Why are we getting suchÂ diverging and maddening market messages from the equity and bond markets? Which one is right? Are either right?
Let's consider the perceptions of each of these markets:
- The Equity Markets perceivesÂ Trumponomic PolicyÂ SUCCESS ahead and are aggressively pricing it in!
- The level of excitement has now reached the levels that it can safely be categorized asÂ EUPHORIC.
- The perception of the Bond market isÂ theÂ REALITYÂ of whether Trumponomic Policy will actually be implemented and within expected time frames investors mistakenly believe will happen.
- The level of concern can be safely categorized asÂ CAUTIOUS.
Core Questions on the Table
Maybe the real underlying questions that need to be answered by thoughtful investors are the following:
- WHATÂ exactly are the details of the Trumponomic Policies? We have a lot of populist rhetoric, but as of yet we have little tangible detailed substance. The devil always lies in the details!
- IFÂ in fact these policies can actually be implemented based on a clearly hostile democratic party within congress as well as significant conflict within the GOP fromÂ staunch fiscal conservative membersÂ and the Tea Party advocates.
- WHENÂ these policies can be implemented is a the major unknown? There is a congressional sequence that must be followed so that an encompassing congressional budget bill can be passed. The reinstatement on March 15th of the Fiscal Debt Ceiling is not a small hurdle to be overcome nor the creative ways the Democratic Party will do everything its power to derail and slow any implementation!
- RESULTSÂ are also a major unknown. The Fiscal Stimulus, Tax Cuts and Regulatory Reduction all play well as populist policy and did work during the Reagan Administration, but will they actually work today? Many including Reagan's OMB Director, David StockmanÂ vehemently say they won't.
Let me categorically state that in no way am I trying to be critical of the Trump Administration. I am simply, in an unbiasedÂ fashion, trying here to understand the competing views.
I would suggest that people's political bias is presently cloudingÂ their investment thinking!
To assess who is likely right weÂ might additionally segment who we are talking about with these views.
We must not forget that thereÂ are two sides to the Equity Market:
THE SELL SIDE
- Wall Street Brokerage Houses selling securities and transaction volumes,
- Fund Managers wanting to attract more Assets Under Management (AUM),
THE BUY SIDE
- Institutions who do their own research and are not in the habit of disclosing their investment strategies,
- Private Funds and High Net worth Individuals who study closely metrics such as "flows", "volumes", "divergences", "macros", "Sentiment" etc. etc.
The public has visibility to the Sell Side primarily because it dominates the media in an attempt toÂ sell its products. The Buy Side on the other hand seldom wants to disclose its investment thinking and is not typically found talking on CNBC.
My discussions with the Buy Side suggests that with respect to theÂ equity markets, they are presentlyÂ in the Bond Market camp! They point out the concerns with the global landscape that few are paying any attention to:
Do we really need to know more to assess who is likely right?
Is itÂ those who have unemotionally studied the situation, or those who have "faith", "believe" and are "afraid to miss out"?
A proven strategy has always been in situations like this:
"Be fearful when most aren't - be bold when most are fearful"
We presently haveÂ BOTHÂ between the Equity and Bond markets. Who you favor may make all the difference to your financial health!
I KNOW WHO'S SIDE I AM ON!
I have seen this rodeoÂ once too many times!
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