Trump Bitcoin Price Certainty More Likely a 'Pump and Dump'
Stocks and bonds have largely returned back to their post-election levels.
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Certainty that Donald Trump would be great for growth and stocks has been tested. The certainty that bond yields will be higher under a Trump administration hasn’t really been tested, but I think is about to be. Bitcoin has ridden the wave of excitement around Trump, less regulation and even the possibility (crazy in my view) that the government will want to accumulate a reserve of bitcoin. That will likely be tested at some point, but I wouldn’t step in front of the surge, especially as listed options on the bitcoin ETFs start trading.
Copper, among other commodities, has dropped steadily in the past month — hardly a robust signal for growth. Having said that, XLE (and energy ETF) has continued to do well — as “drill baby drill” should keep oil prices lower but still allow energy companies to do very well from increased production.
I want to touch on growth and inflation, but first we have to get back to the “transition,” as it will impact market and is far longer than seems necessary. Sure, at some point in time, politicians travelled cross country by train and had to put their affairs in order before coming to D.C. But that seems like such a legacy and now we all get forced to “watch the sausage get made.”
I wasn’t overly worried about what the current administration would do (I did think there was a chance that Joe Biden would step down to allow Kamala Harris to be president, but that didn’t seem like a big deal). Expanding the rules of engagement on how Ukraine could use U.S. weapons wasn’t something I thought likely. It is helpful to Ukraine and likely should have been done much sooner, but I’m not sure that the timing is right, as it is a reasonably large step by an administration that lost, presumably in part for their handling of Ukraine. It makes sense if you want to help Ukraine ahead of some strong push by Trump to negotiate a deal, but it adds to geopolitical risk at a time the government is trying to transition.
The Trump picks, in some cases (some people would argue many cases), have raised eyebrows. Without a doubt, if you want to shake up the establishment, it is logical to rely on people outside of the establishment. But, when the market is left debating whether people are qualified, if they get confirmed and recess appointments is something we are all getting up to speed on, you can expect some turbulence from the market.
I personally like the concept of the Department of Government Efficiency (DOGE), which I don’t think is an actual department, but still an interesting concept. In all my travels of late, and discussions across the country, it seems to be the one thing that everyone, no matter who you voted for, seems curious about, with some level of hope that it can trim some low-hanging fruit from the deficit.
But, away from that, it could be a choppy couple of months as we guess who gets in and what they will do. The “certainty” that Trump is good for bitcoin seems way overdone and I think we are in the midst of another “pump and dump,” but again, I wouldn’t fight it (I am going to look at put options on the ETFs but expect they will be expensive out of the gate).
Remember that, coming into 2016, the consensus was that Trump was bad for stocks and good for bonds. That didn’t last long. The consensus that Trump is good for growth, awful for bonds and inflation and therefore bonds, is likely to be challenged.
The first challenge we are facing is recognition that Trump is coming out of the gates firing on all cylinders, compared to last time, but that has been a mixed blessing.
The second challenge we face is that consensus has caused positioning to become very short bonds, and quite long equities — ripe for a contrarian trade.
The third challenge is that we have more weeks of this, and there always seems a risk that the cohesion shown so far at the top level of the Trump transition team breaks apart, if Trump does revert to what often seems like a “one-man show.”
NVDA earnings will also likely leave a mark one way or the other.
Seasonality should be good for stocks.
My current view is to fade growth and inflation for now.
Trim stock positions on rallies, buy on dips. Stay right around or slightly below your “normal” allocations.
Add to duration — shift money from money markets and even high-yield credit, into longer duration treasuries and maybe a bit of investment grade. I do like accumulating closed-end muni funds! Keep a slightly higher-than-normal allocation to fixed income, but have it heavily skewed to the long end.
I think I need to take some profits on some energy here and will be trimming my XLE, I like how it has outperformed but feels overdone.
I'm going to slowly start to accumulate commercial real estate (I think work from home is almost dead), likely through REIT ETFs, and will start adding to my China exposure.
We didn’t get to inflation and growth — but in the next report we will update I have so many questions about those.
In the meantime, I’m hopeful the transition will deliver, but am nervous that it won’t — hence I’m slightly underweight and trying to trade this market, and not fully committed either direction.
At the time of publication, Tchir was long XLE.
