Sunday, 22 January 2017

A wall of no worry

The 20th of Jan has been an important date for me for the past 3 years, well before the election of Trump was even a glimmer of parody in comedians' eyes, it has been a turning point for markets. This year it has been even more special. The plan has been that any trend developing over December would accelerate into the start of the year only to reverse about now. As the trend has been Trump, then the 20th would be seen as either a confirmation of the trend or a tear in the fabric of space/time Trumpinuum.

So what is it to be? I missed the live speech due to other commitments, instead relying on my trusty market-o-meter of news, which involves looking at where the markets are and working out what the news was. So first sighting of prices gave me the impression that I hadn’t missed much. Wall Street up a bit, Usd/Jpy flatish, bonds unexcited and everything a bit disappointingly dull. So, I assumed that speech fitted in with exactly what the market was expecting.

I have always believed that Trump’s plan was to get into power by taking the mickey out of the stalwarts of truth, honour, discretion and humility, getting the revs of the shock and awe machine up to 8000rpm, before taking office and dropping into 6th gear for a much more sedate and considered journey at a calm 1500rpm down the next 4 years.

But then I watched the speech and my narrative was hit by a shockwave. Here was the same Trump speaking as though he had just started out on the campaign trail. The repetitious rants about making America great again, the rampant protectionism, the rhetoric without substance and even the paradoxical statements such as “When you open your heart to patriotism, there is no room for prejudice” had me aghast. This was not a Presidential speech. It was one from a man who is confrontational (criticising all around him), stubborn, self-opinionated and lacking any 'how' to add to the ‘what’

How did this fit with the lack of action the markets? The obvious answer is that I was wrong in expecting the markets to expect a statesmanlike speech instead it being exactly what the markets were expecting. Which now has me wondering if the markets or I have the first premise wrong. Mine being that Trumponomics rested upon a steady Trump hand taking the tiller and guiding a changing ship in a different direction, whilst the markets believing that Trumponomics is coming whatever, whether it is as aboard a shiny new hi-tech vessel or a disintegrating hulk of a fireship. But, the way I see it, there is less chance of Trump succeeding in an agenda that will result in outcomes that the last month's market actions are forecasting.

Then came the protests - I have a very pragmatic view on protest marches. They only work if you have a 'plan B' and are a stepping stone to something else. Having neither and you end up much like the Occupy Wall Street event, an excess of self-expression and street theatre. Though I have read that OWS was a success because - "For many participants and observers, though, its more compelling achievement was to embody a minimally hierarchical communitarian polity that combined consensual direct democracy with a high degree of individual autonomy, and also a voluntary sharing economy with the market logics and state service provision that dominate everyday urban life” Err what? Obviously very clever stuff but, meanwhile, JPMorgan is doing just fine thank you.

So, lots of people protesting against Trump is great as long as it achieves their objective of getting rid of Trump or changing his behaviour. Having heard his speech and the attitude it reflects, I cannot see him changing his behaviour until his policies have proved so disastrous in their own right he blames others for their failures and effects changes under the flag of 'Saviour from other’s failures'. Which is actually how he got to where he is. If Trump is a protest against liberal elites then the protests are protests against protests. It's a shame that (to paraphrase an old saying) two protests don't make a right.

As for protest marches against Trump in other countries, they are going to have even less influence over Trump (read 'none') though are probably effective cathartic outpourings of mass grief at his victory, much as the Anti-Brexit marches were and likewise will have as little impact on financial markets - unless it turns towards civil war, which is so very unlikely.

The other main Trump news of the weekend was the ‘so how many were there’ debate. Unlike a ‘guess how many sweets are in the jar’ school fete competition that sees you winning the sweets, there seems to be little point in entering the competition. What is the upside? It really doesn’t matter how many people were at his inauguration as it won't change the outcome of him remaining President for four years. If it did then you might as well scrap elections and have voters turn up in Washington and stand on one side of the river for one candidate and the opposite side for the other, to chose the winner.

