Investors won’t be able to trade markets if they can’t settle on a base-case scenario, and, as Bloomberg's Richard Breslow warns, they have to accept that some unknowns are less unknown than others.
Every tweet that restates what Donald Trump has been saying consistently for many months shouldn’t come as a surprise to traders and send global asset prices into a tizzy.
The same goes for today’s speech by U.K. Prime Minister Theresa May.
If people are on edge waiting for the next installment on protectionism or a hard Brexit, it should be because their positions would be affected on the chance that the messages are reversed, not reiterated.
There seems to be this enduring tendency for market participants to believe that these politicians will “come to their senses” and this will all have been campaign or negotiating tactics.
A bad dream. It’s why his election night victory speech had such a profound affect.
But whether you like what’s going on or not, you need to position for the most likely scenarios and what you think it means for markets. On the latter, opinions may differ and that’s all right. But don’t feign being surprised that some pretty remarkable things are being said and proposed — regularly.
For years, post-financial crisis policy was conducted on the self-serving belief that it works best by propping up asset (especially equity) prices, which will then cause some of the goodies to trickle down… known in the non-official journals as “cure through greater inequality”.
Traders, and I guess the clever people who program computers, can’t get this out of their heads…
Of course we’ll eventually get market-friendly prescriptions.
So we’ll always price for that outcome.
It’s a big part of why geopolitical events have notoriously had such little affect on markets.
There was always more liquidity in the bag.
It really isn’t profound to point out that if global politics turn decidedly ugly, it could act as a drag on world growth…
Unless you assume you're owed a policy response just as soon as it happens. Now that’s an assumption that should be weighed carefully!
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