The following is the opening segment of this week’s edition of Notes From the Rabbit Hole, NFTRH 437. While I think several proposed Trump administration policies would have positive down the road effects for corporate America and the asset ownership class, the administration will have to survive intact in order to implement them. This is one erratic and shall we say, fluid, situation and this is not a leader who inspires confidence, speaking personally at least.
Last week we reduced the charting in favor of increased talking. That was because I had some things to say about the at-risk gold sector and its incomplete macro fundamentals.
There was also a lot to say about stock market sectors that would be favored or avoided if the long-term bond yield environment continued to shift to declining (bonds bouncing). Last week dealt a blow (in the form of Trump’s triumphant speech to congress and unusually aggressive Fed jawboning) to bonds, but did not break the play.
And then there was the Wonder Pig; the Dow hit and exceeded our 21,000 target and the S&P 500 lurks just beneath its target of 2410. All is good in the post-election world as the Fed plans to raise interest rates, gold looks destined for the hell it came from and the ‘Trump Trade’ continues forward, fueled by reflation/inflation hopes.
Wait one minute! Did he say “reflation/inflation”? Well, as we will see later in the report, something does not square with that view. Some Trump trades having to do with infrastructure build-outs and reflationary/inflationary economic growth have weakened a bit lately. Sure, Financials are booming, but would be highly vulnerable to yield weakness. And with commodities dropping and inflation signals flat lining, will the bond market continue to signal inflation, or perhaps a lack of it or even eventually, deflation, if only for a quick phase? Again, we’ll review commodities’ weakness and other tepid inflation signaling later in the report.
With the Fed all but having committed to a rate hike in March – and the market discounting it to an 80% probability, they are still in a timid if semi-consistent inflation fighting mode. For reference, the market does not expect a hike in May.
But back on the topic of Trump, the whole play is built on Fiscal Stimulus that will “create jobs”, increase wages and drive inflation. So we can consider a failure of the items that would most benefit (aside from Financials, which would eventually get hammered if inflation pressure – such as it is – wanes and long-term yields do as well) from the expected Trump fiscal policies as a negative divergence. Sure, the market went ballistic the day after he spoke to congress. I wonder if that day was Peak Trump.
Meanwhile, this is what we have, a Robo-Tweeting president spilling his psyche out to the world without the slightest regard for any kind of filtering. Even if this is true, I have to believe that the president of the United States of America taking to Twitter, misspelling a simple word like ‘tap’ and calling the previous president “sick” does not inspire confidence in anyone with an above-average number of functioning brain cells.
If we are indeed now past Peak Trump, the fallout can take time to manifest, but the longer it takes, the worse the fallout will be (ref. recent public posts at nftrh.com noting that the market has not yet had bull-ending climactic volume). As it stands now, the fact that some elements of the ‘Trump Trade’ are recently lagging Tech and Healthcare for example, is a negative divergence implying that Peak Trump may have been Wednesday’s reaction to the speech to congress.
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