Remember last month when everyone was hot and bothered about all the TRUMP trades? Whether it was long Russell 2000 futures, short bonds, long US dollar or short gold, most market participants were busy extrapolating the violent market moves months into the future. You were deemed an idiot if you didn’t buy into the “Trump will fix everything” mantra. Even supposedly long term investors like Warren Buffett were busy chasing the stock market higher.
At that time I created a volatility weighted TRUMP basket of those four trades (long small caps & US dollar while short bonds & gold) that I viewed as the poster children of Trumphoria. In early January I warned this TRUMP basket was already acting poorly and might have bad news written all over it.
How has it done since then? Well, it has continued to drift lower. It even hit new lows for the corrective move yesterday.
Although it might seem my caution regarding these TRUMP trades was warranted, I am actually a little disappointed it hasn’t been a bigger win. In some ways, I am surprised at the resiliency of the TRUMP basket.
Let’s go through the four trades one by one, starting with being long Russell 2000 stocks.
After their massive run on the heels of the Trump victory, small cap stocks have gone sideways for the past month. Shorting Russell futures might have been a relative win versus other indexes, but it has basically been a push on an absolute basis.
And bonds are not that much better.
Fading the TRUMP bond decline has been tricky. There have been rallies, but they are fleeting and difficult to catch.
The same can’t be said for the US dollar. It has had a text book correction.
A large portion of the TRUMP gains has been surrendered.
And finally gold is even more impressive.
The rally in gold has pushed it back to almost pre-TRUMP levels.
Looking at these charts, it is obvious that fading the TRUMP basket last month was the right move, but how right was it?
Much to my surprise, it has not corrected anywhere near the amount I would have expected.
The TRUMP basket is actually hanging in there fairly well.
This morning as I write this, Trump is back in the news bragging about the coming “phenomenal changes” to the tax code. His rhetoric is pushing the TRUMP basket back up. For now, it appears the TRUMP basket has bottomed.
Will that be it for the TRUMP bears? Was yesterday the low? I am not sure, but I am keeping a careful eye out for the chance this trade of “fading the TRUMP basket” wasn’t nearly as dramatic as I hoped.
I am more interested in the boring easy part of the trade, and I will leave the dramatics to the Donald himself…
Thanks for reading,