The point of the issue is just how much of an issue it has become and how it is being handled by either side. The key observation is that Trump is valuing image over substance again. He is willing to take on the Press over anything that doesn't portray him in a favourable light. He is even accused of halting the National Parks Service twitter feed in response to them tweeting ‘HowManyWereThereGate”. But as is possible in today's news games there is, of course, a chance there was another good reason for that action. A chance.

Boiling the last two days down, I have seen an increase, not a decrease, in the similarities between the way Trump is managing his new estate to a couple of other famous leaders around the world and though it is very early days and far too early to draw any conclusions, I am starting to compile a list of potential similarities that I am keeping an eye on

Running on a nationalist agenda.
Blaming overseas influences for the country's woes.
Blaming your own press for misreporting the truth.
Controlling social media output.
Manipulation of truth.
Showing more conciliatory tones towards Russia.
The belief that forces within your own secret service are working against you leading to you awrranging an organisational Putsch.

Ok, it’s not a very long list, but its a start. Of course, if he finds himself without enough power to execute his will then he could take the Turkish route and award himself some more

"Power corrupts, executive power executes" Polemic Paine 2017

Now whilst my quizzical concerns could easily be debunked, IF I were to do what news wires do with implied causality, (eg. My cat had green eyes. You have green eyes. My cat got run over. Woh, you'd better avoid roads or wear blue contact lenses) I could suggest the USD is going to go the way of the Turkish lira, but then I guess the US doesn't have a current account deficit that needs funding from foreign direct investment, a huge budget deficit and nor is it strapped with vast amounts of debt. (chortle).

But seriously, the theme is that Trump is good for the dollar, primarily because dollars will be repatriated home in a patriotic manner (happened with Turkish lira for a couple of weeks until exhausted and those who had, were soon 30% worse off) and that growth will outpace interest rates which will outpace inflation. And there you have the nub of it. Growth, inflation and interest rates. the balance between the three is critical. It is in any economy but in the new Trump world, it is critical because though there are some strong opinions as to which way they go (apparently all upwards) it will be the relationship between them all that is crucial and the margin for error in predicting the differential derivative is huge.

The expectation for economic wonderfulness has been rampant, you only have to look at sentiment charts since Trump was elected to realise that it’s all on hope rather than reality, because reality has not changed fast enough to justify these spikes in sentiment. Small businesses appear to be those who have invested most in the Trump dream.

Charts shamelessly nicked from my friends at Macro Man 

CEO confidence

Uni of Michigan Consumer Sentiment 

 Small business optimism

So there we have it. Trump's speech has not given me a feeling of calm control. His reaction towards the Press and CIA appears to be as confrontational as ever and this falls upon a country with very high expectations. The markets on Friday took the speech in their stride but plenty of them were looking at each other for solace, with the final pit-prop of belief being the sentiment readings creating a "wall of no worry".

I am still struggling to see how Trump can square handing power to the people whilst stifling the Press and delivering non-crony capitalism whilst imposing greater controls on the free market. If I am not a complete outlier in my interpretations, there should be a lot more doubt today than there was last week and with it a reversal in the sentiment of the Trump trade and, with that, a fall in equities and the dollar.

 The carnage may start right here.


Anonymous said...

you bring up good points but surely there must be some positive aspects of it all that has caused the spikes in sentiment. Missing those kind of devalues your post. If look at what he has achieved, appointed members of his cabinet etc during this time, what do you see? maybe some metrics, CV stats etc that could cause a positive effect? The meetings with business community, rethoric and feedback from companies investing in the US again.. Is it all hoax?

Polemic said...

Well anon, I fully agree that confidence is a hugely important primary driver of economy but the concern I was expressing is that the sentiment is based not upon what people are seeing at ground level but on the promise of this dream, rather than any reality. Because it isn't here yet. Current sentiment is an overdraft on the future.

My huge concern is that whilst sentiment should be a solid reliable trend, the way this sentiment has arrived out of thin air ( on hope) it can evaporate just as quickly.

I do not believe that US companies will invest any more in the US than they absolutely have to for political reasons if it costs them money. And if it doesn't cost them money then they would never have invested abroad to start with.

