The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Multiple games of chicken
We were closed on Monday but overseas markets weren’t. That allowed overseas markets to trade for two sessions ahead of us. In those two sessions, Japan fell 1.8%, China fell 1.3%, Europe fell 2.3%. This morning, our premarket futures implied about a 1.5% decline. The S&P 500 opened down about that and tried to repair some damage by midday, but rolling over and suffering more than a 2% decline by the close. Yields climbed across the Treasury curve, a lot on the back end too. The Dollar fell about half a percent, a material drop. Capital flow was heavy at 130%. That’s not a panic level of activity but it’s notably elevated.
Let’s just jump in.
Trump’s messaging about Greenland last week had investors bristling at the language and rolling their eyes about the reasoning but ultimately they only worried a little bit. Investors assumed that Trump would *quickly* come to some sort of negotiation where a mutually agreeable arrangement would emerge. After the tariff threats and the various communications, the markets are starting to worry that Trump wants to pursue his Greenland agenda (whatever that actually may be) in a very damaging manner. Investors, specifically longs, are engaging in a game of chicken with the President. Will Trump take a turn away from chaos and send the markets flying higher or will he crash valuations?
With respect to Greenland itself, the geopolitical game of chicken is between Trump and Europe, with many NATO countries leading the opposition. This issue appears to be the straw that breaks the camel’s back. Markets are assuming that *when* Trump takes a more rational turn, Europe will do the same. That may not be the case. Markets also assumed that Europe would naturally blink before Trump but perhaps not. Perhaps even if Trump blinks, Europe presses further, using the opportunity to get something from Trump for a change.
Is there also a possible game of chicken beginning within the GOP? Are Republicans in Congress going to take on the President in an attempt to alter his Greenland policy? How far are they willing to go and how determined are they if they start the game? Right now there are whispers of GOP dissatisfaction. Is that going to lead to anything? And if it does, what political scars does that leave.
Trump is the only issue in the market right now. Earnings season, schmernings season. It’s only Trump that matters currently, which is probably how he likes it.
See you tomorrow.
-Mike
Visdom Market Commentary
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