10Y inflation reflation Trump

Assuming You Think America Is Still A Democracy, Here’s How To Think About Markets & Trump

"In a democracy like the US the main impact of elevated political uncertainty is higher risk of inaction"...

So there are two ways to look at the turmoil unfolding inside the Beltway if you’re an investor. Neither of which bodes particularly well.

Either you..

  • …think the worst that can happen here is that the ongoing Russia probe serves to distract the White House and lawmakers alike, thus further delaying the implementation of Trump’s growth-friendly policy platform

or you…

  • …think that this will ultimately crash and burn in spectacular fashion leading to Trump’s ouster from the Oval Office

In the former case, a hamstrung Washington can’t move ahead and thus trades tied to the reflation meme are (further) imperiled. In the latter case, they’ll probably be some “day of ultimate reckoning” for risk assets and everything that entails.

For those who are inclined to believe the latter narrative, you’re encouraged to check out “Trump ‘Squeezing Lemon Juice Into Cuts With Every Tweet’ – And Other Zingers From Analysts.”

If, however, you’re inclined to take the (relatively) more sanguine view that the only thing at risk here is the reflation story (and not the foundation of American democracy), you might find the following from BofAML to be a more worthwhile assessment of what’s taking place and what to expect going forward.

Via BofAML

Political uncertainty vs. tax reform

In a democracy like the US the main impact of elevated political uncertainty is higher risk of inaction, which for financial markets presently translates to the possibility of further delays to/lower likelihood of fiscal policy easing – especially tax reform.

This is one reason investors increasingly fear that the expected acceleration of economic growth forming the basis for the so-called “Trump trades” is at risk. Case in point the dollar has already more than retraced its post-election strength (Figure 1), and long term inflation expectations are rapidly approaching that point (Figure 2). Until [Wednesday] the equity market at near record levels showed the most resilience, but down 1.82% clearly cracks are beginning to form.


Risk of weaker hard data vs. political uncertainty

Because loan data suggests that consumers (Figure 5) and businesses (Figure 6) are in wait-and-see-mode pending details of fiscal policy easing, clearly further delays due to political uncertainty increases the risk of more weakness in hard data.




5 comments on “Assuming You Think America Is Still A Democracy, Here’s How To Think About Markets & Trump

  1. Anonymous

    dollar surged against the British pound and other currencies Thursday in a sudden move, currency traders and participants from other markets cited the reemergence of a CSPAN video from earlier in the month that some interpreted as former FBI Director James Comey saying he was never pressured to end an FBI probe…….. seen this video??

    • traders may be saying that and reacting to it, but just a little friendly advice from Heisenberg: i know where you read that.. read the Citi commentary and write the rest off to people pitching you (likely) paid spin.

    • Anonymous

      In the video, Comey is asked a fairly narrow question, and provides an equally narrow answer. He was asked specifically whether or not the Attorney General, or senior DOJ staff, had tried to stop the investigation and he indicated that they hadn’t. Conservative media outlets are trying to extrapolate his answer to mean that Trump had made no efforts to impede the investigation. However, there is nothing in the full context of the video to suggest that he was referring to Trump, or the White House in general, when responding to that question.

      It’s going to take more than a quote taken out of context to save this administration.

      • right. and besides that, people seem to be postulating that Comey somehow doesn’t remember that he said that or, even funnier, that Rod Rosenstein didn’t know Comey said that when he appointed special counsel

  2. In the not too distant future, the stock market will be largely driven by weather reports…..

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