YES, there are positives to his ideal, but as I stressed through my post, my concern is that he has not calmed down to be seen as a cool collected and thoughtful leader as I hoped, instead it is more resentful bluster.

Anonymous said...

Ok, I get your point on hypothesis that he would calm down. I had that one as well, but maybe we just have to realize that he has some flaws, maybe even ADHD or something. I would still characterize his actions as thoughtful and collected when it comes to appointments made of business professionals, the meeting with all of silicon valley and other business professionals from the US and abroad. That is proof that he listens. Has something similar to that silicon valley gathering ever happened before? And even before inauguration? There are more significant differences to this pictures than his attention deficit disorder and those should be aknowledged as well.

Polemic said...

Ok Anon .. here is the real positive.

A UK / US Free trade deal. It is an easy win for him politically and shows that he can get deals done and that he is against bad trade deals rather than all trade deals in general. Wouldn't hurt white working class as in practice it would focus on services if we believe the current press briefings and the UK is not competitive in manufacturing vs the USA except in autos , which we assume would be excluded.. especially after his effects on Ford and GM.

It can be publically discussed and negotiated over 2yrs and ready to go 2019. Of course it would shell shock the Brexit remain camp and there are lots of 'it can't work' outcries but it can. A broad UK US services trade deal is a disaster for the European commission.

So there is a positive. But it does not upset my core feeling that there is gong to be disappointment from this wall of no worry before it recovers again.

One benefit Trump has is that if he gets it wrong he will like a businessman, learn and change course and not do what the EU and old UK politics did of defending and progressing with losers. But he will get it wrong and have to change course and that getting it wrong will trigger the doubt that I am talking about.

Anonymous said...

Thanks for the additional comments... i do not agree though that there is no wall of worry. Everyone I speak to is dramatizing in line with that world war 3 is coming, he wont last the full term etc. I think too many democrats have gone full tilt on this one and should subsequently be considered worryers in the Trump era and chronically underweighted risk. The CEOs might not be worrying but I consider them smarter and more rational than the avg democrat (or republican for that matter), hence I see this as insider buying. I am following the smart buying.

Anonymous said...

The smart money and economic data point to a continued economic recovery in the US. Trump will take the credit for this, and his popularity will increase as more jobs are created and the rampant corrupt cronyism that the left-wing-liberal-elite have promoted in recent years gets destroyed.

The silly protest marches and self-loathing of college students trying to have all white people removed from history classes shows the extreme snowflake attitudes that permeate society. Western society is utterly corrupt, shameful, and pathetic beyond any words I can use. All the fault of the left-wing liberal movement. Frankly we would be lucky if Trump turns into a fascist dictator and forcibly removes these scumbags. However he won't. All the violence at political events is from left-wing liberals.

Robert in Chicago said...

Plus (your own point in earlier posts): Friday was options expiration. Next week may look quite different.

IPA said...


Very nice post! Great points all around. Also, many people are missing one very important point. The peaceful transfer of power did not happen in a vacuum. This was a yuuuge change in the most highly regarded political office in the world, which just happens to control so many things in every day life of not only Americans but also the residents of the countries which we are either at peace or at war with. There are going to be consequences simply impossible to calculate in this very short period of time (election to inauguration). We (traders) will be calculating them as we go based on the outcome of the policy decisions, and most importantly, the reaction to them by all stakeholders involved (hence no longer in a vacuum). There are going to be unintended consequences to account for. To say that the market got ALL of these consequences right and sees the future as perfectly fine would be equal to saying that the market new all along that Trump would win the election. And we all know that couldn't be further from the truth.

Anonymous said...

Ipa, how do you reckon the market didnt know trump would win? Apart from some flash crash democratic programmed algos selling for a short while... I guess the misalignment was more noticeable in media and betting firms than with regards to reaction in capital markets.

IPA said...

There were underlying themes at play heading into the election day which were mostly skewed toward Clinton's win. On the morning of Nov 9 all of that went out the window fast. The frantic action across the market, in which traders were grabbing everything in sight related to Trumpflation and deregulation was very noticeable. It continued for days after with traders passing around deep research notes explaining the effects of Trump's win on various market sectors. Something which was not there in size before Nov 9th. I've been trading for a while, I can see when it looks like a full-fledged panic versus a well-expected outcome. This was a total surprise.

checkmate said...

