I have been away on vacation for the past couple of weeks and I am still getting back up to speed, so today’s post will be short and sweet.
I can’t help but laugh at the sounds of crickets coming from the Trump bulls’ camp. Not that long ago these nutjobs were overwhelming markets with their overly optimistic economic growth assumptions. They believed Trump would usher in a new era of deregulated, pro-growth, “art of the deal” business friendly economic nirvana. Yet that narrative has been unceremoniously tossed aside as Trump’s deal making prowess has not matched expectations. Trump’s failure to pass the health care bill has turned unrealistic optimism into dejected pessimism.
Recent market action has been dominated by the unwinding of the “Trump reflation trade.” Suddenly everyone is dumping equities and greenbacks, while chasing US fixed income higher.
As I am still getting my bearings, I don’t have any profound insight into this move. But I wanted to take a moment to point out a possible way to play this “Trump trade” unwind that might be slipping under the radar.
In the initial weeks following Trump’s win, copper rallied hard on the prospects of Trump’s infrastructure build out plans.
Contrast that to gold, which suffered the opposite reaction.
With the market assuming Trump’s policies would revive the real economy, bonds were sold hard, hurting gold. While copper, an industrial metal that would benefit from a renewed economic uptick, was bought with both fists.
The copper/gold ratio spiked higher.
Yet over the past month this ratio has been steadily declining.
Obviously both gold and copper are affected by more than just Trump’s policies. I would contend that China has at least an equal effect on both commodities (and maybe even more).
But if you are looking for a different way to play the unwinding of the Trump reflation trade, then shorting the copper/gold ratio might be a something to look at.
The long term trend is lower, and this trade has a long way to decline if Trump ends up failing to live up to his hype.
Thanks for reading,