Trump Investing: Guns, Gold, Germs and What?

by Jimmy Mengel

Donald Trump came to Baltimore this week, just a few blocks from our office.

Helicopters swirled around the harbor. Police roped off city blocks. Protesters with competing signs canvassed every street corner.

It was strangely reminiscent of the Baltimore riots that happened last year in the same area. A city divided. An angry population searching for answers.

In short, it felt volatile…

I’m not here to talk politics — it seems like everyone in the world is suddenly an expert on the subject, so you don’t need my two cents. I’m not here to spill any ink telling you what I think about the election. I’m certainly not going to tell you how to vote.

But, for investing purposes, here’s what I do know: regardless of who wins this election, we’re looking at a very unstable government that will be in charge of dictating the entire global economy. That will be good news for some stocks and bad news for others.

Here’s what to be looking for if Trump wins the election…

A few weeks ago, I probably wouldn’t have written an article like this, since Trump was historically behind in the polls. I figured this election might have already been won. But then #HillaryHealth finally got some mainstream validation when Clinton almost collapsed at a 9/11 memorial event over the weekend and had to be physically helped into her vehicle.

It confirmed the suspicions that she was simply not in good enough health to be president — which certainly plays right into Trump’s hands…

After the incident, polls have now shown a much closer race, currently 45.9% for Clinton and 42.9% for Trump. While he may not be winning, things look a lot more promising for the Donald considering that Hillary was up by 7 points as recently as last month.

Marketwatch just published a piece on this issue, and mentioned in passing that a Trump presidency would be good for three investments: “Gold, guns and germs.”

I’d like to expand on that.

Let’s start with germs…

Germs

Hillary — despite taking more Big Pharma money than any other candidate during the primaries, has made a loud campaign promise of fighting — you guessed it — Big Pharma. (In fact, even though she has publicly lambasted Mylan (NASDAQ: MYL) for raising the price of the life-saving EpiPen 400%, the Clinton Foundation has received up to $250,000 from the company.)

Donald Trump seems to be making no such noise about reining in drug companies. In fact, he has pledged to repeal Obamacare, deregulate the industry, and institute free market principles back into the U.S. health care system.

This would obviously be a boon not only to pharmaceutical companies, but to the health care industry at large.

Now, I’m not betting big on biotech — I’m a bit gun shy after last year’s biotech boom and crash.

The safe bet is a broad healthcare ETF like iShares US Healthcare Providers (NYSE: IHF). This ETF tracks the investment results of the Dow Jones U.S. Select Health Care Providers Index composed of U.S. stocks in the health care providers sector. Its major holdings are health care heavyweights like United Health (NYSE: UNH), Aetna (NYSE: AET), and Cigna (NYSE: CI).

You could see some decent returns on IHF, but if you really want to make serious money on health care for the next 20 years — think triple-digit gains for years on end — I urge you to read my new report, The Best Investment for the Next 50 Years”.

On to guns…

Guns

First things first: if you really want to invest in guns, buy some guns. Gun stocks themselves do far better when a democrat is in the White House. In fact, Barack Obama was the single best gun salesman the world has ever seen.

Just look at how Smith and Wesson (NASDAQ: SWHC) has done since he took office…

smith wesson

If Trump is elected, however, the guns I would be betting on are military ones. If he becomes president and backs up his claims to make America’s military great again, defense stocks should see a solid return.

You can expect more defense spending and larger intervention around the world. In fact, both Trump and Hillary are far more hawkish than Obama, so defense stocks should do well in either case.

You’d be well served to pick up iShares U.S. Aerospace and Defense ETF (NYSE: ITA).

This ETF tracks the Dow Jones Aerospace & Defense index and, like the name suggests, has 100% U.S. holdings. The biggest holdings are defense titans like Boeing Co. (NYSE: BA), Lockheed Martin (NYSE: LMT)General Dynamics (NYSE: GD), and Raytheon (NYSE: RTN).

Whatever happens, defense stocks are not only well, defensive, in that they do well in bull and bear markets, but they have also outpaced the S&P by more than double this year — and that doesn’t even include dividends. You can expect this election, along with continuing turmoil in the Middle East and beyond, to give them an even bigger boost.

Now let’s dig into one of our favorite topics: gold.

