Forget about front loading the central bank's monetary policy, that old game might now be a bit passé. So there's a new game in town.
What is it?
Front loading the Twitter president's (Trump's) belly laughing tweets, memos and even executive orders.
To play this new game well (successfully) traders/investors might need to be school at how policy making on capital hill (Washington) is passed, or at least have some understanding of how a functioning constitutional democracy works. Moreover, it might also be prudent not get seduced (duped) by the proliferation of fear porn news.
Put another way we are going to need a good dose of reality more than ever in the Trump era.
Let me put more flesh on the bone.
In a recent piece, entitled “Trump on a leash, Dodd-Frank Act and China” I wrote that “even if Trump has the makings of a dictator the firewalls to protect the US from a potential dictator appear to in place and working. So the parameters of how far a disruptive administration can push are being defined by the US constitution, the separation of the three branches of government, executive, legislative, judicial and the upper house.”
In other words, everyone sees a captain on deck with his hands on the helm. The captain talks about steering (navigating) the ship in a certain direction. However, what the world's eyes don't see is that the helm is being moved not by the captain's firm hands but instead by a centrally controlled autopilot.
The fourth estate (fourth power), sometimes referred to as the puppet masters (the senate, constitutional court, intelligence agency, think tanks (primarily funded by billionaires), major investment banks make up to the invisible autopilot at the helm. The captain (the president) is merely a figurehead.
Now apply the above knowledge to investing in the Trump era and you could be on the road to developing a successful trading strategy.
A recent FT video, “Investing Under Trump” is worth every 2.33 minutes of your time- it is bang on the money.
So every time President Trump tweets, signs a memo and an executive order the market moves.
The “hot money” speculative trading opportunity comes from you being able to determine the true trajectory of the asset price. The window of opportunity for short term traders is by being able to distinguish between the market's immediate reaction, measured in seconds, minutes (which is sometimes a red herring a piece of information designed to mislead or distract) and the long-term trajectory of the asset price.
For example, the executive order to ban Muslim from certain countries sent global risk assets (stocks) tumbling. But for those who have a grasp of how a constitutional democracy works they would have foreseen the likelihood that the court would overrule the order. In other words, these astute traders filled their boots up with risk assets in the panic and banked the rally when the US appeal court denied Trump's bid to lift the freeze on the travel ban.
Another example was when President Trump signed a memo saying that oil steel pipelines must be made from American materials, regardless of what international trade treaties say.
International treaties limit the validity of the memo.
Moreover, if investors bought Boeing when Trump slammed Boeing Air Force One with 'Cancel Order!' tweet those investors also made fast money.
Want another example?
Trump's twitter blast at Nordstrom for dropping Ivanka Trump's line of fashion. Nordstrom stock immediately took a dive and then rallied by more than 4% after Trump's tweet. Think about it. Nordstrom discontinued an unsuccessful line of fashion (for whatever reason). So why would that be negative for its stock? Intra-day traders who spotted the tweet waited for the fallout and traded the day's trajectory made a meal out of it.
In a few words, when Trump's tweets are a belly laugh and the immediate market reaction is that the stock tanks that is often a buying opportunity for quick and nimble traders sitting on hot money and hunting for a trading opportunity.
When Trump tweets, sends out memos and even signs executive orders that are off the spectrum don't take it literally. We now live in a rather bizarre era where we need to reconcile surrealism (a movement that began in the 1920s) with realism(what actually happens).
There is some very positive news to report on the latest US foreign policy. US President Trump had a respectful call with his Chinese counterpart Xi Jinping and it is being widely reported that Trump is now backing one China policy.
In short political risk has been lifted and what we have now is a business savvy, business friendly hardnose dealmaker as the US President. So that has got to be good for stocks, the stability of USD and western finance going forward.
When you take off the political risk then markets could be in a long-term secular bull market, if so the bulls are likely to make gains in the medium to long term. Trump may have the charisma of an elephant but it might well just be all aboard the Trump night train.
JAMES BROWN...NIGHT TRAIN!! (1962)
(keeping in mind tweets from the throne are typically around 200am).