Pre-Inauguration Update on the "Trump Trade"

The so-called "Trump Trade" exploded on the markets the day after the election. Surprising even the likes of George Soros, who reportedly lost over $1 billion, stocks soared along with bond yields, and the US dollar rapidly gained record-setting strength. Things have tempered a bit now as we begin the New Year. If the Trump Trade signaled good times ahead, does the tempering indicate people are now having second thoughts?

The Wall Street Journal surveyed a few of the bright boys out there for answers:

Declines in real yields and the dollar are “a sign that people are not believing that Trump policy will be able to boost economic growth, and mostly will only affect inflation,’’ said Zhiwei Ren, portfolio manager with Penn Mutual Asset Management.

Let's face it: People are fickle. Emotion typically trumps (no pun intended) logical deliberation when we make investing decisions. So markets gyrating this way and that may or may not provide a sign of anything substantive considered in isolation. On the other hand, our almost-inaugurated President elect has been known to make decisions today that trump (pun intended) the decision he just made yesterday. Thus the element of surprise and instability has already been trumpeted (sorry, couldn't resist) as a hallmark of the new administration. Which means the policies reportedly proffered for the first hundred days may or may not be pursued with the vigor indicated by campaign rhetoric:

“The bond market appears to be questioning Trump’s policies and the execution of policy,’’ said Sean Simko, head of fixed-income assets at SEI Investments.

All of which leaves many pundits scratching their heads whilst trying to get a bead on where things will head after the swearing-in ceremony this Friday:

“What is his priority?’’ said Chirag Mirani, head of U.S. rates strategy at UBS. “Any tariffs on foreign exports into U.S. could be locally inflationary and hurt growth.”

On the other hand, some will, of course, stick to their guns in hopes of riding the Trump Trade, hoping to suck it dry:

“It is premature to say the Trump trade is over,’’ said Priya Misra, head of global interest-rate strategy in New York at TD Securities.

Which leaves us where it always does when surveying the bright boys of Wall Street: in a pickle. There's even one guy who admits things may turn south. Of course, he's not one of those economists who are paid to cheer-lead investors into buying what Wall Street sells. He's a research guy who likely gets paid based on his giving giving good guidance for his firm's investment decisions-making.

“Inflation will undermine the real incomes of U.S. consumers and force the Fed to hike rates, which could jeopardize the stock market rally and push the economy closer to an overdue recession,’’ said Jan Dehn, head of research at asset management firm Ashmore Group.

Meanwhile, we wish the new President well and hope for the best. Of course, hope is never a good investment policy. All of which speaks to the wisdom of allocating your assets in a manner that doesn't rely on prediction, but does allow you to be prepared for whichever way the wind blows in the weeks and months ahead.