Movie -“Young Frankenstein”

Regardless of one’s political bent, it is hard to argue against the fact that the Trump victory equates to a brain transplant for the world’s only superpower. At a minimum, it’s in the throes of an identity crisis yet to be resolved.

Space Aliens, World leaders and Denizens are trying to decide what the implications are of a Trump presidency for the planet.  If it’s a brain transplant, it begs the question, is it the brain from the Abby Normal jar or pulled from the New Normal jar?

The liquidity cycle and driver of the biggest trends are largely impacted by monetary policy, political events, demographics, technical innovation and human behavior. Mostly emanating from the transplant, three of those key factors that drive liquidity are undergoing major shifts at the same time.

Our core quant investing models (found here)identify those biggest trends. They have shifted dramatically and it indicates that those themes that worked in the past will not work going forward.

Key anxiety indicators such as volatility, gold versus equities and high yield debt versus US bonds are telling us all is good and risk on. To borrow a quote from Mad Magazine the market is saying “What Me Worry?” Therefore, early indications from the global markets are that we have a New Normal.

However, there are fissures brewing.  Markets are showing us that this is a win for the US and not so much for anyone else. Interest rates have risen dramatically as has the US dollar over the past two weeks. The Russell 2000 (IWM) is up over 13 % since November 7, while most other foreign equities markets are down.

This is no time to be complacent as Mr. Market is known to be wrong before. A rally of this magnitude has generally occurred only after major bear markets. Massive runs like we just had usually happen after climax bottoms. We could be setting up for a blow off top.

Some Trump supporters who don’t think Trump can or will follow through on his campaign promises might be surprised as he has filled critical cabinet posts with hardliners to the right of the neo-cons under Bush. Certain choices for critical posts chosen by Trump were either rejected by Republican’s years ago as being racist or recently removed under Obama for being erratic. Any perceived mismanagement by the incoming administration could quickly unhinge the markets.

Saturday morning, Trump derided cast members and NY theater goers who booed VP elect Mike Pence at a showing of Hamilton. Were those theater-going folks exercising their rights of freedom of speech or was it inappropriate harassment as tweeted by Trump Saturday morning? Your call, but something to watch because ultimately these issues will impact the market longer term.

Immigration policies, civil rights issues, national security arrangements and critical trade agreements are all under review.  The intersection of politics and finance has never been more at play.

Let go to this week’s video and find some levels where that blow off might occur.

Video length: 00:22:16