Looking at a slice in history and knowing what happens next – like reading the Raging Capital Management third quarter letter to investors in the first quarter of 2017 – provides insight. Some of what Raging Capital Chairman and Chief Investment Officer William Martin wrote before the election was a mirror image of what happened after. While some issues might have changed after the election, concerns Martin had regarding artificial buyers influencing markets is one issue that hasn’t gone away.

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Before the election, no concern about victor but rather concern over “frothy” credit markets

Leading into the election, Martin was concerned with “frothy” credit markets. Interest rates had just “collapsed” to new lows in July, touching 1.32%. “Amazingly, at one point in August over $13 trillion in government bonds traded at negative interest rates,” he wrote, noting a significant historical benchmark.

After the election, the high price paid for bonds would experience a dramatic sell-off, with yields reaching over 2.5% in a very short period of time.

At the time markets seemed like Alice in Wonderland. In fact, at that moment in time both stock and bond markets had essentially been “ignoring Brexit and a litany of other worries” and moving higher “thanks to aggressive central bank intervention,” Martin wrote in an October 18 letter to investors reviewed by ValueWalk.

But it wasn’t just interest rate manipulation that was concerning to Martin.


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