It looks you’re all The Bruce Dickinson and Gary Cohn is your “cowbell” on Wednesday.
Everyone’s “got a fever” and “the only prescription” is more Gary.
Opinions vary on the extent to which Cohn’s ouster/exit/”fuck this moron, I’d like to retain some semblance of dignity” moment actually matters all that much.
To be sure, Bloomberg’s Cameron Crise has a point when he says that in “the developed world, institutions tend to be stronger than individuals, such that the gain or loss of a single political appointee doesn’t really influence economic or market outcomes at all.”
Here’s hoping Cameron. But America (a formerly “developed” country) is quickly discovering that its vaunted “institutions” are indeed vulnerable to attack from an “individual” and the jury is still out on who’s going to win that battle. In fact, if Trump has his way, he’ll be the judge and the “jury” on all matters including those related to himself. So make room MSCI! You might have to add “United States” to the EM basket.
As noted this morning and on any number of occasions over the past several days, the risk here is obviously that without Cohn, U.S. trade policy will be increasingly beholden to Peter Navarro, who is a standing joke in the economist community (which makes him a perfect fit for the Trump administration).
Not everyone’s take on this is as sanguine as writing it off to just another high profile exit from Trump’s White House, that bastion of stability inhabited only by “the best people.”
Wells Fargo, for instance, is out with a rather gloomy take, noting that doing nothing really isn’t palatable for other countries in the event Trump pushes ahead with his tariffs.
“Loosely borrowing from game theory, it would be less than optimal for foreign countries to do nothing in response to a tariff because if opposing nations took a type of appeasement approach (extracting no costs or fees monetary or otherwise), there would be an incentive for President Trump to continue raising various tariffs,” the bank writes, in a note out this morning, before driving the point home as follows: “In actuality, he would have a strong incentive to continue instituting tariffs until he was met with either an equal and opposite reaction or material costs became attached to the action.”
The bank continues:
When looking at the incomplete and fluid tariff picture, we believe the market is correct when pricing-in additional uncertainty. The trade situation has the potential to grow in magnitude and hang over the equity market for weeks and months. Turning towards the equity markets, in the most recent sell-off, many traditional risk aversion assets, sectors and stocks have not provided their typical downside protection. This has complicated the picture for some PMs as it’s become more difficult to insulate the portfolio during times of stress.
There’s the “no diversification” warning coming into play again.
“With the departure of Cohn, the risk is that President Trump leans on White House officials who favor more protectionist economic policies raising the probability that President Trump will go ahead with some form of tariffs on steel and aluminum imports,” BofAML adds, stating the obvious.
The bottom line here appears to be that taking too narrow a focus (i.e. zooming in on the expected impact of specific measures or otherwise attempting to downplay the exit of “one” adviser) might risk underestimating the risk. Or at least that’s what Wells’ Chris Harvey thinks. We’ll leave you with one more excerpt from his latest note:
Our takeaway is that trade and tariffs will be an issue for at least the coming weeks, if not months. The ability for this to spiral doesn’t seem high but it is a growing possibility, especially with Gary Cohn’s resignation. In our view, the domestic & global rhetoric and repercussions spurred from tariff talk and Cohn’s departure will likely weigh on the market in the near-term and keep a bid to volatility.