It is of course just possible that Trump is a .....politician. The public erratic behaviour is geared to what he thinks his supporters want to see and hear. Meanwhile, it is entirely possible that the quieter more rational version you expected to see is there off camera doing the business. It would be so easy to dismiss Trump as being this one dimensional mouth on legs ,but on some level I don't think he could have got this far if that is all he was.

Nico G said...

he is much much more intelligent than most people want to acknowledge

saying that a 'clown' could become potus is a direct insult the country - Idiocracy is still fiction to current days..

cantdeletemyf-ingaccount said...

My reaction to that speech was very similar - and I expected the market to react much more negatively than it did. I think you are on the mark when you allude to the 'wall of no worry'. Markets, and economies, have an awful tendency towards self-delusion and often, like the cliche of Coyote in Road Runner, will keep on running while they digest what is going on around them. 'Digest' is the key word though, and it is only a matter of time before the real reaction occurs. I think many traders were caught in the headlights by that speech.

The dollar has already started to move, I would note.

cantdeletemyf-ingaccount said...

Another similarity to Erdogan I would add to your list: A purported devotion to restoring power to the people (aka mob rule), while attacking the legitimacy of institutions whose raison d'tre is protecting said people from authoritarian government. In Turkey obviously this is at a much more advanced stage, with the undermining of the judiciary, but we see the beginnings of it in America with the attacks on the press, the Fed, the CIA.

checkmate said...

Just to pop another brick in the 'wall of worry' let's remember there's a statistically sound probability that underlies the old traders adage that " As January goes so does the year"

Anonymous said...

I think a lot of yous are in political denial or gamblers tilt or a combination. One argues "volatility measures doesnt matter, my experience as a trader does" , the other "he is a clown"...


You guys make me really bullish.

checkmate said...

Good :)

Anonymous said...

Come again?

checkmate said...

As you asked.
Good :)
My short position is on the FTSE not the US ! There again would you give a f. ? More importantly do I give a f?

Best for the future.

coolstorybro said...

Hi, there is a clear bias to your post, and i believe if you are to be a pure market practitioner, one must be removed from political bias.

The most clear one i can point out for you is "His reaction towards the Press and CIA appears to be as confrontational as ever and this falls upon a country with very high expectations"

I suggest you listen to his first official speech as POTUS to the CIA (of all government agencies he could choose to speak to, he chose theirs) and this should allay any fears/notions you have of Trump being "confrontational" to them. He has great, tremendous, respect for the people of law enforcement in his country. Do listen to his speech to hear the words right from the horse's mouth.

Cheers for the blog.

Anonymous said...


spot on, i guess we should appreciate the biases shown by IPA and others here, it is those biases that, on an aggregated market level, resulted in excessive negative sentiment relative to actual economic outcome, even CEO sentiment, and have given the rest of us some nice profits the last couple of weeks.

It was this blog post that, in a contrarian way, allowed me to go extremely long so I am extremely grateful. And I live in a country very far from US politics so I really couldnt care less except for the market opportunities.

IPA said...

@anon 22:49

I wish I had a dollar for every one of you clowns roaming around the blogs and polluting them with your infinite bravado and unverifiable gains. Usually, I pay no attention to what any of you say, but when my name is mentioned in a condescending way, I have to reply.

"It was this blog post that, in a contrarian way, allowed me to go extremely long so I am extremely grateful." Are you on this planet? SPX is up 1% since this post was written.
"and have given the rest of us some nice profits the last couple of weeks". Again, SPX is up the same 1% over the last couple of weeks. Stop doing cartwheels over that, and better yet, tell us what you bought. Add some substance to your statements.
"And I live in a country very far from US politics so I really couldnt care less except for the market opportunities". Are you talking about US stock market which is up one percent? What country of the third world "very far from US" do you live in? Please tell me it costs more than a dollar to survive one day there, so we could at least guess the size of your trading account in which you are "extremely long" and making a killing on one percent gain.
Maybe "the rest of you" could teach us how to initiate a trade after we read a blog post. If anything, you owe some commish to Polemic for your imaginary gains. He can't put "extremely grateful" in his pocket.

