3Dollars – January 30, 2017

On a Monday where my car broke down and work was tough, I get to talk about the first day back after President Trump’s travel and immigration ban on mostly-Muslim populations! No matter what side you fall on this EXORD, if you are in the markets, you probably suffered loss today.  The only green numbers I could detect in the market today were gold futures (a millennia-old measure of fear) and a couple shipping companies.  What does it mean:

$1 Volatility.  Markets had recently seen unusual correlation between declining markets AND decreases in volatility (read: fear) measures (e.g. $VIX, $VXX).  Typically if markets are tanking, volatility measures go up in response, because folks are nervous about the future. It seems religious groups are being singled out by the U.S. and retaliatory action is possible at the state level. This sows nervousness worldwide.

$2 Protectionism.  Truly disciplined countries will not allow the U.S.’s protectionist headwind affect the long-term strategic plans of their states. However, because the U.S. dollar is the global monetary standard, a very many country would need to find alternative investments and debt issuances to serve their priorities. Easy to do in the millions, more difficult in the billions or even trillions. This is sending chills to international markets. American protectionism is bad for the world’s leading economy and for all of its trading partners.

$3 Mexican Trade War. Ahead of Trump’s presidency, many feared a trade war with China because of his tough talk on their practices and an undervalued Yuan, rigging trade in their favor. We see now that President Trump’s EXORD to build the wall along the Mexican border, and threats of 20% tariffs to pay for it, has started a stand-off with current and former Mexican leaders. The proud Mexican people are none-too-fond of paying for this wall. A Tuesday meeting between Trump and Nieto was cancelled after Trump’s threats and Nieto’s call of a bluff; the two ended of talking via telephone anyway. Companies on both sides of the border face uncertainty as a result. Also, some 5 million jobs and a very many fresh food import comes to America from Mexico. Food could become a lot more expensive in the short term.

All of this follows my early (and often) narrative that Trump’s administration offers a new host of risks to your portfolio that are unprecedented. We will develop strategies for this together, but in the meantime diversify as best you can. This might mean protecting away from companies exposed to Mexico for now.


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