swiftly and dramatically.

■ Many recent bank loans were made with cove-nant-lite provisions, favorable to the borrowers.

■ Leverage in some funds will accentuate losses.

8

6

4

2

0

-2

-4

-6

-8

-10

-12

-14

-16

-18

PE

RC

EN

T

CH

AN

GE

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

All Presidential Election YearsEighth Years

A QUARTERLY

INVESTMENT

NEWSLETTER

PUBLISHED

EXCLUSIVELY

FOR CLIENTS

OF SEASONAL

STRATEGY

THE CONSERVATIVE STRATEGIST APRIL 2016 APRIL 2016

The Markets March 31, 2016 Price/Yield Gain, Qtr Gain, YTD

US Stocks (S&P 500/Vanguard Index) 2059.74 1.31% 1.31%

International Stocks (Vanguard Index) 14.42 -0.18% -0.18%

Emerging Markets Stocks (Vanguard Index) 21.89 5.33% 5.33%

Real Estate Stocks (Vanguard REIT Index) 27.83 6.24% 6.24%

Bonds (30 year US Treasury/Vanguard Index) 2.61% 8.30% 8.30%

Dollar (US Dollar Index) 94.59 -4.10% -4.10%

Gold (London Afternoon Fix) $1237.00 16.70% 16.70%

Money Market Funds (IBC Index/7-day yield) 0.11% +0.05% +0.05%*

*change in yield

The Conservative Strategist is researched, edited, and published quarterly by Robert J. Gavrich of Seasonal Strategy, an Investment Adviser registered with the Securities and Exchange Commission. All contents contained herein are derived from data believed to be reliable, but accuracy cannot be guaranteed. Bear in mind that past performance does not guarantee future results. The officers of Seasonal Strategy may from time to time hold positions in securities mentioned in this news-letter. The information and opinions herein are subject to change without notice. Reproduction in whole or in part without the express written consent of Seasonal Strategy is prohibited. Form ADV-II available upon request.

Robert J. Gavrich Registered Investment Adviser President, Seasonal Strategy

1517 Fountain Street • Alameda, CA 94501

©2016 Seasonal Strategy

Phone 415.956.1721

Fax 415.956.1722

Email bob@seasonalstrategy.com

It’s an election-year like no other, with brash-talking billionaire Don-ald Trump hogging much of the

media spotlight. The focus has been on Trump’s xenophobic stances and insulting behavior. He has come under much criticism for his views toward women, Mexicans, Muslims and others. He harbors what can mildly be termed non-consensus views about immigra-tion, climate change (which he calls a hoax), healthcare, the use of torture (he wants to go beyond waterboarding), and our role in the Middle East.

So too on trade policy. Trump seems ready to initiate a trade and currency war with China, Japan, and other adver-saries. He talks again and again about how China manipulates its currency and suggest that we should do it too if Chi-na persists. “We don’t win anymore,” he says at nearly every campaign stop. Trump seems ready to engage in what is called competitive devaluation — de-valuing the Dollar to make our exports more competitive. (He also is ready to rip up trade deals, impose punitive tariffs on Chinese imports and force companies such as Apple to bring manufacturing back to the US, as CNBC reports).

It may not be a coincidence that as Trump has assumed Republican front-runner status these past few months, the US Dollar has begun to decline, Gold has climbed $200 an ounce, gold miners are up 50% from their lows, and real assets everywhere have revived. Investors, after all, are taking notice and beginning to lay bets on the prospect of a Trump presidency.

Who does this benefit? Well, for one, Donald Trump.

Forbes magazine estimates that of his $4.5 billion fortune, Trump’s portfolio

consists of 80% real estate holdings, roughly 10% in licensing arrange-ments, and approximately 10% stock investments and cash. Of the 90% in real estate, nearly all of it is in prime US properties. Think Trump Tower, Trump World Tower, Trump Plaza, and ten domestic golf clubs, among many other holdings.

So what happens to prime US real es-tate as the US Dollar falls? It gets easier for foreign investors to afford. Even if we engage with China and Japan in a currency race to the bottom, a lower Dollar means more attractive US real estate to Europeans, Russians, Aus-

tralians, and many others. And to the extent we can successfully devalue rela-tive to the Renminbi and the Yen, the Chinese and Japanese will also better be able to buy or lease Trump property.

The strong US Dollar of the last few years has held foreigners back from buying luxury real estate in the US. Has frustration with the strong Dollar helped shape Trump’s trade policy? About a man who has turned at least one of his primary victory speeches into a bizarre infomercial for his brand items, one must ask: Where does Trump the businessman end and Trump the politician begin? ■

How Donald Trump can profit from his own campaignA C C R U I N G T O T R U M PS P E N T B Y T R U M P

$4 million+Paid so far to Trump companies affiliated

with his campaign.

