Complacency, Thy Name Is Trump


When you’re President Donald Trump and you snap your fingers, the courts and the media don’t stand at attention.

But when you tell Wall Street to jump, the answer always is: “How high”?

On Thursday, the U.S. Court of Appeals for the Ninth Circuit upheld a lower court’s stay on the administration’s controversial travel ban on people from seven mostly Muslim countries that have a history of sponsoring or spawning terrorism.  The legal fight may go to the U.S. Supreme Court.

And despite chief White House strategist Stephen K. Bannon’s admonition to the media to “keep its mouth shut and just listen for a while,” news organizations like The Washington Post and The New York Times have published story after story about internal battles in the administration, extensive leaks, and apparent conflicts of interest in the Trump family.

But when the president floated the vague notion that within the next few weeks, he would unveil a “phenomenal” tax plan,  yet provided no details, all three major market indexes achieved new all-time highs.

Like Trump supporters during the campaign, Wall Street has focused on all the positive things the administration may do (tax cuts, deregulation, infrastructure building) while ignoring everything else (possible tariffs, trade wars, etc.)

Is it missing the forest for the trees?

Two prominent investors think so.

Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, who welcomed Trump’s victory, now says there is “significant risk that his populist policies could hurt the world economy (or worse).”

Legendary investor Seth Klarman of Baupost Group warned his clients, “Exuberant investors have focused on the potential benefits of stimulative tax cuts, while mostly ignoring the risks from America-first protectionism and the erection of new trade barriers.”

“The big picture for investors is this: Trump is high volatility, and investors generally abhor volatility and shun uncertainty,” he concluded.

Ah, but do they?

Right now, investors look unworried, even downright complacent.

The CBOE S&P500 Volatility index (VIX) hit ten-year lows early Friday and rests below 11, where it rarely goes.

Investors Intelligence’s weekly survey found that 62.7% of U.S. investment advisors  were bullish about stocks. That’s well above the 55% II calls the “danger zone”—a contrarian warning of a possible market top.

“Our longest standing indicator …is showing dangerously high levels of bullishness among financial advisors –which means it may be time to start protecting your portfolio,” the company said in an email Friday.

So, the bottom line is this: Trump’s promises hold, well, promise for investors, but he also presents much more risk than the market is pricing in. Sooner or later, something has to give.