A week after becoming the first victim of a personal attack emanating from Jeff Gundlach’s angry Twitter account…
… Bloomberg contributor Cameron Crise is still alive.
Apparently, one can indeed bounce back quickly from being “truthed” by “the one“…
And that’s good, because very much unlike Gundlach — who looks a lot like what you’d get if a neanderthal had a child with Carrot Top — Crise actually has some interesting things to say.
On Wednesday, he reminds us that investors effectively faded Donald Trump a long time ago, something we highlighted in “Goldman Presents: The Great Fade Trade.”
He also notes what we pointed out in “Trump’s American Dystopia In One Chart” – namely that mass incarceration is apparently an even surer bet than “war”:
Crise’s point is that with the exception of the one policy shift that would likely continue under a President Pence, the entire rest of Trump’s agenda has been priced out of the market.
So if you’re looking for a reason to trim your US equity exposure, there are plenty of excuses out there, but because everyone gave up on him a long time ago, Trump isn’t one of them. More below…
Regardless of what you might think of the political spectacle that’s engulfed Washington this year, for the most part equity markets have been resilient. In many ways that makes sense, because under the surface the stock market gave up the ghost on Trump’s reform agenda several months ago.
- It can often be difficult to disentangle the signals of a specific factor or theme (alpha) from broad market performance (beta). This is particularly the case when there are competing themes driving investor behavior, such as global reflation and Trump’s reform agenda.
- Finding a control group (i.e. a cohort not affected by the signal you are trying to isolate) can be a challenge; unlike scientists, traders do not operate in a laboratory setting.
- Fortunately, there is a good control group for Trump’s reform agenda: for-profit prisons. Soon after Trump took office, the DOJ reversed the Obama administration’s decision to end the federal government’s relationship with private prison operators. That policy would almost certainly continue under a President Pence. Prison stocks reacted immediately to the election result and have traded well ever since.
- What about a policy that has yet to pass? Health care is an obvious port of call, where an Obamacare repeal would be expected to benefit health insurance companies and hit hospitals. Sure enough, insurers outperformed hospitals by 30% from election day through the end of November. Ever since, however, a funny thing has happened: the relative pricing of insurers and hospitals has reverted back to where it was before the election.
- The contrast with prisons, a policy shift that is baked in the cake, could not be more stark. It sure looks to me like there really isn’t anything priced for Trump’s agenda any more.
- If you want to make an argument that stocks may have overshot the U.S.’s growth trajectory, I might agree. If you say that that intra-market correlation has got to go up, implying more volatility and a higher risk premium, I’ll believe you. If you claim it’s absurd that the market has slapped a $450 billion market cap on a company (Amazon) that has cumulative earnings of just $5.6 billion over twenty years, I’ll say “hallelujah”.
- Cite any of those factors as a reason to sell some equity exposure, and you’ll have no argument from me. But don’t cite disappointment over damage to Trump’s reform agenda, because frankly it wasn’t in the price to begin with.