Monday, March 5, 2018

5/3/18: Rational Valuations Meet a Parody Cowboy


There is one word that explains the latest Bloomberg musings on the markets pricing in the impact of Trump's aluminium & steel tariffs: ambiguity. Here is the original article:
"The good Donald, the bad Donald and the ugly market" https://www.bloomberg.com/gadfly/articles/2018-03-02/tariffs-the-good-donald-the-bad-donald-and-the-ugly-market via @gadfly

With its cool imagery:


And here is my analysis: tariffs pricing by the markets reflects three VUCA factors. Factor 1: Ambiguity. This relates to ambiguous nature of Trump's policies, with tariffs seemingly laying waste to the idea that Trump Administration can be deemed to be 'maturing' into the office. Factor 2: Complexity. This relates to the nature of the global economy and its dependence on international cooperation agreements and frameworks, the very same institutions that Factor 1 puts into question without providing any certainty as to the exact direction of future change or, indeed, the metrics by which policy successes will be measured. Factor 3: Second Order Ambiguity. This arises from the interaction between Factors 1 and 2 above: as Trump Administration bites chunks out of international structures and treaties, ambiguity and complexity arise not only within the context of the Administration tenure itself. Trump's actions drive unpredictable, uncertain and ambiguous changes into the post-Trump era responses from the future U.S. Presidents. If you are running a business or investing in a company, you need to think beyond November 2020 (which is just over 2.5 years away) and that thinking is virtually impossible under current policy volatility and uncertainty.

In Hollywood, falling out of the second story window, while showering the town around you in bullets is a fun game. In the real world, you just might end up being killed. Companies and investments are not run like an Indiana Jones' movie set. Even when a 'Western' parody cowboy is sitting in the White House.

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