The best bridge players try to find ways to bid and make a 7 No Trump hand whenever the cards support such a bid. While it is arguably the most difficult contract to bid and make, it provides the greatest rewards for success. Success requires communication and guesswork.
In the stock market, investors are making bids every day based on their guesses for future company performance and for future policy decisions by central banks and in the U.S. the administration. The so-called "Trump Bump" refers to a mini-bull market which has prevailed since Donald Trump was inaugurated grounded on a belief that Trump will be an effective president.
So far, it has been a good bet. That may be changing. It seems to me now may be a good time to play No Trump.
My views on the Trump administration are not very positive. Trump's election may have been the result of Russian interference or rampant populism. I don't think it matters. The fact is Trump is now president, the result of a democratic process. Perhaps the U.S. democratic process could benefit from some reform.
U.S. democracy does have detractors including H.L. Mencken, who in my view said it best in 1920:
The United States has moved from democracy to government by executive order. The executive fires his Attorney General if he disagrees with him. The executive fires the head of the FBI if it looks like the FBI might turn up misconduct in the Trump election. The rule of Trump has replaced the rule of law, or so it seems.
When a person occupying the most powerful position on earth makes dozens of decisions without the benefit of appropriate studies, reasonable reflection, and the inputs of his cabinet, he is more likely to make a major misstep than improve the economy of the United States. At the same time, he is certain to annoy key leaders of other countries. That is happening today.
Steel companies and cement suppliers may benefit from the knee-jerk policy statements issued on twitter without the Fifth Estate having an opportunity to ask questions, but any benefit is likely short term and transient.
The first likely outcome is a sharp decline in global growth. The International Monetary Fund estimates protectionist policies in the United States could reduce global growth by 1.5% in 3 years.
Source: Wall Street Journal
Studies show correlation between the S&P 500 index and GDP growth.
Investors should conclude that policies that dampen growth will see their effect in stock prices. In today's interdependent world economy, American protectionism will more likely than not hurt America as much as anyone else, and is unlikely to produce any lasting benefit.
Correlation is not causation and markets move independently for extended periods. But as recently as last summer, a comparison of the S&P 500 to GDP concluded that stocks were 72% overvalued.
Notwithstanding, the markets have continued their bull run.
That result undoubtedly reflects the historically low interest rates and the success of American based global companies like Apple (NASDAQ:AAPL) and GE (NYSE:GE). If the protectionist policies impair the success of U.S. companies with major operations abroad, as seems certain, the stock market will suffer.
It is only a matter of time before the market feels the effect of inane pronouncements from the oval office and rolls over. Smart money will get out of the way. There will be no winners but no shortage of losers.
If you like bear markets, this could be best bear market god ever made. It will be fantastic. Great! Unbelievable. Bullish analysts are scumbags. Bullish articles are fake. Trump will make American bears great again.
I will be one of them. I suggest finding ways to be short the S&P with long duration options. At a minimum, hold a significant cash position.
All ships rise and fall in the same tide and this tide will soon ebb in a dramatic way. The question for investors requires some individual reflection - how long will the republican party support a chief executive who listens to no one; bullies everyone; and, mouths off on Twitter on what seems like a daily basis? My guess is not all that long.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.