Gartman On Post-Trump: Sell Bonds, Buy Infrastructure & Stocks

Dennis Gartman is one of the foremost investment minds of our era. As editor of The Gartman Letter, his insights are relied upon by many of the largest investors in the world. On Jan. 25, 2017, Gartman will deliver the closing keynote address at Inside ETFs, the world’s largest ETF conference. In the wake of last night’s election results, Gartman sat down with ETF.com contributor and Inside ETFs CEO Matt Hougan to discuss where ETF investors should be placing their bets.

Matt Hougan: Last night, we saw the Dow futures drop 700 points and overseas markets collapse. But this afternoon, I’m looking at my screen and there’s a lot of green. What’s going on?

Dennis Gartman: The market wants to believe that Mr. Trump’s talk about trade protection, tariffs, building walls and calling people names was simply what he had to do on the campaign trail. His conciliatory acceptance speech—and it really was a conciliatory speech—was perhaps the best speech he’s given in the past year and a half. He seemed to have turned the corner; it was a completely different attitude.

The market seems to believe he’s going to spend money on infrastructure—on roads, bridges, airports, port facilities and hospitals. The speech indicated he was going to take a different stance than his demeanor indicated on the campaign trail. As soon as his speech was over, the market turned around.

Hougan: It seems to be a U.S.-focused rally, though. We’re still seeing big pullbacks in Mexico, China and other emerging market ETFs. What should someone do looking at Mexico being down 9%?

Gartman: You have to take Trump at his word. He used the word “infrastructure” over and over in his speech. That means steel, cement, asphalt and the drilling infrastructure that goes into creating natural gas. They are things that, if you drop them on your foot, they’re going to hurt.

Mr. Trump is a builder, and builders build. So as an investor, you go out and find the simple things. I don’t think this fella is particularly interested or adept at high-tech or big pharma; he’s going to use simple things to build buildings, roads and bridges. If you keep it that simple, you’re probably going to do OK. (related ETF: iShares Global Infrastructure ETF (IGF))

In general, I think Mr. Trump made it abundantly clear that he’s going to invest in infrastructure. In fact, as I’m writing in my newsletter tomorrow, I think he’s going to out-Keynes Keynes.

Hougan: Out-Keynes Keynes. You mean he’s going to spend big. Who’s the loser in that, short term and long term?

Gartman: The losers are very conservative, fiscally conscious Republicans.

There is an old-line of thinking: “Only Nixon could go to China.” In other words, you had to be a hard right-wing conservative to open up Communist China; it was the only way people would accept it. The same phenomenon could happen here: Only a quasi-Republican could throw over the bounds of fiscal austerity and say, “let’s spend money.”

Watch what happens: Trump’s going to embrace Bernie Sanders. It will stun everyone, but that’s what’s going to happen. Sanders will get on board; Democrats will get on board; most moderate and liberal Republicans will have no choice but to get on board.

Honestly, he’s going to out-Keynes Keynes. And the loser, when that happens—to answer your question—is the bond market.

Hougan: Is that why we’re seeing the 20-year Treasury taking it on the chin today? What should investors do with their portfolio?

Gartman: If you own bonds, you’re going to have a hard time in the next year. The peak was made in the bond market weeks ago. Now you’re going the other way, and it could be years of a bear market in bonds.

Can the country survive with a 5% yield on the 10-year note? Of course it can. But it will be bad for the bond market. Of course, there are ETFs that will take care of that fact if you want, with the inverse products like the TBT (ProShares UltraShort Lehman 20+ Year Treasury ETF).

Hougan: What about emerging markets? They’re also taking it on the chin this morning. Can you own them?

Gartman: Well, the dollar’s getting strong and foreign currencies are getting weak. That’s beneficial to their stock markets. But I’ll leave fishing in the emerging markets to people wiser than I am.

If you must look into emerging markets, look at India. It has the best government right now. I have enormous respect for Prime Minister Modi (related ETF: iShares MSCI India ETF (INDA)).

Hougan: One sector that caught my attention today is financials, which is moving up big: Is that a long-term move, or a kneejerk reaction anticipating less regulation?

Gartman: Financials understands that interest rates are going higher, spreads will widen, and it will be a better environment for banks. Banks make no money when interest rates are at zero; they make a lot more money when interest rates are at 5%. So it will be a better environment for banks going forward.

Hougan: What about gold?

Gartman: I am now, have been and will continue to be bullish on gold in euro-denominated terms …

If you look at the adjusted monetary base, it has tumbled in the U.S. … as the Fed stopped experimenting with quantitative easing. The same cannot be said in Europe, where the monetary authorities have had no choice but to continue. Their economies are still mired in deflation and far underperforming the economies here in the United States.

So … I think the euro will fall well below par to the U.S. dollar, and if I believe that—and the charts are telling me that too—why would you buy gold with a rising dollar when you could buy it in a devaluing euro? I think it’s the best of all trades.

Hougan: We’re roughly two months away from Inside ETFs 2017, where you’re giving the closing keynote speech. Between now and then, are you bullish in general? Where would you tell investors to place their bets?

Gartman: The trend in equity prices is still from the lower left to the upper right. Weakness is to be bought, especially in infrastructure-oriented equities. If you’re uncomfortable being outright long, there are myriad ways to hedge yourself. But you want to err upon the side of being bullish on stocks.

Beyond that, I think you want to err on the side of being bullish on the U.S. dollar and bearish on the euro. I think you want to err on the side of avoiding debt securities, because I think interest rates are going to rise. … If you’re a punter, you probably want to be short the bond market; if you’re an investor, you just want to steer clear. And I think you want to err on the side of being bullish on gold, but specifically in euro terms. That’s my story and I’m sticking to it.