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No Greenland issues anymore
Overseas markets were mixed small and S&P futures were up small ahead of regular trading. The index opened about +20 and rallied significantly further as President Trump spoke at Davos. The key moment of the speech was when Trump stated that he would not use force w/r/t Greenland. Risk-on markets rallied quickly and strongly as investors assumed that was the beginning of the end of the worries. Somehow, negotiation would result in a reasonable outcome. Markets rolled over again though as worries about the brusqueness of Trump’s language and policies took hold. That concern didn’t last long however, since President Trump announced a framework of a deal and a cancelation of all the threatened tariffs just before 2:30 PM. Risk-on markets zoomed on that news. The S&P was +110 points by 3 PM. It did give back some in the final hour. Treasury yields fell nicely across the curve and capital flow was heavy at 138%.
What a day.
So the Greenland issue came out of nowhere with the usual Trump bluster and only when Trump made threats above and beyond his usual level, did both markets and countries worry. Once the worry became significant, President Trump backed off and erased the problem altogether. Markets have labeled this TACO, Trump Always Chickens Out.
I don’t know about that. Trump has a very off-putting means of negotiation. He threatens to break things, scares the counterparties (and sometimes his own side), and then announces an agreement that smooths things along.
I don’t praise the method of his madness but certainly has a pattern. The problem is that markets are wise to it. The markets and counterparties no longer react to usual statements. They now react to *escalating* threats. Trump had to threaten an *invasion* of a NATO country this time around. That’s crazy. What’s going to happen next time?
God forbid Trump ever seriously commits do go down one of these extreme paths. The markets must worry about each what-if scenario, always. Markets cannot dismiss Trump’s comments as exclusively empty. If he threatens X, the market must discount X.
Where does this leave us?
It means volatility is going to *increase* and stay elevated for as long as Trump is in office. His rhetoric has to prompt people to worry. That’s going to mean it gets louder and more consequential along the way. Hopefully it never actually comes to pass but in each instance, markets will have to price in the chances that it does.
That means asset prices are going to *swing*.
See you tomorrow.
-Mike
Visdom Market Commentary
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