Be careful what you write here. We actually read this stuff. If you carefully read this or any other blogs ran by self-respected traders, they do not triumph over other people's losses leading to their gains. We exchange ideas in order to prepare for the next trading day versus coming here to offend each other and measure each others penises. But when you sting us with needless gloating we bite back ten times harder, because you are invading our space and interrupting our deep thoughts. We are wrong on our trades a lot and like to hear the other side, but not like you present it. You will never understand this.

(BTW, absolutely no disrespect meant towards those living abroad.)

Cheers from USA, pal!

Polemic said...

IPA. Thank you.
I'll be your wingman in return any day.

Polemic said...

And IPA we can only assume he doesn't live in one of the many countries that the Usd has fallen more than 1% against to counter hid MASSSIVE 1% gains.

Anonymous said...

Pretty Ironic when someone as anti Trump as IPA starts raging about the inferiority of third world countries. It just proves further that it is the protesters, liberals that are the true evil and now they are in full tilt mode so beware everyone, these guys used to provide you with some meaningful advice but now you should take caution. Their minds are clouded by anger. This doesnt just apply to blogs like this. My twitter feed is filled with political commentary that I never had any interest in and the people I follow didnt previosuly make such comments either. There are other channels and hashtags for that. If only they had been correct on any political related prediction I could have some sympathy but now it's just spam.

IPA said...

@anon 20:59

For someone living "far from US politics" about which you "really couldnt care less", you got some nerve coming here to give us a speech and offend us by calling us "evil". I am about as "liberal" as your claim about making a killing on one percent gain in your "extremely long" account. I have strong views on some of DJT's policies that are preoccupying my mind and thus resulting in a trading thesis at the moment. I intend to profit on volatility being low right now and spiking much higher due to unintended consequences not yet priced in. How does this translate into me being a "liberal and anti Trump"? If you visit this blog a year from now (or even sooner) we would probably forget about DJT and talk about whatever controls/drives the markets at that particular moment. This is why I trade and you spew your idiotic nonsense here and probably everywhere you go. Let's also remember that this is a trading and not sociopolitical blog. I urge you to keep your comments about politics in check and provide us with your genius views on where we could make some money starting on Monday. I personally will not be holding my breath.

And get a moniker, chicken.

Anonymous said...

End of last wee we had this:
(Barron's cover of Dow 30K)

Today we have this:
(US equity indexes crash 1%+ on open)

'nuff said...

Polemic said...

indeed anon. and since when was 1% a crash?
I am actually reading it as all part of the post above arguments- market waking up to the fact that things aren't that easy.

As with the 'how many are there'; non-issue, the issue over the weekend wasn't so much about the issue but the way the issue was handled. Which once again was pretty worrying re process.

Hence the wobble.

I am also thinking that model funds ( algo based) must have had a perfect environment to load up in over the last 2 mmonths Massive steady trend with falling vol to help increase VaR allocations must mean some tidy trend longs.

Now whilst i know few PM's brave enough to drive their funds on their personal moral beliefs over the nedds of earning a buck, fiduciary responsibility et al, the models that dont run on morals are going to drive the roll over. they dont do morals but they do momentum. and its rolling and vol is picking up.

Jing said...

A dangerous sophist no doubt, but I think scott adams provides some perspective on what many of us find lunatic behaviour.
It provides a scope for understanding Trump's actions and continually aggressive campaigning stance as you put it, and suggests ample space for subsequent backtracking.
In that light, future surges of market enthusiasm in excess of a 'blow off top' may not seem all that out of hand, viewing current price action as having been resilient, and expectations now anchored with a large baked-in buffer of lunacy to expend.

Polemic said...

Interesting link thanks jing. Unfortunately narrative abhors a vacuum so the greater the unknown the greater the conspiracy that cannot be disproved.

Basically, there are a lot of scenarios which COULD fit the information.. ir lack of it.. but as with homeopathy that doesn t prove it correct.