Trump has got markets dancing a fandango
Every day brings new seismic shocks out of Washington.
And thus I return to my desk. In 1964, the British Prime Minister Harold Wilson coined the phrase that a week is a long time in politics. To that I added much later that a day is a long time in markets. Being away for a month, and that month including the first three weeks of the four year tenure of the second administration under Donald J. Trump, has looked and felt like a cosmic age. At “lights out” last night, my better three quarters asked me what I would be writing about today. I answered that I would have to see where I was going to start and myself wait to find out where that would carry me.
Sitting on a Caribbean beach working very hard at doing nothing has given me time to read a lot of what other people, many much smarter than myself, have tried to make of the ongoing dynamics and I must confess to having been quite grateful not to have been obliged to try to pass judgement on what President Trump and his merry men – I shall briefly disregard the mood of the moment and cautiously use the term “man” as a gender neutral abbreviation of “human” – have cooked up, only to find that, within days or even hours, a new executive order has been signed that entirely changes the backdrop. Never have I read so much commentary, both political and economic, punctuated with the conditional.
If there is one thing that has struck me, it is the way in which more or less across the board there is agreement with and relief over Trump’s radical pushback against the woke diktat of the past years, maybe even decades. Funnily enough, I myself had made a New Year’s resolution to try to no longer defer blindly to the sense of “You can’t say that….” The appointment of Toby Young to the House of Lords, a journalist who had been cancelled for having once passed a comment on what many years later was deemed to be inappropriate and who had on the back of his experience created the Free Speech Union, maybe not entirely coincidentally along with the FSU’s chairman, Professor Nigel Biggar of “Colonialism. A Moral Reckoning” controversy, had already encouraged me to be bolder in saying it as I see it.
Readers may recall that I read Professor Biggar’s book on last year’s trip and was so taken that I wrote to him from the beach asking whether, as he was at Oxford, which is not far from where I live, I might on my return take him to lunch. It might not quite have been a laugh a minute as he is an entirely serious Oxford theologian, but it also reminded me that arguing against received morality, often limited to witty memes, is not at all a frivolous matter. A year on, Nigel has been ennobled and although I have never had personal dealings with Toby Young, I am well enough acquainted with his writing to value the symbolism of his being so too.
We are now 10 days away from the German elections, the outcome of which is deemed to be predictable. Are they, given the recent audacity of electorates not to do what they are expected to, that sure? The established political class is scandalised by people disregarding their understanding of what constitutes democracy and voting the wrong way. They did it by electing Donald Trump, not once but twice. They did it in Holland, Belgium and Italy. They did it in France. And now they are threatening to do the same in Germany.
I have in the past occasionally referred to Berthold Brecht, that socialist icon, who nevertheless in the aftermath of the June 17 1953 street protests against the Communist government in East Berlin wrote the following poem titled “The Solution” (not my translation):
After the uprising of the 17th of June
The Secretary of the Writers Union
Had leaflets distributed in the Stalinallee
Stating that the people
Had forfeited the confidence of the government
And could win it back only
By redoubled efforts. Would it not be easier
In that case for the government
To dissolve the people
And elect another?”
If I have said it once, I have said it a thousand times that it is not the voters that get it wrong but the political establishment that forgets to close the door. Elections are rarely won and usually lost. That voters are migrating to the extreme, be that to the right or to the left, demonstrates nothing other than the abject failure of the parties in the centre. The UK elections of July 2024 did, however, deliver a centre left administration – I struggle to call Sir Keir Starmer and his cabal of diversity a government – which in just six months has laid bare everything that is wrong with established professional centrist politics. A more incompetent rabble I have never seen, and that only begins with the Prime Minister, his Chancellor of the Exchequer Rachel Reeves, his deputy Prime Minister Angela Rayner, his Education Secretary Bridget Phillipson and to ice the cake, his lamentable Foreign Secretary, supposedly the chief diplomat, David Lammy.
As this is supposed to be a column on economics and markets, best I begin with Reeves. Had she still been in the employ of a regulated bank and not a democratically elected official who is supposedly answerable only to the electorate, her totally faked-up CV would have had her escorted to the door by some middle-ranking member of the HR team clasping a cardboard box or black bin bag containing her personal possessions with a pending reference to the regulator. Instead she gets to rape and pillage pensioners and farmers, two large social groups with limited lobbying power. That it took her four months to present her budget, irrespective of what it contained, proves nothing less than how unprepared she was for government. Labour spent too many years – not all fourteen to be sure – planning to win an election but not enough on sorting out what it was going to do when it had done so. And to be fair, the Tories lost it rather than Labour having won but let’s not cry over spilled milk.
You might recall the 1948 John Wayne film “Red River” in which the herd is jumpy, and it takes just one cowboy sneaking to the chuck waggon to nick a bit of sugar where he inadvertently but noisily knocked down some cooking equipment to launch a devastating stampede. Western electorates have also become jumpy and the likes of Emmanuel Macron, Kamala Harris and soon Olaf Scholtz will have stories to tell of what misreading the people’s mood can cost. The vagaries of the British electoral system will leave a deeply unpopular party in power well past its sell-by date which some might rightly or wrongly feel it has already passed. Ms Reeves – Rachel from Accounts – recently proclaimed “The best lies ahead”. I bloody well hope so for if the best already lies behind us we are in deeper trouble than any of us could have imagined.
