Below we present an insightful, if disturbing, anecdote from Eric Peters, CIO Of One River Asset Management, who shares his view in his traditional “third-person” style about what life may be very well be for traders under the Trump administration.
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Beep Beep
“Everything’s changed,” said Roadrunner, the market’s biggest volatility trader. “Trump will provide the excuse for everyone to finally capitulate, and embrace this bull market,” he continued. Back in 2000, the internet ignited imaginations, animal spirits. In 2006, home prices grew to the sky. Now Trumponomics.
“He’ll suck everyone in.” You can feel the bullishness building. “But the seeds of the next bust will be sown in his first year. The volatility will be amazing. And by the time his term ends, the S&P will be below where it started.”
“Hillary/Yellen were going to be more of the same,” continued Roadrunner. “You could kind of imagine how they’d manage a gentle, incremental policy normalization.” Lifting rates despite a massive Fed balance sheet, low growth, full employment, declining productivity, modest inflation. “But under Trump, there’s so much more uncertainty. He’s unpredictable. His policy mix is unpredictable. The impact of those policies is unpredictable.” His eyes darted up, left right. “There is going to be a hell of a lot more volatility. I don’t see how there can’t be.”
“There will be horrible declines, and sharp rallies. That’s the way these things unfold,” explained Roadrunner. “People get too bullish, too extended. Then something comes along.” Years of monetary dominance is transitioning to an unstable monetary/fiscal balance. This new multi-factor model is by definition less predictable. How will higher interest rates and the dollar impact equities? Up to what point is inflation good? Do we even understand inflation?
“But eventually, the volatility will be on the upside. That’s how all bull markets eventually end.”
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“Institutional investors were all-in on secular stagnation,” said the portfolio manager. “Mercantilists exploited globalization to create deflation.” Plus we have ageing populations, robotics, a savings glut. “Will Trumpism break this cycle?” he asked, not waiting for an answer. “I really have no idea, but I don’t need to know, at least right now.” In the distance, a sea of oil tankers spewed heavy black smoke, their engines straining, their captains throttling into reverse. “I just need to know, that they haven’t repositioned in one week.”
“It’s important to not get too dogmatic about markets in either direction,” he continued. “Have prices moved too far too fast? Perhaps.” Or perhaps not.
“Unless you think Trump is Hillary disguised as a man, something seismic has just happened.” The tankers showed no sign of shifting course. Or even slowing. “For decades, America’s policy mix has been great for financial asset prices. But less great for incomes and GDP. Will Trump reverse this?”
“Let’s hope Trump succeeds,” said the CIO, as stunned as anyone, everyone. Reeling from the equity market rotation. “People have voted for capitalism as the answer, and if he can’t get things moving, the same people who voted Trump will swing wildly to the left in 2020.” Would The Bern have beaten The Donald in a head to head contest? We’ll never know for sure. But the fact that we’re even asking is profoundly troubling from capitalism’s perspective.
“If Trump fails, get ready, because we’re headed directly to socialism.”
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