Up to now, the Trump rally has been playing to script. Stocks have soared, yields have spiked and the dollar hasn’t looked this strong since the day of Ronald Reagan. And that’s not a surprise: Markets have a lot of hope invested in the Trump agenda. Lower capital gains taxes, less onerous regulation and — most importantly — a tax holiday to repatriate more than one trillion dollars of corporate cash sitting offshore.
Some investors are concerned that Mr. Trump’s trade policies will depress growth. But others dismiss his protectionist talk as nothing more than campaign posturing. They counter with the idea that Mr. Trump’s fiscal policies will spur domestic demand, which still accounts for 90% of the U.S. economy.
On balance, I agree with the optimists and believe that 2017 should be a strong year of profit opportunities for both equity and currency traders. But I am plagued by doubt: Not about Mr. Trump’s fiscal plans, but about his ability to carry out his promises.
|The Mexican peso played a key role in a USD/MXN currency play that bet on Trump winning the White House.|
On the face of it, President-elect Trump has been dealt one of the best hands in politics. He comes into office with a majority in both chambers of Congress and with the ability to use his political capital to advocate proposals with little opposition. Yet the last few days have been anything but a study in confidence – perhaps growing pains of a young, outsider team.
The single most important aspect of the presidency is a projection of competence. Ronald Reagan understood that better than anyone else. After all, the basic premise of modern capitalist economics is nothing more than a model of self-fulfilling prophecies: Consumers feel confident about the future … they borrow and spend money … the economy grows.
On the night of the election, like almost every pundit who was fooled by the polls, I was convinced that Mrs. Clinton would win. My arrogance was made worse by my faith in a brand new data project called VoterCast that tried to mimic exit polls of years past. They made woefully bad projections showing Mrs. Clinton winning Iowa, Florida and North Carolina as late as 8 p.m. Eastern Time.
|“On the night of the election, like almost every pundit who was fooled by the polls, I was convinced that Mrs. Clinton would win.”|
But by the time it was clear the real results were not aligning with the expert projections — and as a survivor of the Brexit vote — I knew that the candidate who was ahead early on usually went on to win.
So, while I was still convinced a Clinton win might be in the cards, I decided to buy the USD/MXN cross – a pure proxy for the Trump win in the currency market — “just in case.” That turned out to be the best trade of the night as the pair rallied for 20,000 pips before I finally sold it.
I am starting to get the same feeling about the Trump administration. I still believe that President-elect Trump could spur the U.S. economy to its best growth in years, but I think it’s wise for investors to buy some protection “just in case.”