- In a paperless and cloudy world, are investors and citizens as safe as the markets assume we are?
- In a flat, networked and interconnected world, is it even possible for America to be an "oasis of prosperity" and a driver or engine of global economic growth?
- With the G-8's geopolitical coordination at an all-time low, how slow and inept will the reaction be if the wheels do come off?
I am still very much concerned with the answers to these basic questions. But there are some more-important questions that concern me today.
Today, I want to add four additional questions to the three above -- the answers to which concern me as an investor:
- Remember when the big argument in favor of President Trump was that he was a dealmaker who knew how to get things done? That was when he was doing real estate deals. Now he has to deal with 535 other politically partisan legislators in Congress -- on their own real estate turf.
- Does the administration have the depth of experience, understand the extent of the legwork and organization required for passing legislation or have a coherent idea or shared vision of what it wants to achieve and what problems it means to solve?
- If President Trump can't easily put through a health-care package -- what does that mean for the more-difficult regulatory reforms, tax- and fiscal-policy agenda?
- President Trump took credit for the stock market's advance since his election victory. Will he take responsibility for Tuesday's correction -- and possibly a further correction? Is it a slippery slope for an administration to use the S&P 500 as a barometer of success? And is a pro-business and anti-domestic programs (in education, the arts, etc.) agenda going to benefit those -- in the lower and middle class (largely his base) -- who have suffered the most over the last decade?
The Bottom Line
As Tom Brokaw said on Morning Joe Wednesday morning, "There are burning fuses everywhere [in the Trump Administration]. They are not small... I have talked to numerous business people in the last few days and they are appalled."
The markets have risen on the assumption that the new President would be successful in his bold agenda of regulatory and tax reform and aggressive fiscal policy programs.
With housing, retail and autos all peaking, I reject the notion put forward by some that the rate of growth in the domestic economy is re-accelerating -- and that this "trumps" the success of the administration's agenda. Meanwhile, rising gold, contained 10-year U.S. note yield and sinking commodities markets (the price of oil has fallen to October 2016 lows) seem to be negative economic and market "tells," that up to yesterday had been ignored.
The first few months of the Trump administration have already been a test of the president's business acumen. Can his "art of the business deal" be translated into the "art of the political deal" in Washington, D.C.?
Arguably, the body of evidence is that the administration has not been successful -- to some, it is failing spectacularly.
Among other things, it is clear -- at least to me -- that President Trump doesn't have the staff to work the Hill. The job of replacing Obamacare and the introduction of other programs and policies are complicated in Washington -- they require a deep organization, thoughtful planning, full cooperation within the Republican Party and some cooperation across the aisle.
Unfortunately, the Steve Bannon policy of tearing down may work (theoretically) in his own mind, but in practice, it will continue to face "yuge" hurdles and could further jeopardize the president's agenda. This week, in the singular piece of legislation (health care) that is imperative to be passed in order to proceed with the administration's other policy initiatives, the president appears to be coming up short. Moreover, and perhaps equally important, he is alienating portions of his own party (something I discussed might happen in Surprise #4).
As we learned again on Tuesday, risk happens fast. Everyone seems to be dancing to the momentum of price -- hedge hoggers (like David Tepper), quant funds (risk parity and volatility trending), CTAs, ETF investors and most traders -- reminiscent of Citigroup's Chuck Prince, who famously said (three months before a seminal top in 2007), "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."
The business media, strategists and other "talking heads" have lulled market participants (who are impacted by their pablum and ever bullish narrative) into a false sense of security. Bears have been dismissed as Cassandras, despite economic sector peaking and a seemingly disorganized and sometimes antagonistic presidency.
To me, the rationalization of rising "animal spirits" have replaced sensibility, financial analysis and common sense. From my perch, the markets are overvalued and risk remains underpriced. The "hockey stick" projections and consensus of rapid profit growth in 2017 and 2018 seems to now be "pie in the sky."
What is dangerous is that consensus sentiment, political, profit and economic expectations are inflated at a time in which many valuation metrics are in at least the 90% decile. By my gauge, the market's downside risk substantially exceeds the upside reward. Perhaps by as much as 3:1.
As I said back in late 2016, Donald Trump will make volatility and uncertainty great again.