Train Wrecks, A Risk-Off Recipe, And ‘The Cohn Trade’ All Along

As you stare at screens that are mostly red on Friday morning in the wake of Thursday’s turmoil on Wall Street and terror attack in Spain, you might be asking yourself if it’s time to rethink what you thought you knew about Donald Trump and his impact on asset prices.

Thursday was the worst day in three months for the Dow…

…and it’s starting to look more and more like Gary Cohn might be the straw that finally breaks the camel’s back for investors in terms of their collective willingness to give this market the benefit of the doubt despite the long list of reasons to be concerned.

Well, for some perspective, consider the following rundown of opinions from a variety of Bloomberg contributors as collected and put together by Paul Dobson…

Via Bloomberg

Is President Trump becoming a liability for U.S. assets?  There are certainly lots of negatives: he’s losing allies and popularity, failing to get policy through Congress and foes (N. Korea, Iran) seem to be sensing the U.S. is weakened and flexing their muscles. My colleagues have some good counterarguments.

It’s hard to assert the POTUS is a liability when stocks are barely off their record highs, credit spreads are exceedingly tight and the nation is still adding jobs, says Wes Goodman.

The idea of the “Trump bump” was exaggerated anyway, chips in Garfield Reynolds — that was more about removing political uncertainty than enthusiasm for the agenda, and now there’s just a bit of that uncertainty coming back.

For Mark Cudmore, it’s almost an irrelevance — he’s been calling for a correction for more than a week now and says the fallout from Charlottesville is little more than an extra excuse. And blown up as a market catalyst by the media. Finally, the Bloomberg Dollar Spot Index ended yesterday higher as U.S. stocks sank. The two have moved in opposite directions for most of the year. It’d take a lot more to have them selling off in tandem — if they did, that might suggest a deeper mistrust of the U.S.

And here’s Bloomberg’s Michael Regan with why this is now ‘the Cohn trade’…

A swathe of Donald Trump’s CEO advisers have turned on him due to his reactions to a deadly white nationalist rally over the weekend, and many of his fellow Republicans have turned on him as well. But what mostly caused the stock market to turn on him with a vengeance in Thursday’s U.S. trading session was speculation that a single man might turn on him: Gary Cohn, the former president of Goldman Sachs who serves as Trump’s chief economic adviser and is frequently atop the list of educated guesses about who will be named the next Federal Reserve chair.

Perhaps we should’ve been calling it the “Cohn Trade” all along?

The fact that “a White House official” came out and said Cohn will remain in his position did little to calm nerves, especially since news of the terror attack in Barcelona hit the tape almost simultaneously. Add in a healthy serving of pre-options-expiration trading, a pinch of August volatility, better-than-estimated economic data that plucked a few feathers from Wednesday’s dovish FOMC minutes, and it was the perfect recipe for a risk-off day. The S&P 500 closed at its lows of the session, down 1.5%, and took out its “fire and fury” low from last week. The VIX jumped 32%. Treasury yields also tested, but held, their lows from last week, while the yen, franc, and dollar were the haven currencies of choice.

Then again, maybe this will turn out to be the mother of all dip-buying opportunities.

After all, a President Mike Pence would probably pursue a similar agenda in terms of the policy initiatives the market is looking for – only Pence would subtract most (but certainly not all) of the crazy.