The Trump trade

Katie Martin (0:06)

Pushkin.

The US presidential election is heating up, and finally, markets have decided to start paying attention to Trump 2.0. So today on the show, we're asking, is the Trump trade on? And like, what is it anyway?

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London, and I'm joined. Hooray, he's back by Robert Armstrong. He's back from his holidays. Did you miss me, Rob?

Robert Armstrong (0:40)

I did miss you. And I think given the theme of today's podcast, a good way to start would be, we sing a duet of the US National Anthem.

Katie Martin (0:48)

Cool, cool, cool. But I gather that on your holidays, you witnessed a terrible omen.

Robert Armstrong (0:57)

Yeah, I was in Vermont with my wife enjoying some peace and quiet while the kids are away at summer camp. And I saw an actual, as opposed to metaphorical, bear.

As a Wall Street writer, that is the universe trying to tell you something. I also saw a coyote, but I don't think a coyote has a specific Wall Street meaning, so I just ignored that one.

Katie Martin (1:22)

Two questions. First of all, did you also see any black swans? And second of all, were you very, very frightened of the bear?

Robert Armstrong (1:29)

The bear was far away and not interested. And at a great distance, a bear is quite cute.

But it's when you're close to it that... And black bears, which are what we have in the Northeast, are not dangerous.

But not that you want to go punch them in the face or whatever. I did not see any black swans. I didn't see any hawks. I didn't see any doves. And I think that exhausts the metaphorical animals of Wall Street for today.

Katie Martin (1:57)

But bears are about, watch out. So look, the issue of the day is not the wildlife of wherever it was that you were. It is the Trump trade. Now, so for my sins, I go to lots of briefings at investment management houses, at investment banks, and every single time, like the whole of this year, someone always puts up their hand at the end of the session and says, what do you think about the US election? And pretty much every single time, my experience is that people sort of shuffle in their seats and look a little bit awkward and say, oh, well, you know, the fiscal stance is roughly the same between the two main candidates, so I don't think it really matters.

Now, this has changed. Suddenly, people have decided that there is a bit of clear blue water between the two leading candidates and that this is something that is tradable, but what is the Trump trade?

Like the peak of people banging on about the Trump trade happened when?

Robert Armstrong (2:53)

After the first debate, Biden looks like he's too old to be president. Trump is in a dominant position and...

Katie Martin (3:00)

And then he gets shot at.

There is a distressingly large amount of precedent in the US for politicians getting shot at, but nonetheless, there's not enough to say whether this is good for his chances of being president again or not. And then he picks JD Vance as his vice presidential running mate. So all of a sudden, a lot of things coalesce into the point where we start to see markets moving around a bit.

Robert Armstrong (3:21)

Yeah, it focuses the attention, you might say.

Katie Martin (3:24)

Focuses the mind, to your mind. And I know you were on holiday when this happened, looking at bears.

What is the Trump trade?

Robert Armstrong (3:32)

The consensus Trump trade is that Trump will be a bit inflationary, and that therefore, long rates, long treasury yields will rise.

Katie Martin (3:45)

What does that mean?

Robert Armstrong (3:46)

So the idea is he says a lot, I like low rates.

He says a lot, I like tax cuts. He does not say a lot, with these tax cuts, I will also cut expenditures. So we're talking about unfunded tax cuts, which are considered to be inflationary. There are talks about what kind of policy he would encourage at the Fed.

So the idea is he's a real estate guy, he's a loose monetary policy guy, he's a spend money and borrow guy. All of this equals re-inflation in the United States. And indeed, after the debate, obligingly, the yield curve grew steeper. The 10-year rose a little bit relative to the 2-year. And so there was some confirmation in the days immediately after Biden's absolutely disastrous performance that the market thinks of Trump as inflationary.