'Ladies And Gentlemen We Have A 'Black Swan'' - Revisited

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Includes: DDM, DIA, DOG, DXD, EEH, EPS, EQL, FEX, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWM, RYARX, RYRSX, SCAP, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, UWM, VFINX, VOO, VTWO, VV
by: Bill Kort
Summary

With the President's latest escalation of our trade conflict with China we may be starting to see some cracks in the enthusiasm for all things Trump.

I am beginning to believe that the President's acts on the trade front are beginning to wear thin on his investor constituency.

I believe that Trump's desire to win re-election will win out over his baser instincts on trade wars and tariffs.

Election 2016 a major negative surprise for investors?

Initially, I thought it would be. Early the morning of the day after I posted, Ladies and gentlemen we have a Black Swan (11/9/2016).

I mean based on the polling, which turned out to be dead wrong, there looked to be little chance that we'd ever see a President Trump. Obviously, I was also dead wrong in my assessment. My take at the time was that this would be a big negative event for stocks but we would survive to find better times.

Those better times just happened to show up the very next morning in a rip-roaring market advance. It seemed that a guaranteed big tax cut and scaling back business regulation trumped (pardon the pun) any fears and trepidation that I personally held about the president's experience, ability to actually do the job and character. The bare-knuckle, free-market stock market didn't care because its participants were getting what they wanted. "Greed is Good." I quickly admitted my mistake and posted I need new glasses - That was a White Swan! (11/13/2016)

Are the chickens coming home to roast?

With the President's latest escalation of our trade conflict with China we may be starting to see some cracks in the enthusiasm for all things Trump. The market was willing to overlook all other potential problems on the experience and policy side, again, because it got what it wanted. I am beginning to believe that the President's acts on the trade front are beginning to wear thin on his investor constituency. The 10-year US Treasury note trading below a 1.6% yield is evidence that real fear has settled into the market. What we are seeing is a huge flight to safety at a time when economic growth may be slowing but is not in decline. Gold, another flight-to-safety trade, started the year at about $1320/oz. and is currently trading at $1515.00. We are talking about a 5-year high for this commodity.

"It isn't China"

I'm speculating that the following tweet/CNBC note may have helped send the market down nearly 600 Dow points and the 10-year to the sub 1.6% level - "CNBC: Trump: Fed must cut rates 'bigger and faster,' China isn't the problem." In typical Trump fashion the blame always lies somewhere else. Maybe this time the street isn't buying. This just out on Huawei, "CNBC: White House to unveil rule that bans equipment or services purchases from Huawei," probably exacerbates the situation.

So, it's the Fed's fault … hmmm

I don't think so. I believe that what we are seeing now is the (Black Swanish) downside of the Trump Presidency … the unpredictable, not-well-thought-out nature of Mr. Trump that creates uncertainty and roils markets. Only now there are no more sweet treats to be had on the regulatory or tax/fiscal fronts. Knowing that the president views the stock market as important barometer of his success is of some comfort here. Maybe he will be able to rein in his tendency to stir the pot on trade and other issues.

I believe that his desire to win re-election will win out over his baser instincts on trade wars and tariffs. Still, in the interim those tendencies could give us a pretty rough ride in the market. The advice remains the same, despite the scary markets … the secular bull market continues… stay the course.

What do you think?

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.