Presidential Focus Shifts to Foreign Policy Amidst Unreliable Market Outlooks
TL;DR
- The Louisiana Purchase's historical precedent justifies territorial acquisitions by demonstrating how expanding national territory can solidify US expansion and open new gateways, despite domestic concerns.
- Presidential focus often shifts from domestic issues to foreign policy analysis and action, a pattern observed across administrations, including the current one.
- Consensus market trades, detailed in lengthy outlooks, frequently unravel within the first two weeks of January, particularly when volatility is low.
- January typically sees a significant decrease in currency volatility, such as euro dollar volatility, occurring approximately 80% of the time over two decades.
Deep Dive
The core insight from this segment is that presidential focus often shifts from domestic concerns to foreign policy, a pattern exemplified by current actions and historical parallels. This shift, while a common presidential behavior, carries significant implications for domestic policy priorities and public perception, particularly when viewed alongside historical examples of major territorial acquisitions and academic analyses of inequality.
The discussion highlights a recurring theme in presidential strategy: the redirection of attention and resources towards foreign affairs. Wendy Schiller's insights draw a parallel between current geopolitical focus and the Louisiana Purchase, emphasizing that such large-scale territorial acquisitions were driven by a need to "open that entire gateway" and solidify national expansion. This historical precedent suggests that a president's engagement with foreign policy can serve as a means to advance national ambitions and potentially distract from domestic anxieties. Gada Makunda reinforces this, noting that presidents "shift from the domestic angst over to foreign analysis policy," implying that this is a strategic move, perhaps to gain leverage or project strength, even if it means temporarily deferring domestic issues.
Furthermore, the segment touches upon the predictable yet often-unreliable nature of market outlooks, particularly in January. Jordan Rochester points out that consensus trades, heavily promoted in year-end outlooks, frequently unravel within the first two weeks of January. This phenomenon, driven by a tendency for volatility to decrease in January, suggests a market rhythm that can be disrupted. The implication here is that while markets exhibit patterns, the prevailing "zeitgeist" of outlooks can be misleading, leading to misaligned investment strategies if not approached with caution. The fact that this year's January has seen lower volatility might be an anomaly, masking underlying vulnerabilities that could surface later. This underscores the challenge decision-makers face in navigating market sentiment, where established forecasts can quickly become obsolete.
Ultimately, the segment suggests that presidential administrations often leverage foreign policy initiatives to manage domestic pressures and pursue strategic national goals. This dynamic, coupled with the inherent unreliability of short-term market forecasts, presents a complex landscape for both policymakers and investors, requiring a nuanced understanding of historical patterns and a cautious approach to prevailing market sentiment.
Action Items
- Audit January market outlooks: Identify 3-5 common consensus trades that unravel within the first two weeks of the year.
- Track 5-10 "hottest" January consensus trades: Measure their performance against market reality to identify recurring patterns of failure.
- Analyze historical January volatility: For euro dollar, calculate the frequency of volatility decline over the past 20 years.
- Evaluate presidential focus shift: For 3-5 recent administrations, document the transition from domestic to foreign policy emphasis.
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View Episode Notes →Key Quotes
"In that book is the Louisiana Purchase of 1803. Schiller on Greenland and Louisiana, it is the Louisiana Purchase. We're going to buy a major territory. A lot of people don't know the scope of the Louisiana Purchase, how much land that was and why it was so important to go west and sort of opening that entire gateway, and really solidifying, I think, US expansion."
The author, Wendy Schiller, draws a parallel between the historical Louisiana Purchase and potential modern territorial acquisitions like Greenland. This quote highlights the significant scale and strategic importance of the Louisiana Purchase in solidifying U.S. expansion westward. It suggests that such large territorial acquisitions have historically been pivotal moments in national development.
"Professor Makunda said the same thing: Is it on steroids? It's what all presidents do. They shift from the domestic angst over to foreign analysis policy, and maybe some angst there as well. President Trump is doing that right now."
Professor Makunda observes a common presidential behavior of shifting focus from domestic concerns to foreign policy, particularly during times of stress. This quote suggests that this tendency, amplified or "on steroids," is a recurring pattern in leadership. The author notes that President Trump is currently exhibiting this behavior.
"We started strong today with Jordan Rochester with Mizuho. He went to something that I think's really interesting, which is all the outlooks come out. Everybody reads them all. Samuro leads on this better than anyone. Read the outlooks, six pages, 10 pages, dare I say an 18-page outlook? I hate you. We read them all. There's a zeitgeist and it all falls apart in the vicinity of mid-January."
Jordan Rochester points out a recurring phenomenon in financial markets where widely read outlooks and consensus trades tend to unravel shortly after their release in mid-January. The author notes the extensive nature of these outlooks, from six to eighteen pages, and the commonality of their failure. This quote suggests a predictable pattern of market sentiment quickly becoming obsolete.
"The hottest part of January every single year is we tend to have those consensus trades that everybody read about in those outlooks. It starts to unravel. It's quite famous, really. Typically, you have a few banks that do 10 top trades and six out of 10, maybe even higher, fall apart in the first two weeks. So far, that hasn't been the case because volatility has been relatively low."
Jordan Rochester explains that the early part of January is characterized by the breakdown of popular investment strategies derived from market outlooks. The author highlights that a significant portion of these "top trades" from major banks often fail within the first two weeks of the year. This quote indicates that the typical January market pattern of unraveling consensus trades has not yet occurred due to low volatility.
Resources
External Resources
Books
- "Inequality: State to State" by Wendy Schiller - Mentioned as a new, academic book on inequality.
- Civics 101 by Wendy Schiller - Referenced as a foundational civics book that Professor Schiller was acclaimed for writing.
People
- Wendy Schiller - Professor whose new book on inequality and previous civics book were discussed.
- Jordan Rochester - Mizuho representative who discussed outlooks and January market trends.
- Gada Makunda - Professor at Tufts' Fletcher School who commented on presidential shifts to foreign policy.
- Paul Sweeney - Mentioned in relation to a discussion about Greenland.
- Tina Fordom - Mentioned in the context of preparing to ask smart questions.
Organizations & Institutions
- Mizuho - Mentioned as the institution Jordan Rochester represents.
- Tufts University - Mentioned as the institution where Gada Makunda is a professor.
- The Fletcher School - Mentioned as the specific school at Tufts where Gada Makunda teaches.
Podcasts & Audio
- Barkley's Brief - A podcast from Barkley's Investment Bank analyzing market themes.
- Bloomberg Audio Studios - Mentioned as a producer of podcasts, radio, and news.
Other Resources
- Louisiana Purchase of 1803 - Referenced as a historical event discussed in relation to Greenland and major territory acquisition.
- Euro Dollar Volatility - Mentioned as a metric that typically falls in January.