The order is rapidly fading and the first one now will be the last one later because the times are changing.
In other words, yesterday was just another day in U.S. politics.
So, we started Wednesday, April 12, with the news that the healthcare reform will probably, if the president gets his wish, comes before his promised tax reform.
President Donald Trump said: “I have to do healthcare first, I want to do it first to really do it right."
Remember how investors who had been concerned that the healthcare debate would drag on, clog Congress and delay tax reform and then cheered up after healthcare was pushed back to the back burner and that from then on it would have been all about US fiscal policy all the time.
So, yesterday, Trump told the presumably not fake Fox news that in fact for him healthcare remains on the front burner.
This raises questions about the timing of tax changes and fiscal reform in the U.S. Perhaps, nobody knew tax reform could be so complicated.
And then there are the currency markets.
China, it turns out has not been manipulating its currency and that it is not a currency manipulator at all, and all that stuff about branding China as a currency manipulator on day one of the Trump presidency should never have been taken seriously.
Perhaps, nobody knew that international trade could be so complicated.
Maybe it could be helpful to long-term investors that China, as a major trading partner of the U.S. does not meet all three criteria established by the U.S. Treasury for being called a currency manipulator, which are:
The trading partner has to a have a trade surplus of $20 billion or more with the U.S., which is the case of China.
The trading partner must have a material current account surplus of 3 percent or more of its GDP, which is not the case for China.
The trading partner engages in persistent one-sided intervention in the foreign exchange market, which is not the case of China.
And then there is the dollar itself. When back in January, Trump mentioned that the dollar was too strong and then he retracted and said that the dollar was a signal of international enthusiasm about his administration.
Maybe it is also interesting to recall that around that time Treasury Secretary Steven Mnuchin commented, when he was still nominee for his actual post, that the long-term strength of the dollar is important.
Anyway, the dollar has been weakening in a gradual was since mid-December.
And now, the dollar is once again possibly too strong. Perhaps, nobody knew that currency markets could be so complicated.
Please keep in mind that the U.S. president has the power to call for a foreign-exchange intervention in order to try to change, up or down, the value of the dollar value, and that he can even call on the Fed to use its own resources in that effort.
There is no doubt that such a kind of intervention is powerful when used in concert with other nations, which of course is in today’s global context not in the cards.
Besides that, Trump’s dollar rhetoric could be destabilizing for markets because jawboning about the dollar’s value is in practice the US Treasury’s mandate.
And then there is Korea, Russia and the Middle East … well, I think you’re getting the idea…
Where does this all lead investors?
There is no judgment on whether policy uncertainty is a good or a bad thing from a political perspective.
However, financial markets, as a general rule, like certainty. Investors do not like surprises.
They like trends and in particular trends that take place in a known policy framework.
This is not what we have today, neither in the U.S. nor in the world.
Having said that, politicians have a relative limited ability to influence near-term economic cycles.
The fundamentals of the U.S. economy have had momentum for the past couple of years.
The labor market and wage cycle should keep things positive.
For the financial markets, the basic underlying fundamentals remain relatively secured therefore.
The politics adds volatility and uncertainty that has the potential to impact longer-term trend growth, and this is the situation that long-term investors should keep watching on their radar screens.
Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.