President Trump’s tweets of positive news are turning out to have a similar half-life. Over the weekend news media reported that President Trump had his staff investigate nuking hurricanes so it seems the subject of radioactive material is appropriate this week. Naturally, no one is taking him seriously on the subject of nuking a hurricane any more than they are taking him seriously about buying Greenland but markets do seem to take him serious when he gets on Twitter and discusses the trade war with China.
In our opinion, it’s actually more credible at this point to nuke a hurricane than see the U.S.-China trade war resolved diplomatically by Trump. Markets seem to finally be catching on to the U.S President’s antics. The Chinese have found Trump’s Achilles which has been sitting out in the open since day one; Trump measures his self-worth by the value of the U.S. stock market.
On August 12th Trump couldn’t help but brag about the U.S. S&P 500 hitting new highs while completely ignoring the fact that the MSCI World Index excluding the U.S. had peaked earlier on August 4th. As is well known Trump has claimed credit for the stock markets reaching new highs.
In the chart below you can see the divergence between the S&P 500 (blue) and the MSCI Ex-U.S. Index (purple). In the bottom panel, we added the VIX index which clearly is getting the hint that all is not right in the world.
As recently as Friday Trump labeled both Jerome Powell, the Chairman of the U.S. Federal Reserve and Xi Jinping, the President of China as enemies of the United States. As we say in Missouri, “those are fightin’ words”. By any measure, this is dangerous and reckless behavior.
But that was Friday which is so long ago. By Monday Trump was commending President Xi for being a great leader. What??? Are you getting whiplash like we are? How can anyone make intelligent long term investments when a head of state behaves like that?
Trump’s tweets have been moving markets for months and he knows this and loves it. What he doesn’t know and is about to learn the hard way is that markets HATE uncertainty. He’s also going to learn that his radioactive news tweets have a halflife that keeps getting exponentially smaller when their positive news, i.e.
“we’re talking to China and everything is great” and exponentially larger like a nuclear bomb when its negative news like “the President of China is our enemy.”
What we expect is that his negative news tweets accusing foreign leaders of being our enemies will increase so that he has a scapegoat to blame for the market falling apart during his term. Jerome Powell has already been one of these earlier scapegoats but he’s not nearly big enough. China is big enough and will get the full blame in our opinion. We pray for cool heads to prevail but we are managing our portfolios for Defcon 1.
Next week when U.S. traders come back from their final vacations and the trade desks in NYC are fully staffed you’re going to a wholesale reassessment of global risk. No one wants to hold positions in a stock market while a Mad King is tweeting decrees from his iPhone. The whole market is turning radioactive. If you’re going to try and surf these waves make sure you have your hazmat suit ready.
We have ours!