Ok, so as tipped earlier this morning in “With Odds Of March Mushroom Cloud Lower, Time For Trump Economic Team To “Muddy Those Expensive Loafers” I’m not exactly enamored with this notion that because Trump’s speech lacked policy details and was generally short on specifics about tax reform and fiscal stimulus, stocks, rates, and the dollar should all be lower.
First, we all knew it was going to be short on specifics.
Second, if your takeaway from that speech wasn’t “thank God he didn’t do anything crazy”, then I’m not sure you fully appreciate the broader (i.e. beyond markets) implications of a Donald Trump presidency.
Of course I’m not praising Trump. He successfully read a teleprompter. Congrat-u-f*cking-lations. That’s hardly something we should all be proud of as a nation.
But you know, we have to adapt to our new reality and this is a guy who just a few weeks ago held one of the most unhinged press conferences in the history of statecraft. So compared to that, last night was a clinic in how to be Presidential. As one reader observed this morning, “that’s a pretty low f*cking bar.” Yes it is, but alas, that’s what’s it’s come to.
Nevertheless, traders will be traders and analysts will be analysts and to be fair, their job isn’t to assess the odds of a March mushroom cloud. Their job is to assess the odds of a March rate hike, and related market moves, so you’ll forgive Bloomberg’s Mark Cudmore and Citi for not celebrating the fact that Trump didn’t completely embarrass us all on Tuesday night.
The longer the market has to process Trump’s speech, the less impressed it’ll be. It was rhetoric packed with hopes and dreams, but light on details and concrete plans.
- Sadly, it feels like this outcome was all too predictable. Although, the possibility that he could have surprised us all means that the market has not yet fully priced in today’s disappointment
- Trump did manage to sound presidential and statesmanlike, and avoid getting bogged down in partisan or petty attacks. This is a positive
- It’s also supportive that infrastructure returned to the core of the agenda. Although, it seemed a resurrection of vague plans from three months ago rather than a step further along the path to implementing a program
- Financial bubbles, most notably the dotcom era, have proven that hopes and dreams can keep the market irrational longer than most of us can remain solvent
- At some point though, reality catches up. And 40 days in to Trump’s administration, there’s little sign that he’ll deliver much of a boost to the U.S. economy on any imminent horizon
- Optimistic soundbites from the speech don’t have the ability to drive the market higher on a sustainable basis. As analyst notes flow in to investors’ inboxes during the next 24 hours, asset prices may start reflecting a far more negative outcome
- Beware downside moves in the dollar, in U.S. yields, and even in equities. At some point, traders may realize the new emperor has no clothes
â€ŽPresident Trump’s de facto “State of the Union Address” focused upon broad brush policies delineated during his campaign, but was largely thematic and offered few operational details, as we expected. While the President broached important topics, including tax reform, international trade, and infrastructure spending, he provided no new groundbreaking specifics or commentary for markets to react strongly to, in our view. The President’s speech continues to suggest significant tax cuts and more spending, with limited offsets to prevent larger annual federal budget deficits ahead.
President Trump used his Tuesday speech as an early victory lap–highlighting his accomplishment to date–and to ask for Congress to rally around his agenda. Much of what Trump proposed aligns with House Republican leadership aims, but hopes to reel in Republican dissidents.
Missing were key operational details on the scope and timing of infrastructure spending, tax reform, and the overhaul of Obamacare. To the dismay of markets, Trump steered clear of the BTA and other tax reforms (e.g. immediate investment deduction, repatriation, corporate tax rate). To us, these omissions likely imply that there are still deep divisions among Republicans over these issues. Such divisions in the Republican Party may presage even more difficult battles with the Democrats.
We continue to anticipate that a significant tax overhaul will be accomplished before calendar year-end. However, there is a risk that important elements of the Trump and Congressional pro-growth agendas may not be realized to provide the fiscal stimulus we currently project will manifest in 2018. That would belie the need for pre-emptive Fed tightening and may cause significant market repricing.
Note that last line: “that would belie the need for pre-emptive Fed tightening.”
That’s bullsh*t. Why is all Fed tightening now classified as “pre-emptive”? Go back and read last night’s post “No, Janet Yellen Does Not Need To Wait On Donald Trump.”