The “Short Trump” Thesis Emerges (And Why it Matters for Markets)

As a business-oriented political Independent with a particularly strong hatred for the global political elite, I have been a “yuge” Trump bull since late 2015. The thesis was simple: 1) Despite a dubious business background Trump was likely to put in place a non-ideologically driven, business-friendly administration; and 2) given his chaotic, bomb-throwing nature Trump was likely to blow up the global political elite.

Thru July 7, 2017 this two-part thesis largely played out: 1) The Trump Administration is deregulating the American economy at one of the fastest clips in history; and 2)  Trump is singlehandedly “deconstructing” the Obama/Merkel/NYT-led global political elite by pulling out of the Paris Climate Accord and exposing the extreme bias of the mainstream media.

With the “fundamentals” of the Trump Administration strengthening and Trump’s Gallup approval rating’s refusal to break to new lows in the face of poor headlines, thru July 7, 2017 I had been willing to argue that Trump is a long-term “buy” and likely to be elected for a second term in 2020.

But sadly, the “long Trump” thesis entered the ICU on July 8, 2017. And with the revelation that Donald Trump, Jr. digitally committed to colluding with Russia’s campaign to assist his father’s run for president, it died July 11, 2017.

May #MAGA RIP.

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I have long maintained that with the federal government currently leaking faster than a sinking ship we more than likely would have seen hard evidence of collusion by now. I was wrong.

Young Don’s email chain explains months/years of behavior, chiefly: Trump’s bizarre admiration for Vladimir Putin; the incessant lying by Trump Administration officials with regard to anything and everything Russia; and, of course, the Comey firing.

Could Young Don’s email chain be an isolated event – merely innocent “oppo research” the political Right claims it to be? Yes it could. But that is perhaps as likely as Snoop Dogg passing a random drug test, or Lloyd Christmas wedding Mary of Aspen. For Heaven’s sakes, the email chain story continues to evolve daily.

And oh ya, remember that late 2015 Trump/Russia activity picked up by US Intelligence President Trump claimed was the result of former President Obama illegally “tapping” Trump Tower? That’s back on the table for investigation. As it should be.

Young Don’s email chain is the tip of the friggin iceberg. And with Bob Mueller’s legal paws combing thru all of Young Don and, more importantly, Young Jared’s email and phone communication records, the leaks are likely only just beginning.

As Charles Krauthammer outlined in a recent WaPo op-ed, the Trump Administration is no longer to be trusted with regard to Russia (or more likely ANYTHING for that matter):

“It’s rather pathetic to hear Trump apologists protesting that it’s no big deal because we Americans are always intervening in other people’s elections, and they in ours.

“This defense is pathetic for two reasons. First, have the Trumpites not been telling us for six months that no collusion ever happened? And now they say: Sure it happened. So what? Everyone does it.

“What’s left of your credibility when you make such a casual about-face?

“Second, no, not everyone does it. It’s one thing to be open to opposition research dug up in Indiana. But not dirt from Russia…

“There is no statute against helping a foreign hostile power meddle in an American election. What Donald Jr. — and Kushner and Manafort — did may not be criminal. But it is not merely stupid. It is also deeply wrong, a fundamental violation of any code of civic honor.”

Krauthammer nails it. Even if collusion is not technically illegal, it is likely more than enough political “cover” for the GOP to sign off on an impeachment.

But the “short Trump” thesis is a function of price. If Trump’s approval rating was 15%, then the impeachment scenario would already be priced in. At present, his approval rating continues to hover around 40%…

…And with the upside likely, now more than ever, capped at say 45%, the risk/reward of a proverbial “short Trump” trade is highly attractive at current levels. I give it a 75% chance to make 25 approval points on the downside, and 25% to make just 5 on the upside.

Personally, I am surprised Trump’s approval rating has not plunged. Of course, if my “short Trump” thesis is wrong then the approval rating “market” is merely behaving rationally. But in the event my thesis is correct, the lack of movement in the rating is likely the result of two dynamics: 1) It is going to take multiple Young Don email chain events to shake up the base; and 2) the political Left is so hot and heavy for a Russia take-out punch that it does not yet have the credibility to report on actual material evidence – the email chain, to the political Left, was merely yet another slam-dunk piece of evidence.

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The “short Trump” thesis is market-relevant only from the standpoint of sentiment. Fundamentally, a President Pence-led GOP is fine. But with US equity market breadth negatively diverging from the S&P 500, investor sentiment choppy-to-down, and the market months past the last 5-10% dip, market conditions are not positioned to absorb a negative non-consensus event. Nothing to run to the hills for; but rather something to watch and monitor.

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