Observations: 100 days of turmoil, the knowns
Assessing the known knowns of the revolution, 100 days in
Before inauguration, I wrote that Donald Trump had detailed plans for a complete Revolution in American governance, social contract, economic organization, and international relations with the world in his second term. I also warned that “[w]hether it ends up strengthening US democracy...or destroying it, it will be a volatile and potentially violent process that markets appear to have underestimated.” No matter how well you plan it, by its nature, a revolution is an exercise in chaos. The first 100 days of Trump 2.0 have not disappointed my expectations.
It's normal to feel discombobulated and some historical perspective is helpful:
Franklin Delano Roosevelt, originator of the “first 100 days” metric, used his to declare a national banking “holiday,” halt gold exports (effectively withdrawing from the international monetary system), suspend domestic gold convertibility and make private gold holdings illegal, pass the “Alphabet Soup” of 15 major pieces of legislation including the Glass-Steagall and Securities Acts that still largely define American finance, and that transformed the Federal government from 2-3% of the US economy to over 10% by the mid 1930s and almost 25% today.
By the 100th day of Abraham Lincoln’s presidency, eleven states had seceded to form the Confederate States of America, Fort Sumter had surrendered after bombardment, and – without ever consulting Congress – Lincoln had called up and mobilized the Union army, blockaded Southern ports, , and effectively seized, put under martial law and suspended habeas corpus in four border slave states before they could secede.
The first 100 days of the French Revolution saw the Estates General transform itself into the National Assemblyand seize power from the king, revoke centuries-old feudal privileges and noble titles, and establish the Rights of Man, while revolutionaries stormed the Bastille, seized Paris, and initiated a nationwide campaign of violence, the Great Fear, against the church and aristocracy.
In making these comparisons, I am not trying to minimize the real trauma experienced by tourists and immigrants, laid-off Federal employees, small and large business owners making decisions on employment, investment and inventories, or investors enduring generational volatility. But historical perspective is important in two regards.
First, to use FDR’s words, “the only thing we have to fear is fear itself.” Making rational decisions under such Uncertainty requires grounding oneself in the knowledge that convulsive episodes, many far worse than anything we are currently experiencing, are nothing new and that our predecessors found paths through them. Second, reflections on history prepare us for the unfortunate reality that it is likely to get worse before it gets better: the Reign of Terror and Napoleonic wars followed the Great Fear; the bloodiest conflict in American history ensued from Lincoln’s call to arms, and a decade of double-digit unemployment and misery, as well as World War II, followed FDR’s introduction of the New Deal.
As I discussed in Exceptional, elastic, or just erratic? there is good cause to think markets, gripped with fear of the unknown, fulfilled FDR’s warning by overreacting. But that doesn’t mean their fears are irrational. As I wrote above, revolutions are chaos incarnate. Revolutionaries cannot control what they start and become prisoners of their own creation if they delude themselves into thinking that they can. Indeed, even the choice of revolution may not have been their own. Complexity cascades are real and uncontrollable.
Navigating the resultant Uncertainty requires that we take stock of what we do and do not know, but just as importantly, that we attempt to parameterize the space of unknown unknowns. Doing so requires the full spectrum of the Thematic Markets framework: deep, multi-disciplinary theory, rigorous analytics, historical and institutional perspective, inherent contrarianism, and – perhaps surprising to newer readers – a bit of technical analysis. Today I’ll tackle the known knowns.