Tuesday night S&P futures plummeted (by nearly 40 handles) in response to the departure of Gary Cohn. I initially added to my short and then took advantage of the deepening drop to cover some (and to move from a large-sized to small-sized Spyder short).
I plan to reshort (SPY) on any strength -- as I continue to stick to my market blueprint by maintaining a non dogmatic, opportunistic and unemotional strategy of trading the market.
Let me explain.
The reality is that the heavy lifting of regulatory reform and of the passage of the tax bill were accomplished well before the announcement of the tariffs last week. So, the near term impact of the Cohn resignation -- (to quote Peter Boockvar) "a firewall (Cohn's views) against dumb and damaging economic initiatives" -- is not all that material (particularly as measured against the magnitude of the overnight drop in S&P futures).
But the Cohn departure is a symptom of a troublesome condition that exists in the Trump White House -- one that may have more negative intermediate-term market consequences.
To this observer, the accumulated weight of the evidence is that the continued chaos, dysfunction and lack of policy process in the White House -- normalized by the markets and by many -- could finally have an adverse impact on equities (and valuations), interest rates, trade and economic growth.
The daily circus may be increasing its toll on the markets and we may all be underestimating the degree of forward chaos and contravening market influence compared to the past.
Policy Risks Expand as We Slouch to Bethlehem
Late last week we saw a massive shift in trade policy, apparently done "on the fly" (without discussion between the appropriate officials and agencies) and in a hasty response to Hope Hicks' resignation -- which has been critically panned by establishment Republicans. This in turn was the tipping point for the resignation of head economic advisor, Gary Cohn.
With the departure of Cohn, a barrier against the proposed tariffs has been lost. More importantly, the departure raises the risk that further protectionist moves will result in deeper trade wars, leading to cold wars.
I am in disagreement with Jim "El Capitan" Cramer on the tariff move (and, so apparently are Gary Cohn, Paul Ryan and many other mainstream Republicans). Not so much about its immediate and marginal impact but, rather, regarding its possible intermediate term consequences.
I recognize, as Jim writes, that China is a systematic cheater. But the cheating is far wider spread than steel and aluminum. Most importantly, China's intellectual property cheating/conduct represents hundreds of billions of dollars worth of bad behavior compared to a de minimis role in meddling with U.S. metals production.
As most are aware I am of the view that under the leadership of the President our country may be moving economically, culturally, socially and racially back towards the 1950s. While this may sound political (it is!) I state this because, if I am correct, this could lead to material adverse economic and investment implications. From a strategic economic standpoint this may be unhealthy: while China is developing artificial intelligence (at an accelerated rate) and embarking on aggressive alternative energy projects, the U.S. is still thinking that coal is king and that a renewal of the steel industry beckons us.
In essence, the shift of global leadership (in an increasingly flat and networked world) away from the U.S. is likely going to accelerate in the presence of questionable current policy over the next three years.I feel strongly that tariffs which lead to trade wars are zero to negative sum games -- it's witchcraft or voodoo economics ...
This is an excerpt from Doug Kass's Daily Diary. A longer version originally appeared at 9:14 a.m. March 7 on Real Money Pro, our premium site for active traders and Wall Street professionals. Click here to get great columns like this even earlier in the trading day.