Just One Question: Do You Have ‘A Coherent Explanation For Precisely What Is Going On’?

If Sunday morning’s tweets were any indication, President Stable Dennison is acutely aware of the extent to which the media knows things are falling apart at 1600 Penn., whether that means he’s having trouble marshaling the resources he needs to keep Robert Mueller at bay or else just finding it increasingly difficult to dispel the notion that his “chaos” strategy isn’t actually a “strategy” but rather just a reflection of his ineptitude.

The week ahead promises to bring more in the way of uncertainty on the trade front and the deluge of supply from Treasury will probably test the durability of the bond bid, which has resurfaced amid the risk-off sentiment that triggered the worst week for stocks in more than two years.

And that’s hardly the end of it. It seems at least possible that LIBOR’s Monty Python moment (“I’m not dead yet!“) and the concurrent LOIS blowout has the potential to finally spillover with ramifications for dollar funding and knock-on effects for foreign demand for USD debt, etc. And here’s hoping this does morph into an acute tightening of financial conditions or otherwise manifests itself in a way that vindicates the shrieking doomsday crowd, because God knows there’s at least one person out there who has spent so much time obsessing over it lately that you can’t help but be concerned for his mental stability (if you weren’t already). I mean, who knows, maybe there is a conspiracy among analysts and the financial news media to “pretend” like an oversupply of T-bills is the main (if indirect) driver when in fact there’s something more nefarious afoot (Soros is probably in on it). But my guess would be the ambiguity is largely down to the fact that unsecured funding markets are pretty opaque, so all anyone can do is point to bill issuance and repatriation dislocations on the way to saying something like “other than that, let’s just see what happens” or at least “let’s wait and see if it spills over into Xccy basis” before we all go leaping off bridges.

None of that is to say this isn’t something that’s important, and indeed it might very well be the only thing anyone is talking about a month from now, but past a certain point, sane people know when to just lay out the issues and leave it at that pending further information. And very much contrary to the notion that “no one is watching this”, literally every sellside shop has something out on it. Plus, the shit isn’t rocket science. You don’t have to be a “very stable genius” to spell out the implications of a situation where it worsens.

Anyway, I digress. That’s on the radar this week along with the trade wars and the Treasury supply deluge and it certainly seems like (given what we’ve seen in the flows data over the past two weeks) retail is becoming increasingly skittish and thus entirely unreliable when it comes to being the “marginal” buyer of stocks.

This is all set against a disconcerting geopolitical backdrop that now features John Bolton and his decidedly egregious mustache. So now Donald Trump, the man who has repeatedly suggested that Iraq was a mistake, is now going to get his national security advice from Mr. Warmonger. Just to be clear, foreign policy buffs are having a hard time finding the words to describe how fucking crazy that is and also how incredibly hypocritical it is that Trump would choose Bolton. Here’s The New York Times’ Maureen Dowd spelling this out in the simplest terms possible for you:

By far the best thing about the Trump campaign was watching many of those culpable for the Iraq war go ballistic trying to stop the neophyte, who kept pointing out that Americans had been deceived into the historic debacle with Iraq. He even went where no one else had dared to go and correctly pointed out that W. and his administration had dropped the ball before 9/11.

Bill Kristol, Eliot Cohen, Robert Kagan and Max Boot, all of whom pushed to “liberate” Iraq, denounced Trump, saying he would be a foreign policy disaster. Kagan and Boot said they would vote for Hillary Clinton.

After lukewarm support for the invasion, Trump often criticized W. on Iraq. “No matter how long we stay in Iraq, no matter how many soldiers we send, the day we leave, the meanest, most vicious, most brilliant man in the country, a man who makes Saddam Hussein look like a baby, will take over and spit on the American flag,” he told me in 2006. “Bush will go down as the worst and by far the dumbest president in history.”

Trump was a Hillary supporter in those days and said that although her vote to authorize the Iraq war was “horrendous,” she should be forgiven because “that decision was based on lies given to her.”

“She’s very smart and has a major chance to be our next president,” he told me.

In 2013, Trump tweeted: “All former Bush administration officials should have zero standing on Syria. Iraq was a waste of blood & treasure.”

When he ran for president against Jeb Bush, he continued attacking W. and presenting himself as a noninterventionist, focus-on-America candidate.

But somehow, in his King George madness, Trump has circled back to elevate one of the chief Iraq war hawks to be his national security adviser.

Yes, “somehow.” And that “somehow” comes back to two simple observations: 1) Trump has no set beliefs, and 2) he’s running fresh out of credible people to appoint to key positions so he’s resorting to Fox News personalities and lunatics who were previously relegated to the fringes of their areas of “expertise” (and the scare quotes are there for a reason).

The point in all of the above is that the risks (real or imagined) on both the market front, the political front, and the foreign policy front are piling up faster than anyone can document them.

Given all of that, we thought Sunday might be a good time to share the latest from former trader and current Bloomberg columnist Richard Breslow. The following is from Friday and clearly some folks (or maybe some machines) didn’t take his “do nothing” advice, but everything you’ll read below probably applies even more so now than it did when he wrote it.

Via Bloomberg

Don’t mistake this as a trade recommendation, but it is all right to do nothing. Trading when you believe you have an edge is when it is time to step in. If you are there, then go for it. But trading merely because things are moving around is a day-trading concept, not an investment thesis. It’s important to match trading style, objectives and realistic liquidity assumptions to how you view volatility vs risk. They are very much not the same thing. Made even more so if you think the Fed equity put has been eliminated. It hasn’t, just moved some

• I guess I would be more excited about jumping in if I could construct a more coherent explanation for precisely what is going on. And if I can’t come up with some half-baked theory I’m willing to run with, I’m willing to bet neither can a lot of other people. Even if they are more than willing to be adamant that it all boils down to one thing. It doesn’t
• And while I have lots of ideas of what, gun to my head, I’d do right now, I’m not sure there is any special advantage to blithely concluding this has all been noise or is the start of the big one. And that question is where you should be starting. Your correlation matrix depends upon it. Which matters mightily if you are busy doing X because of Y. Unless you just want to keep entertained by leaning on some very obvious, and close, chart points. And I fully understand the temptation. In fact…
• Another thing to keep reminding yourself is the importance of considering the source. In the pure QE world it was easy for everyone to be an expert on everything. We knew how each act of the play, let alone the whole thing, was going to end. It’s trickier at the moment. And every market analyst who tells us about the intricacies of Middle East negotiations one day may not be as au fait with the market dynamics of the Dalian iron ore exchange the next. At the moment, I’m treating the word “because” with unusual circumspection
• There is one tangentially related issue I can’t get out of my head. Yesterday, Bloomberg News had an article about Russia’s plans to further mimic other sovereign wealth funds by having its National Wellbeing Fund take on more risk, including stocks. It may not be useful today, but think about it when someone wonders just who might consider buying a dip. Or what the implications are for a sovereign wealth fund that thinks it can invest big but be able to sell quickly
• Now go read the news and decide what your plans are for the day