Why are we getting such diverging and maddening market messages from the equity
and bond markets? Which one is right? Are either right?
Market Perceptions
Let's consider the perceptions of each of these markets:
Equity market
- The Equity Markets perceives Trumponomic Policy SUCCESS ahead and
are aggressively pricing it in!
- The level of excitement has now reached the levels that it can safely be
categorized as EUPHORIC.
Bond Market
- The perception of the Bond market is the REALITY 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 as CAUTIOUS.
Core Questions on the Table
Maybe the real underlying questions that need to be answered by thoughtful
investors are the following:
- WHAT 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!
- IF 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 from staunch fiscal conservative members and the Tea Party
advocates.
- WHEN 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!
- RESULTS 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 Stockman 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 unbiased fashion, trying here to understand
the competing views.
I would suggest that people's political bias is presently clouding their
investment thinking!
To assess who is likely right we might additionally segment who we are talking
about with these views.
Equity Market
We must not forget that there 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 to 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 the equity
markets, they are presently in the Bond Market camp! They point out the concerns
with the global landscape that few are paying any attention to:
Conclusion
Do we really need to know more to assess who is likely right?
Is it 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 have BOTH 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 rodeo once too many times!
