Global Macro Trading Journal

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Stocks opened at all-time highs yesterday and then sold off the whole day. Sell-off continues today

I didnt like this Trump Carrier Corp jobs thing. Especially, the speech he did in Indiana today. He sounded too protectionist. The market didnt seem to like it either. Nasdaq is tanking and a lot of the multinationals are down. Time will tell how much of this is talk how much will be real (he doesnt have the legal authority to do the things he claims he will) but this should pause the market for a while
 
So I was thinking about this Trump trade policy. I'm starting to think it makes a lot of sense, it could lead to even better global trade
Here's why:

What Trump seems to be saying is that when the US sits down to negotiate a trade deal, it gives more than it receives. So for example, in most deals the US cuts 3 tariffs and the other country only cuts 1. I'm making up the numbers but the important thing is the idea. What he is trying to do is to be a better negotiatior in these deals, that is the US to cut 3 tarrifs and the other country to cut 3, or least 2. To improve the give and take ratio. How do you do that? By acting like a crazy person that's how! If the other party thinks you will back down, they will stand firm and you will lose the negotiation. But if the other party thinks you are solid, then you have a chance or getting THEM to back down (especially, if they are afraid you will put some tarrifs on their goods). Looking and TALKING crazy gives you leverage

I really need to read up on his book The Art of the Deal soon. But this is probably just an extension of his negotiation tatics from real estate. In fact, I recall reading up a review of his book where one of the pieces of advice was to laugh at the other guy offer when he proprosed a price to buy your real estate. Its all about trying to get the better end of the deal

Trump is not a classical protectionist, who believes a big trade surplus is good for an economy. He is simply trying to do a better job at negotiation. Obama never negotiated a thing in his life, Trump did it his whole career. He is likely to enact more balanced trade deals

If he suceeds, other countries will have to decrease their protectionism if they want to do business with the US. Which COULD lead to better global trade. It could depend on what China does in response I guess, thats why there is some uncertainty

I once read from David Sklansky that the best tactic when playing Chicken (the game where two people drive a car in the direction of each other and whoever turns to avoid the crash, loses) is to throw the steering wheel out of the window and let the other guy see. That way he knows you are crazy and are totally committed. You get leverage and win. Thats what he is trying to do on trade

In fact, I suspect we will see a Trump dip at some point. Markets might crash a bit when he starts to act more crazy to show that he means it. But once people believe him, the final outcome will be good because other countries will have to open up their trade more
 
This is a deeper layer that a lot of people miss. They get too emotional about things he did in the past, things he said, values he holds, etc. As a result, they ONLY interpret what he says on the surface and they miss out on that deeper layer.
 
I see a lot of folks saying this Trump rally will end, which I reckon it will because so far it is based on talk and no action. Some say it will end with a blow-off top (2,300 - 2,700 being quoted), but that may not be the case if it's just a correction to fit reality.

If the economy keeps on pace and he starts doing good stuff, it will pick up again, with reason behind it.
 
So the EM stocks that should crash, are the ones that depend on gov trade protection to exist and grow. The other ones should actually trade up because reduced protectionism, means that the consumer in those EM countries will have more money to spend by saving cash with low cost imports. That extra cash can be used for more spending in other goods
 
If you look at FATCA, the US was able to convince the whole planet to join in that madness simply because other countries couldn't afford not having access to US investment, the USD payment system, etc. This was a situation where the US government acted tough and stood ground, as a result, they got what they wanted. Why would them not be able to do that on trade with Trump, who is even tougher and crazier than Obama?
 
But the key here is, if there is a big Trump dip down the line (and I have no idea when that is), its a buying opportunity
 
EWZ is mostly banks, consumer defensive/discretionary and some commodity stocks. So I believe I'm safe there. Banks dont rely on gov import protection and consumer stocks as a whole can benefit as people save money on imports. And commodities seem to like his fiscal ambitions
 
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