$22.5 million5% improvement in worth of Trump’s licensing deals, as

a result of free worldwide publicity.*

$175 million5% improvement in Trump’s real estate income and

valuation as a result of US Dollar decline from currency devaluation fears.*

Donald Trump has a history of making deals and ventures that benefit Donald Trump, in ways both tangible and intangible. The biggest prize would be a reduction or elimination in estate taxes — a possibility under a Trump presidency, combined with a Republican Congress.

<$27 millionNearly all of it in the form

of loans from himself, potentially reimburseable

in whole or part.

* Seasonal Strategy estimates as of March 2016

Stocks like Democratic presidents (though again, it’s not that simple)

Conventional wisdom has it that Republican presidents are better for the economy and the stock

market than Democratic presidents. Conventional wisdom is wrong.

President: Democrats beat Republicans

When it comes to the Dow Jones Industrial Average, it has fared far better when a Democrat occupies the White House (see graph). In fact, the only three significant drops during a Presidency since 1921 have come dur-ing the terms of Republican presidents — Hoover, Nixon, and George W. Bush.

In all three instances, a case can be made that the stock market weakness wasn’t due to the President alone.

Hoover, for instance, came into office just months before the crash of 1929. Nixon was unfortunate enough to preside over the OPEC oil embargo that sent oil prices up ten-fold and triggered a deep recession. And George W. Bush not only took office in the midst of this century’s first great bear market, but also endured the housing bust and the 2008/9 banking crisis.

But as strong a case can be made for Presidential responsibility. Herbert Hoover’s disastrous trade policy (the Smoot-Hawley tariff), Nixon’s Water-gate debacle, and George W. Bush’s financial deregulation, two unnecessary wars, and tax cuts for the rich, all con-tributed to or accelerated the market declines during their tenures.

Congress: A different story

Investors seem to like their executive branch Democratic and their legislative branch Republican. Stocks do quite well when Congress is controlled by Repub-licans (both houses net Republicans), whether the President is a Democrat or a Republican.

Further, investors don’t even mind that Congress is controlled by Democrats (or split) when a Democrat also controls the White House. This has occurred for 38 years since 1926, and the market is up low double-digits on average during those years.

The one scenario that the stock market has trouble with is a Republican in the White House combined with either a Democrat-controlled Congress or a split Congress. Since that’s the least likely outcome of the 2016 races, there’s at least one less worry for equity investors.

Meanwhile, the overall most bullish combination — a Democratic President combined with a Republican-controlled Congress — is a real possibility coming out of this election year.

And then there’s the Fed …

Again, these findings are to be taken with more than a grain of salt, not only because of the small sample, but because of the influence of extraneous factors. When interest rates have been at extremes, as they are now, economic power tends to flow from the branches of government toward the Federal Reserve. In the next few years, Janet Yellen’s decisions may matter more than those of politicians for the economy and markets. ■

Is Donald Trump talking his own book?

Stocks like DemocratsAverage annual Dow Jones Industrial Average gain since 1901

The US stock market does four percentage points per year better under Democrats than Republicans — a big edge. But here, too, we have an insufficient sample: Since 1901, we have seen only eight Democrats and eleven Republicans in the White House. Statistically, we’d need at least 20 of each for a significant conclusion (and we can’t go back to the 19th century, because the parties didn’t stand for the same principles that they do in the 20th and 21st centuries). Source: Bespoke Investment Group

DJIA Percent Change (%)

President Start End Change as President Annualized Return

T Roosevelt 9/14/1901 3/4/1909 21.6 2.7Taft 3/4/1909 3/4/1913 -1.3 -0.3Wilson 3/4/1913 3/4/1921 -6.9 -0.9Harding 3/4/1921 8/2//1923 17.4 6.9Coolidge 8/2/1923 3/4/1929 255.9 25.5Hoover 3/4/1929 3/4/1933 -82.8 -35.6FDR 3/4/1933 4/12/1945 194.4 9.3Truman 4/12/1945 1/20/1953 81.7 8.0Eisenhower 1/20/1953 1/20/1961 120.3 10.4JFK 1/20/1961 11/20/1963 12.2 4.1Johnson 11/22/1963 1/20/1969 30.9 5.3Nixon 1/20/1969 8/9/1974 -16.5 -3.2Ford 8/9/1974 1/20/1977 23.4 8.9Carter 1/20/1977 1/20/1981 -0.9 -0.2Reagan 1/20/1981 1/20/1989 135.1 11.3Bush I 1/20/1989 1/20/1993 45.0 9.7Clinton 1/20/1993 1/20/2001 226.6 15.9Bush II 1/20/2001 1/20/2009 -24.9 -3.5Obama 1/20/2009 12/31/2014 124.1 14.5Average 60.8 4.7Average Republican 44.8 3.0Average Democrat 82.7 7.0