Trader: The “Only Option” Is To Be Optimistic

Right, so former FX trader Mark Cudmore is a self-described permabull. And that’s fine.

Indeed he tried to turn bearish back in late January and, well, he learned how tough it is being in the bearish camp in a world where central banks are backstopping benchmarks with what, in Q1, was $1 trillion in liquidity.

Well on Friday, Mark wants you to look on the bright side when it comes to the Trump administration’s (in)ability to get anything done and although we would disagree on a number of points, we do agree with the general idea that government ineptitude is nothing new.

That said, Cudmore seems to be forgetting the fact that we’re sitting at all time highs. Which would certainly suggest that someone, somewhere has found a reason to keep buying. In other words, while we acknowledge that a whole lot of Trump trades have retraced their post-election gains, this market is far from demure.

Via Bloomberg

The last six months have made it clear how sensitive markets are to swings in sentiment regarding the Trump administration. We may now be overdue for an uptick in optimism.

  • Given the partisan nature of U.S. politics, Trump sentiment has ebbed and flowed around prospects for him being able to move his agenda through the fractious Congress. So when he was forced to pull the health-care bill because of a lack of support from his own party, hopes for a rapid and large stimulus package suffered an understandable blow
  • So we’ve seen a broad trend of excess optimism in the wake of the November election and then a swift reversal
  • That correction has overshot, in my opinion. The dominant assumption is now that Trump will not soon achieve any major policy success, if at all. After many unrealistic and unfulfilled promises by the new president, it’s been forgotten that most new administrations take time to meaningfully change policy
  • It’s only going to take one decent victory for the market to put a more positive spin on things. Most importantly, China and the U.S. seem to be showing greater policy coordination toward North Korea than at any time I can remember. Unity between the world’s two largest economies is genuinely good news
  • Trump’s Syria actions and the related tough message to Russia might also be seen through a more positive light, especially as diplomatic relations between the U.S. and Russia appear to have improved from a year ago
  • It’s almost being overlooked that the health-care bill is still being worked on and progress is reportedly being made in gathering the necessary number of votes
  • While Trump’s “phenomenal” tax plan may lack details, it definitely seems to fit with theories of what a pro-growth policy should look like, if it can be passed. The fact it’s not revenue-neutral suggests its prospects are dim. However, looming Congressional elections in 2018 may see resistance abate if Trump can blame Congress for a lack of progress on tax cuts for his base
  • The threat of a government shutdown has become ubiquitous in recent years and, combined with low expectations for this administration, means there’s more potential surprise if one is avoided than if it’s not
  • Friday’s first-quarter GDP report may see the final capitulation in sentiment. The Atlanta Fed GDP Now Forecast stands at 0.2% versus 1% consensus.
  • It might be that the narrative has become so negative that, soon, the only option will be for optimism to increase
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