Tonight the annual IFR Awards dinner takes place at the Grosvenor House hotel in London where the best of breed are applauded by their peers for having, during the past year, done a jolly good job.
The annual black-tie shindig which is held in favour of the Save the Children charity and which usually, on the night alone, succeeds in tapping the City for around £1m is apparently also regularly this very worthy organisation’s biggest single fundraising event of the year.
Not surprisingly, with over 600 bankers in celebratory mood, the bar bills will not be modest and tomorrow morning, myself included, there will be some pretty bleary eyes and more than just a few very sore heads making their way into the office.
But, and well before it has even started, I am quite certain that this year’s do will be more than just a little different. The seismic events which are hitting the US and the rest of world since the Donald was inaugurated on Friday are rattling all and sundry and although the Street will be trying to focus on new issuance, on this morning’s eurozone manufacturing, services and composite PMIs and later on the same for the US as well as existing home sales and on the ongoing reporting season, there is a very much bigger elephant in the room and whatever we do by way of data analysis today, it will all look and feel like rearranging the deckchairs on the Titanic.
No-truth politics
The executive order pulling the US out of the Trans-Pacific Partnership has already been signed and NAFTA is also about to be dragged into the woodshed. Theodore Roosevelt’s advice to speak softly and to carry a big stick has been overturned by President Trump who speaks loudly, repetitively and in soundbites and who does not only carry a big stick but who also wields it without worrying about the cost. He doesn’t care for post-truth politics, he is already proving to be the master of no-truth politics and that’s after a mere four days into a four-year presidency.
That he won the presidential election in November fair and square is not up for debate. But what he did do is to beat the system on the basis that most, if not all, politicians talk fast, promise much but ultimately execute very little of what was banged on about on the stump. It’s pretty certain that a significant number of voters who plumped for Trump did so on the assumption that the dish he was presenting would not be eaten anywhere near as hot as it was being cooked. Ooops! But whatever he did to the American people on November 8, he had already done months before on the Republican Party. To Trump, the GOP was a means to an end. He might have been elected on a Republican ticket but a Republican he is not and the sooner the Republican sides of the House and the Senate grasp this, the better.
We might spend our day wracking our brains as to whether this or that bond is the odd basis point cheaper or by how much the Dow, the FTSE or the Nikkei might move on the back in a shift in the value of the greenback but that is no more that straightening the pictures on the wall while ignoring the widening cracks in the wall after a 8-magnitude earthquake has just hit the region. Gideon Rachman’s piece in the FT titled “Truth, lies and the Trump administration” raises some very pertinent questions, most of which will be occupying our minds for some time to come.
Resistance
Senator John McCain, a military hero who was shot down over Vietnam but who was derided by Trump for letting himself having been captured, has stepped out of the shadows and has aired his opinion that the president’s policy of economic disengagement is in stark contrast to fundamental free-trade Republicanism. I might be wrong but I would not be surprised to see McCain, himself once having run against George W Bush for the Republican nomination, emerging as the leader of a resistance movement of Republicans on the Hill against the so-called Republican at 1600 Pennsylvania Avenue. I digress.
Surely, when the great and the good assemble at Grosvenor House tonight, the principal topic of conversation will be about what happens next. Do we soldier on as though nothing has happened and nothing has changed or do we panic and run screaming for the hills? My guess is that, for the while at least, it should be more of the former than the latter.
I wondered what the chances might be of a military coup in Washington, should the commander-in-chief prove to be, to stick with military metaphors, a dangerous loose cannon. It might seem strange now but the “gold standard”, the event that everything in the world has been measured against since June last year, has been Brexit. This and that, from the possible fall-out of the Italian banking crisis to sluggish European growth to the Trump election itself have all been measured for impact against Brexit, itself of course an event of unknown consequences.
As already noted, it would appear to be, for the moment at least, wise for us to continue working as though nothing significant has changed in markets even though, of course, it has. The Trump rally risks turning into the Trump slump if one believes that opposition in Congress will grow and that rather than having a unified House, Senate and presidency, the Washington administration descends into internecine warfare and an even greater state of torpor than it already had been in.
Positioning
How does one position for such an outcome? Sell the hell out of the dollar or hope that, as in the case of Europe, the central bank takes over the moral leadership while the politicians are fiddling? If that were to be the scenario, one would want to be long dollars. Gold, that old favourite in times of uncertainty, has bounced quite sharply off the December lows of just over US$1,100/oz and it is currently in the US$1,215/oz region, which tells us little as that is more or less slap bang on the three-year average.
Although both principal US indices traded lower yesterday - the Dow lost 0.14% and the S&P 0.27% - there are as yet no signs of any significant investors undertaking large and fundamental asset-allocation trades. Whether this is because they don’t want to or see no need to, because they haven’t got around to discussing it or because they have discussed it but don’t really know what exactly to do, is of course open to interpretation. Likewise, the 2s/10s curve remains wrapped around a central point of 125bp where it has been stuck more or less since the election in early November.
The most crowded trade in the book remains the long dollar position. Sure, the dollar has come off sharply from its December high of ¥121.00 to its current level of ¥113.00 but one should bear in mind that as recently as late September it was still closer to ¥100.00. There is still potential for lots of action in that space and in either direction. The simple fact is that nobody really has a clue what happens next and the best one can realistically hope for is an educated guess. Either that or one sticks to the original rule that in the end economics will always win over politics. Ooops, did I just see a pink thing with a curly tail fly by? I dropped in on a hedgie yesterday who seems to be perfectly content to be fiddling around at the edges on a day-by-day basis but who is clearly avoiding taking any big and strategic positional risk. Can he be blamed?
I will be interested to hear what people have to say this evening unless they are the usual annual exchanges about when and where they’re all off skiing once bonuses have been paid although, to be frank, I’m really not expecting too much of that.