Cad- zooks

Welcome to the future. It's like the past, only without the surprise factor. We've seen this TV show before. Check your brains at the door; it's irrational and random, but that's what passes for leadership in the U.S. now. Trumponomics is already driving investor behaviour without the new administration even assuming power. Good luck trying to predict anything based on logic; in Trump's metaverse, there isn't any.

I don't expect anything near 25% tariffs to be imposed, but that's not the point. It indicates the type of 'America First' thinking we will have to deal with over the next number of years. The talking points of immigration and inflation got Trump elected, and he's determined to deliver on a set of policies that address them, however costly it will be for the average American.

Take the graphic above. One of the purported reasons for slapping tariffs on Canada, as irrational as it seems, is to stem the wave of illegal immigration. "Illegal immigration from Canada is surging!" declared a Bloomberg host this morning. Really? Surging? Yes, it doubled this year but the total number - 4% of Mexican levels - could fit in a 12-car Go train. And it would probably improve the experience if they did, judging from some of the rides I've taken lately.

Reality distortion spewing forth from Washington next year will be par for the course in the Trumpian future, so get used to it. Hyperbolic and unpredictable as it may be, headline shocks like this will continue to mould investor sentiment. But saying something doesn't make it true, even if it is printed on a "Truth Social" site. The message is all that matters in this real-world episode of "The Apprentice". Come to think of it, that show did get good ratings.

Taking an old plot to heart, Trump's statement his latest minion, Treasury Secretary incumbent Scott Bessent, off at the knees with a stronger tariff push than he expected. So much for the 'Bessent Bump' that markets experienced yesterday. If you think cooler heads like Rubio and Bessent will prevail in the new White House of economic horrors, ask Gary Cohen how that went. How long before we hear Trump tell Bessent, "yer fired"?

Sober second thoughts this morning are helping steady the battered Loonie and Peso, but the damage is done. Forget that the U.S., already with a massive trade deficit, is being pushed further into a stagflationary corner with costly industrial policies centered on re-shoring and protectionism. King dollar is back, and Wall Street seems happy with it, shrugging off the negative implications to growth that Trump's bluster portends.

Be careful what you wish for America. Making yourself a hermetic economy won't solve your problems at zero cost. Trade wars are, at best, a zero-sum game. But don't ask the people who ploughed $100 Bn into index funds this year. They have made their risk preference perfectly clear, with the market at all-time highs. U.S. exceptionalism and Fed easing is all they care about.

When I first entered the business, a wise old-timer told me, "Don't confuse a bull market with brains". Although Trump's meddling will damage growth, it doesn't mean the bull is done yet. Wealthy Americans tend to get their investment advice from other wealthy Americans, most of whom watch Fox News. They are lapping up Trump's bullshit on tariffs (China will pay!) the same way they did when he promised that Mexico would pay for the border wall. Attention Walmart shoppers, bend over and pay more!

It is said Bull Markets have a life of their own. Bullish investors should get one, too, but I doubt it's gonna happen anytime soon.

Risk Model: 1/5 - Risk Off

With a signal this weak, I can be forgiven if I continue to sit on the sidelines. The overbought and overvalued market is still levitated by a Trump honeymoon that has generated pervasive complacency - hence the low $VXV readings. Calm before the storm? Protection this cheap rarely lasts long.

Copper/Gold Ratio

The strong dollar and market scepticism about China's recovery prospects have kept Copper at seasonal lows. There is a contrarian argument to be made here, especially after the dollar love-in inevitably sours once Trump gets his hands on the economic wheel and steers for the nearest ditch.

There isn't a lot of $4 copper left to find and produce over the next 5-10 years. The cure for low prices in commodity markets is a low price. Catching a falling knife is always hard, but "V" shaped bottoms are the norm. Buy CPER and COPX here.