Borrowed Time.

So today, soup quit on Donald Trump. And so did Scotch Tape.

#3M all these years, Scotch Tape has been plotting against us all. now the secret is revealed for all to see. pic.twitter.com/ghpOKBAlgY

— Heisenberg Report (@heisenbergrpt) August 16, 2017

The decisions by the CEOs of 3M and Campbell to quit Trump’s advisory council were the final nails in the coffin for the President’s manufacturing jobs initiative. And in an effort to avoid suffering the embarrassment of waiting around for everyone to walk away, Trump simply threw in the towel:

Rather than putting pressure on the businesspeople of the Manufacturing Council & Strategy & Policy Forum, I am ending both. Thank you all!

— Donald J. Trump (@realDonaldTrump) August 16, 2017

To be clear, anyone with any sense knew the idea that Donald Trump was going to usher in a veritable renaissance in American manufacturing was a joke from the very beginning.

But what we saw today in terms of the backlash against his erratic and inexcusable belligerence feeding through into markets is just a microcosm of the “Trump bump’s” dirty little secret: this entire administration and by extension, the President’s agenda, was always living on borrowed time.

There was no way this presidency wasn’t going to eventually devolve into a train wreck. It was just a matter of when and then, a matter of how bad things would get. In turn, the “Trump bump” was itself something of a mirage. You could see that simply by looking under the hood (i.e. below the benchmark level). All of the so-called “Trump trades” have been faded. For instance, as we noted on Tuesday evening, the entirety of small-cap’s post-election relative outperformance has now evaporated:

But zooming out even further, this whole rally is living on borrowed time. The July Fed minutes seem to indicate that the committee is still far from confident that the market is fully prepared to stomach balance sheet normalization, but at the same time, those same July Fed minutes show they’re going to give it a go, regardless.

Meanwhile, Mario Draghi seems to have gotten gun-shy about tipping the ECB’s hand at Jackson Hole. That may kick the can down the road a bit in terms of when an exit plan is announced, but again, at some point the ECB is going to give it a go.

With multiples where they are, anyone staying “long and strong” here is tempting fate – and “bigly.”

As far as Wednesday goes, the Fed’s demonstrably tepid outlook for inflation and cautious take on the prospects for fiscal policy added to the sour taste folks already had in their mouths after Trump’s tweet. Stocks managed to close higher, but you can see where things got dicey (SPY, Nasdaq, VIX):

Needless to say, the dollar was a disaster as Trump throwing in the towel on his much ballyhooed “councils” and committees combined with a Fed that sounded less than enthusiastic about inflation and the outlook for fiscal stimulus sent the greenback sharply lower along with Treasury yields:

This comes a day after dip-buyers plowed $1.5 billion into QQQ, the fourth-most since 2012:

Folks are pouring money into short vol. ETPs hoping that this time is in fact not different:

Retail stocks decided to take a break from going to zero:

Gold retraced its losses as the risk-on sentiment that prevailed on Monday and Tuesday reversed itself on Wednesday afternoon as the yellow metal’s biggest fan on earth was abandoned by soup and rebuked by Scotch Tape:

The euro was fun, falling on news that Mario Draghi will not, apparently, signal anything about the ECB’s exit plan at Jackson Hole, only to surge against the dollar on Trump worries and then, subsequently, the Fed minutes:

European shares were higher across the board and missed this afternoon’s drama in the U.S.

Crude fell sharply to a three-week low. Although the EIA report showed a seventh straight draw in U.S. crude stockpiles (-8.95m bbl to 466.5m, lowest level since January 2016), a second consecutive Cushing build, a surprise gasoline build, and perhaps most notably, the biggest increase in production since June pulled the rug out:

“The focus is on continued increase in U.S. production and the pressure that might put on prices,” Rob Thummel, a managing director at Tortoise Capital Advisors, said, adding that while “everybody loves the inventory decline, the production is just something the bears continue to focus on.” He says that like he has no idea why.

Ultimately, the takeaway from Wednesday is simple: the Fed has been waiting on the day when fiscal policy was ready to take the baton from monetary policy in terms of keeping the economy afloat and ensuring the bottom doesn’t fall out for markets.

But now, with the evidence piling up that nine years of accommodation has inflated all kinds of bubbles in risk assets, and with the window to normalize before the end of cycle quickly closing, the Fed has no choice but to start the unwind.

With the administration’s agenda in tatters, there’s not going to be anyone there for Janet Yellen to pass the baton to.

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