“Age is an issue of mind over matter. If you don’t mind, it doesn’t matter.”
-Mark Twain
The one inevitable thing in life is that we all age. Today is my anniversary of doing another rotation around the sun. I’ve turned the ripe old age of 43. Or in dating app years 35, which is an important distinction for a bachelor!
Humans aren’t like good wines that get better with age. In fact, the peak of a human’s brain power comes at around the age of 22 and lasts for just half a decade. From 27 onwards, it is all basically downhill. But just how significant is this decline?
According to research from Art Kramer, a psychologist at the University of Illinois, and others, from our mid-20s we lose up to 1 point per decade on a test called the mini mental state examination. A 3 to 4 point drop is considered clinically significant. Translation: the decline people typically experience between 25 and 65 has “real world consequences”.
Based on many other studies, it is widely found that volume of the brain and/or its weight declines with age at a rate of around 5% per decade after the age of 40. Also, this natural decline rate very likely accelerates at age 70.
So the punchline line is that if you disagree with President Trump, it may not actually be his fault since, clinically speaking, his brain (as with most 70-year olds) is in an accelerated state of decline.
Back to the Global Macro Grind…
On the topic of Trump, he has certainly not wasted his early days in office. So far he hasn’t introduced any broad economic plans, but he has made moves that will impact companies and sectors. Yesterday saw Trump sign executive orders to advance federal approvals for the Keystone XL (KXL) and the Dakota Access (DAPL), as our policy analyst Joe McMonigle wrote:
“KXL is the easiest for Trump to approve since it only requires approval of a Presidential permit for the cross border pipeline. Since KXL is the most studied pipeline in US history, it is unlikely that there is any lengthy procedural hurdle for its approval.
DAPL approval will require the White House to instruct the Army Corps of Engineers to approve the project. With Secretary of Defense James Mattis confirmed and on the job at the Pentagon, the Trump Administration should easily be able to advance the pipeline quickly.”
The pipeline move was largely as expected, but even as he gets some early “wins” President Trump appears to be facing some fights on both his tax reform and infrastructure ideas. On the latter, our Washington office chief JT Taylor noted the following today in his morning note:
“An infrastructure plan, as one of the main focuses of President Trump’s platform, made an early debut in the Senate as Democrats unveiled a trillion-dollar plan to rebuild that nation’s roads, railways, airports waterways and sewer systems over 10 years. While the legislation will likely never see the light of day, it shows Democrats are trying to grasp onto one of the few policy areas that overlaps with the president’s plans. Given budget constraints and the potential loss of Republican deficit hawks, Trump may indeed be leaning on this bloc to get a bill over the finishing line in the months ahead.”
It will certainly be an interesting sight given the nature of the campaign to see Trump have to go, figuratively, hat in hand to the Democrats to get an infrastructure bill passed.
Tax reform might just be the toughest battle for Trump. According to reports, the Trump team is looking for sweeping tax cuts without offsetting revenue increases. The challenge that Republicans face though is one of math. Increased military spending, massive infrastructure spending, the building of a border wall, and tax cuts lead to one likely outcome: burgeoning deficits.
As the Chart of the Day shows, the SP500 and Nasdaq are both reaching 43-year highs (let’s just call it Jonesy’s Bull Market). A question to ask if you are bullish is whether Trump’s likely upcoming fights on his economic plans will impact the “running of the bulls”. So far, we don’t think so. As Keith wrote yesterday:
“All the while, my front-runner on probability weighing the upside/downside in front-month volatility (i.e. my immediate-term risk range) is 10.67-13.16 for the VIX. So that keeps telling me that the highest probability outcome remains for lower-highs and lower-lows in VIX.
And that keeps happening in a US Equity market that is often called “expensive” (it is), but doesn’t get cheaper. Maybe someone from the orthodoxy of macro “valuation” experts can chime in on why this is happening.
I think it’s because consensus continues to position for a correction that would be deemed “rational”, as opposed to buying all dips in an irrationally profitable position that’s been complimented by prevailing growth and inflation conditions.”
Keith is on the West Coast this morning, but sent me through a birthday present by way of our top macro long and short ideas:
- Top 7 Longs – US Dollar (UUP), SPY, Japanese Stocks (JPXN), Financials (XLF), Semis (SMH), Industrials (XLI), and Russia (RSX)
- Top 6 Shorts – Gold (GLD), Eur/USD, LT Treasuries, German Bunds, Japanese (FXY), Turkey (TUR)
Happy hunting out there today!
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.33-2.53%
SPX 2
VIX 10.44-12.91
EUR/USD 1.04-1.07
Oil (WTI) 51.58-53.96
Gold 1177-1219
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
