Among the irrefutable genius of The Donald is his ability to sew chaos in the environments in which he operates by reneging on his word, reversing his positions, and generally doing the opposite of what would be considered rational. This makes him unpredictable, and, with a perfect platform to project such unpredictability into the global geopolitical arena that the US presidency provides, extremely dangerous.
Never having been a stock market player, Trump couldn’t care less for market stability.
Having zero history with diplomacy, that institution holds little interest for Trump. Geopolitical stability? He prefers turmoil.
As investors, trying to get out in front of the unpredictable is de rigeur, and so you’d think we’d be comfortable with that.
Traders, more so than investors, value volatility above stability. Traders make out better (or lose bigger) when spreads are wide.
So where’s the pattern in Trump’s behaviour that can shine a light on where the puck is going to be tomorrow?
Fortunately, the pattern is emerging, and the continuous rotation of Trump’s statements from “Deal” to “No Deal” in the situation with China is wherein lies the key.
Trump uses monumentally important issues with high public visibility to generate approval from his base, and cement their support. He knows that from that perspective, if he ever does anything normal and predictable, he disappoints. His base is drawn toward spectacle and hyperbole. They want fireworks, not fountains.
So just as markets reflect their approval and relief as Trump telegraphs progress toward a Deal, and settle into a resumption of record setting index prices, he sabotages the expectation for continuity by declaring No Deal. Markets sell off, and Trump chuckles to himself, in utter awe of his own manipulative power.
Trump also thrives on using geopolitical shenanigans to distract from policy failures in progress.
Take the Mexican border wall, for example.
Texas – the largest state border with Mexico – has apparently had little to zero border wall construction, because the affluent land orders along the Rio Grande don’t want a big old rusty metal wall to destroy their million dollar views to the south.
The impracticality of “The Wall” is becoming increasingly apparent to Trump, and as the absence of solutions, and criticism from his base mounts over his most shockingly unconventional election promise, he desperately seeks bigger issues on faraway shores to distract.
His impeachment – another burr under his saddle – is more of a domestic irritant than existential threat, he knows, because the Republican senate has been stripped of any opposition to Trump, and the obvious decision to band together for better or worse means Trump has at least thoroughly subordinated and conscripted all Republicans of any weight to his defense.
These are tradable signals for agile investors.
Look at the prices of gold versus the S&P 500 in the context of his policy reversals on the trade deal with China. They have become predictable and correlateable to Trump’s mood.
When the “No Deal” phase starts, after a period of market improvement thanks to the “Deal” phase, short the S&P and buy gold.
When that pattern reverses, short gold and buy the S&P.
It really is that simple, and has been working like a charm lately.
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