Well, self-described “perma-bull” Mark Cudmore wants to have his bullish cake and eat it too – with a bearish fork. Or something.
Cudmore is back on Thursday following a Wednesday missive that found the former FX trader taking a long-term bullish outlook on things but reminding us that the Trump brand has likely done lasting damage to Brand USA.
Today, Cudmore is out warning that Tuesday marked a kind of epochal shift, the way back from which isn’t yet clear. Although he reiterates that the long-term outlook is fine, he notes that the fraught atmosphere against which the administration is trying to pass a new health bill is emblematic of the struggles Trump’s agenda will likely face going forward.
He also says that if there’s a relief rally following some kind of reconciliation of the “repeal and replace” push, it will likely be used by the “smart” money as an opportunity to unload their overvalued equities to folks who don’t know any better.
U.S. Equities Destined to Drop, Now or Later
The psychological damage done to U.S. equities and the dollar should not be underestimated. The good times for both won’t be returning soon.
- I originally thought today was all about the fate of the health care bill, but I now think that’s a red herring. It’s helping the market consolidate. Macro investors are right to pause until the outcome is known, but it’s just delaying the inevitable
- As outlined yesterday, I’m neither worried about the long- term global economic outlook nor about a major new bear market in the U.S. However, there’s certainly room for a healthy correction stateside
- The latest news reports suggest the bill will struggle to pass. If it does get through, the short-term relief rally may be powerful as it should mean that Trump can finally focus on real economic stimulus
- But the gloss of the new administration is already fading for investors. It’s clear that, rather than revolutionize the U.S., Trump will in fact need to struggle for every little change
- This isn’t to say he won’t fundamentally change things, but just that it won’t be happening soon enough to be a reason to hold expensive equities that are heavily owned and no longer trading consistently higher
- This means that any relief rally will be used as an opportunity for longs to take profit, not a catalyst to build positions further
- If the bill fails, then this dynamic just kicks in much sooner. Either way, I stand by my column from March 8 that U.S. equities topped out at the start of this month
- The global economy is not in trouble, and the U.S. isn’t at risk of a recession. There will be a time in the future to buy the dip, but a positive political outcome today will only prompt short-term bears to close out their positions – it won’t trigger genuine new topside enthusiasm