I have spoken a lot in the past about the new global system and approach of the Trump administration, but I want to add here an element alluded to in earlier notes that is crucial for any current market analysis. The markets of the past 3 decades have had several unifying aspects and many 30 and 40 something market participants have never known a market with radically different first premises. Among those key aspects is that overall after the fall of the Soviet Union and end of the Cold War for the most part the international organization approach has ruled the world stage. This was an approach that valued predictability and order. It was willing to punish violators of those principles, but it was basically an exceedingly middle class and mundane and risk minimizing approach. The US was more or less in the position of championing this system which served some of its interests, but it was constantly, like some suburbanite who just wants to kickback in the back yard with the neighbors and not do too much, not risk taking. Its mantra was low reward but also low risk and leave well enough alone.
In such a world the markets and especially Wall Street ruled the day and the Fed catered to the needs of Wall Street. The power sphere if you will and politics were quiescent and the markets ran the show in such a world because that was where the pursuit of power and a degree of risk and higher reward were still somewhat present. Politics was stable and markets when they were not and the risk got out of hand were catered to by the political realm. There was the Fed put where if the market started to crater the Fed would almost automatically cut the interest rate and save the day. But there was also a political put often at the expense of the taxpayer as shown by the politicians rescueing some of the big banks in the housing financial crisis of 2008. I could go on in detail about this but I’m painting with broad brush strokes on purpose and hopefully you get the idea.
The changes by the Trump administration as I suggested in my last post and several others is intended to overturn this global system. The critique of the tariffs strategy of the administration in economic terms misses its key true purpose is to make political power ascendent over market power and make American political power ascendent. It is to literally destroy the main premises of the past quarter century plus and make the market realm not ascendent over politics but vice versa. The markets are used to getting there way and Trump knows along with Bessent and Lutnick among others that one way they do this is to crash and put pressure on politicians who are risk averse and order seekers to give them that Put as its described where they backstop the market. The Trump administration may or may not on a selective basis respond to market volatility but they will not do so in the established manner because they are risk averse and value predictable order above all else—those days are gone. Their concerns and goals are elsewhere. The Fed knowing this also no longer has the political support to also guarantee things for the markets as it once did.
Today Trump put new controls on chip exports to China and technology for political not economic reasons as a matter of national security. That and some negative analysis about potential pricing problems with GPUs of the MAG7 leader NVDA along with Powell saying the Fed is on hold on interest rate cuts sent the market reeling. Last time I checked anyway NVDA was down nearly 10 per cent and may test the resistance point of 100, the NASDAQ was down over 4 per cent. As I suggested way back in January expect more extreme market volatility. Those who are risk averse may go to cash and get a safe 4-5 per cent money market return. The less risk averse may try to navigate on choppy seas or wait patiently for their moment to swing if it comes at that perfect pitch to use Buffet’s famous metaphor, but do not expect the earlier premises of the political market relationship to go back to where it was.
Which brings me to my last point for today. Wilbur Ross the great investor said I believe in a recent interview that his friend Trump is high risk, high reward. This is another key point the markets are not fully recognizing. This is not the international organization sitting in the backyard relaxing approach. The markets are now faced with the political not markets space being where the super high risk reward is occuring. They are not prepared for that very different world. Trump is not the usual third or fourth generation trust fund kid often found in the international organization NGO world or diplomatic world. He is not John Rockefeller Jr or other later heirs with their various cultural and community projects many of which of great value in their own ways, he is granddad who actually made the huge fortune or got the power and this is an entirely different kind of person. He has surrounded himself with these high risk, high reward types of people and now it is politics not markets that is ruling the day with the markets just playing catch up. How it will turn out remains to be seen. Even the best high risk strategies do not always work as any serious market speculator will tell you. But if your going to have anything to do at all with these markets please understand the new landscape. Could the Trump Put still resurface for political power not Wall Street market reasons? Absolutely, but the whole approach is now different and now you know.
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