Gold

Now, it’s no secret that Donald Trump is fond of gold. Really fond of it. He’s decorated almost everything he owns with it. Gold seatbeat buckles in his helicopter. 24-karat gold faucets in his airplane. He even accepted a $200,000 rent payment in 0.9999 pure, 32.15-troy-ounce gold bars.

Even his podium at the Republican National Convention was flanked by two huge golden towers.

But for gold investors, the Donald could deliver a earth-shattering blow to the traditional financial markets that would send safe havens like gold and silver through the roof.

Just think about what happened to gold after the Brexit…

It hit two-year highs almost immediately.

A Trump victory would make Brexit look merely like a drunken night at one of his Atlantic City casinos. There would be extreme market volatility — not only because he has promised to start trade wars, hold the Fed accountable for playing politics, and has generally been thumbing his nose at the world — but because nobody really knows what he would actually do. We’re quite used to politicians promising everything and delivering nothing, but we’ve never seen such a volatile candidate in the history of the country. I’m not sure that even he really knows what he’s going to do on a day-to-day basis.

That will certainly spill over into global financial markets. Here’s how Matthew Lynn at MarketWatch puts it:

Expect the dollar’s bull run to end, and the euro to stage a rally; expect a plunge in China, rippling out to the rest of the emerging markets; and expect the price of gold and every other kind of safe haven to soar.

A Trump victory could also lead other countries to start dropping the dollar as the world’s reserve currency. The weaker the dollar, the stronger the gold… but that’s an article all unto itself.

But while gold should do very well, there is another area that will do even better.

Marijuana

Now, you may be wondering: why on earth a “conservative” candidate who claims to have never touched drugs in his life would be good for marijuana legalization?

There are a few reasons, in fact…

First of all, he has said as much several times throughout his life. Recently he has completely backed medical marijuana “a hundred percent.” In an interview with Bill O’Reilly he said “I know people that have serious problems… and… it really, really does help them.”

Only around half of the country has legalized marijuana for medical use. That will be 100% in the next couple of years, mark my words…

As for recreational legalization, while he hasn’t come out and supported it, he has said that adult marijuana use should be left up to the states. “If they vote for it, they vote for it…”

If it is left up to the states, they will vote for it. Nine states are primed to do so this November, including California which, as the world’s sixth largest economy, would completely change the landscape forever.

Currently, recreational marijuana has flooded Colorado, Washington, and Oregon with hundreds of millions in tax dollars. As more states face budget shortfalls and more voters soften their stance on marijuana, it makes for an easy solution for lawmakers and businessmen alike.

Trump also brought up a very important point recently that breaks from some of the Republican orthodoxy.

“We’re losing badly the war on drugs,” he told the Miami Herald in 1990. “You have to legalize drugs to win that war. You have to take the profit away from these drug czars.”

This may be the most truthful thing he has ever said. And if he makes good on his promise to build that massive border wall, that enhanced border security could do serious damage to the illegal Mexican drug trade.

U.S. legalization has driven the price of marijuana down by an astounding rate.

“Two or three years ago, a kilogram [2.2 pounds] of marijuana was worth $60 to $90,” a Mexican marijuana grower told NPR. “But now they’re paying us $30 to $40 a kilo. It’s a big difference. If the U.S. continues to legalize pot, they’ll run us into the ground.”

It’s already happening…

The U.S. Border Patrol has shown that marijuana seizures in the past year have fallen to their lowest levels in a decade. While federal agents were seizing 4 million pounds of marijuana in 2009, last year they seized “only” 1.5 million pounds.

Chart courtesy of Wonkblog

While that still sounds like a ton of contraband, a drop like that seriously cuts into the easy profits that bloodthirsty cartels have been raking in for years.

What better way to stick it to the Mexican “criminals” than to take away their main cash-crop?

It’s a win/win situation, especially when you take into account how much money legalized medical and recreational marijuana will bring in terms of jobs, revenue, and taxes. In the end, Trump is a businessman above all else, and he would be crazy not to tap into the billions of dollars flowing into the legal marijuana business.

So there you are, the four ‘G’s of Trump investing: Guns, Gold, Germs and Ganja.

Godspeed,
Jimmy Mengel

Jimmy Mengel

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Jimmy is a managing editor for Outsider Club and the Investment Director of the personal finance advisory The Crow's Nest. You may also know him as the architect behind the wildly popular finance and investing website Wealth Wire, where he's brought readers the stories behind the mainstream financial news each and every day. For more on Jimmy, check out his editor's page.