Meanwhile, every day brings new seismic shocks out of Washington. The Donald might be mad but he’s not stupid. His decision to begin the avalanche of executive orders by legislating on the gender issue, something that has for a long time troubled the silent majority that has reluctantly decided that it is best to remain silent, suddenly gained him favour amongst unlikely pockets of society. Delaying the announcement of tariffs – “My favourite word – tariff” – took most markets by surprise which in turn led some to believe that they were probably to remain no more than a threat. Wrong!
Now markets are dancing a fandango as they try to work out what their effect is going to be. And just to keep them guessing, the 25% tariff on imports from Mexico and Canada, supposedly to be introduced with immediate effect, was pretty promptly postponed by 30 days. Will they be postponed again, withdrawn or implemented? Markets are reasonably good at analysing and pricing binary outcomes but how to dance in three camps at the same time? More to the point, the flow of disruptive announcements emanating from the Oval Office continues apace and nobody dares to guess when things might begin to settle down.
The President has certainly talked some toenail curling rubbish, especially with respect to energy pricing and interest rates. No need to point out that energy companies have absolutely no desire to “Drill, baby, drill” in order to undermine the price of the black stuff for fun. And the Fed is not an agency of government and as loudly as the highly leveraged property developer President cries that he wants to see cheaper money – the lowest interest rate we have ever had under any other President – Jay Powell and the FOMC will try to steer a steady course. As noted in the past, Powell committed a tremendous booboo when he underestimated the underlying power of rising inflation in 2022 and declared it to be “transitory”, a mistake he will not want to be remembered for having made twice. The futures strip is currently pricing two 25 bps Fed rate cuts for this calendar year but, given the uncertainty of US trade policy and its inflationary impact going forward, it might just as well price four or none.
At the time of writing, spot gold is trading at yet another all-time high of US$ 2,889.13 – the Comex futures contract is at US$2,913.20 – which speaks volumes, and which presents itself in the macro as a much better measure of fear, or maybe better uncertainty, than the VIX index which measures the volatility of the S&P500.
My reading over the past month has included predictions of a golden age for US equities but also dire warnings that the levels of future earnings expectations priced into stocks can never be met. Pays yer money, takes yer choice. Bond markets, ever the grown up in the room, are however none the wiser. The newly confirmed Treasury Secretary, Scott Bessent, has shone by his absence. His most recent comment was that he saw no reason to alter the prevailing issuance policy. That flies in the face of common sense that sees the excessive weighting of short term T-bill issuance under his predecessor Janet Yellen, and it had quite reasonably been expected that he would push for more stability in the debt portfolio by reaching up the yield curve.
Bessent is a macro guy with a history of success with George Soros. I watch and listen with interest. There must somewhere be a book on who will be first to depart through the White House’s revolving door – does Vivek Ramaswamy count? – although credit must be given to Steve Mnuchin who served the full term of Trump’s first presidency, and I would expect Bessent to do the same.
It will take me a few weeks to gauge the temperature of markets, so please indulge me. Meanwhile, we on Friday saw the US employment report which undershot expectations. With a forecast of 170,000 non-farm jobs having been created in January, the reported 143,000 was a disappointment. This is a highly volatile and nearly impossible to predict number and my dear friend Morris Sachs of the Inside Baseball With Old Chestnut podcast recently mused over why the market gets so obsessed with a number it always gets so dreadfully wrong. Good point MB.
I noted above that for this year it is my intention to call a spade a spade and thus I shall reveal that shooting – to US readers that is bird hunting – is one of my most favoured hobbies. The season is over so no need to go into further detail. When we are taught to use a shotgun we are given two maxims. The first is that a shotgun is pointed and not aimed and the second is that when pulling the trigger not to look at where the bird is but where it is going to be. When observing and commenting on markets, we columnists have to do the same. Since the beginning of the Trump presidency – all three weeks of it – this has been impossible for we know neither speed nor trajectory of our quarry and so far we are lacking experience to extrapolate either. The only saving grace is that the next guy is no better off.
My fellow Teenage Scribbler Billy Blain of the Morning Porridge is currently away skiing but before he left he avoided making wrong calls on markets by writing a fabulous piece on how the City has changed in the years since we all arrived, bright eyed and bushy tailed. His piece of 29 January 29, titled “HSBC Exits Investment Banking – The End Of The City Of London?” is a depressing read and one which should be on the reading list of every regulator and legislator in the country. In the past, I have often commented on how lucky I was to be in the City in the 80s, 90s, up until the GFC and a decade beyond. There was, so I had observed, a time to be building ships in Glasgow, spinning cotton in Manchester and casting steel in Sheffield. There was also a time to be trading bonds in the City and I was entirely fortuitously there at the time. The shipyards are gone, as are the mills, as are the blast furnaces. Billy wonders how long it will take for the banks to be gone too.
Plenty to keep me busy for some time to come. I loved my long holidays, but it really is good to be back.
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