<p>Hey, this is Alf speaking - welcome back to The Macro Compass!</p><p>Given the large influx of paid subscribers at the previous round, <strong>we are extending our big discount also to our cheapest tier - The Long Term Investor.</strong></p><div class="subscription-widget-wrap-editor"><div class="subscription-widget show-subscribe"><div class="preamble"><p class="cta-caption">Thanks for reading The Macro Compass! Subscribe for free to receive new posts and support my work.</p></div><form class="subscription-widget-subscribe"><input class="email-input" name="email" tabindex="-1" type="email" /><input class="button primary" type="submit" value="Subscribe" /><div class="fake-input-wrapper"><div class="fake-input"></div><div class="fake-button"></div></div></form></div></div><p>Here is why you should take the offer:</p><p>A) You will read my macro insights <em><strong>every single week </strong></em>(also on our mobile app!)</p><p>B) If you are quick, you get <em><strong>40% OFF. Locked in forever.</strong></em></p><p>C) This could be it. <em><strong>Next year we might close to new retail subscriptions.</strong></em></p><p>Yes, you read it correctly.<br />As we are getting a large influx of institutional demand, next year we might be closing subscriptions at retail-friendly prices.</p><p>This is why today I am telling you: <strong>go for it.</strong></p><blockquote><p><em>The first 20</em> TMC readers who will use the <em><strong>code MACROFRIDAY</strong></em> for our Long-Term tier will get <em>40% OFF forever.<br /></em>You’ll end up paying only <em>EUR 239/year.</em><br />That’s only ~20 bucks a month to read my macro insights every single week.<br />The offer is valid only for <em>TODAY!</em></p></blockquote><p>Use the link below. Be amongst the 20 who get in:</p><p class="button-wrapper"><a class="button primary" href="https://buy.stripe.com/dR6bIX9K59eB9HyeUX"><span>Yes, Get Me 40% OFF!</span></a></p><p>Now, to the piece.</p><div><hr /></div><p>Trump is back slashing (or should we say: threatening) tariffs left, right and center.<br />The more gradual approach suggested by his inner circle is nowhere to be seen.<br /><strong>It seems like this Trump presidency will bring more volatility than the previous one.</strong></p><p>And if you think about it, it actually makes sense.</p><p>Controlling the House and the Senate, Trump is empowered to run his last and more aggressive agenda: in Musk’s words ‘’it’s now or never’’ for implementing policies.<br />I feel like Trump has little to lose here, and he is calling the shots.</p><p><strong>When it comes to markets, I believe it’s good practice to look at what happened in 2016.<br /></strong>The world isn’t the same, but Trump’s policies seem to move broadly in the same direction and even if history doesn’t repeat it often rhymes:</p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F49a0175d-7444-4578-962f-c843970ffda9_938x771.png" target="_blank"><div class="image2-inset"><source type="image/webp" /><img alt="" class="sizing-normal" height="771" src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F49a0175d-7444-4578-962f-c843970ffda9_938x771.png" width="938" /><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg class="lucide lucide-refresh-cw" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg class="lucide lucide-maximize2" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>The chart at page 1 shows <strong>the Sharpe Ratio for the top 7 risk-adjusted trades in the 45 days subsequent to Trump’s surprise win in 2016.</strong></p><p>We chose risk-adjusted returns over absolute returns to avoid giving an advantage to highly volatile assets like Bitcoin – in absolute return terms, the most volatile asset will always prevail given favorable conditions.</p><p>The 7 trades all make sense from a macro standpoint.</p><p>Stock markets and in particular <strong>small-caps and banks</strong> benefit from Trump’s economic and de-regulation agenda; <strong>yields</strong> move up as nominal growth is seen increasing; <strong>the USD</strong> strengthens against low yielders and countries hit by tariffs and <strong>Bitcoin</strong> acts as the perfect de-regulation friendly, animal spirit asset class.</p><p>Let’s now look at today.</p><p><strong>We overlapped the 2024 performance with the 2016 performance for the top 7 ‘’Trump trades’’.</strong></p><p>In choosing the ‘’day 0’’ for 2024 we opted for the day when the Republican sweep odds moved above 50% on Polymarket: at that point, a Red Wave was already priced as base case similar to November 9<sup>th</sup> 2016 when it was clear Trump had won.</p><p><strong>Here is how the ‘’Top Trump Trades’’ look priced today:</strong></p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4baefc06-1e70-439a-ae9d-e7b77e262866_1282x726.png" target="_blank"><div class="image2-inset"><source type="image/webp" /><img alt="" class="sizing-large" height="679.5631825273011" src="https://substackcdn.com/image/fetch/w_2400,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4baefc06-1e70-439a-ae9d-e7b77e262866_1282x726.png" width="1200" /><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg class="lucide lucide-refresh-cw" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg class="lucide lucide-maximize2" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>Here are 3 observations from my side:</p><p>1) Trump Trades in the <strong>stock market are experiencing a milder rally than in 2016;</strong></p><p>2) <strong>The FX market seems unimpressed</strong> too;</p><p>3) <strong>Bitcoin has front-loaded all the 2016 gains</strong> in less than half the time.</p><p>Every time there seems to be an obvious trade we should always ask ourselves why should it be so easy.</p><p>In this case: can we safely assume there is a lot of juice left in USDMXN or stocks?Has Bitcoin already run its course?</p><p>For the Trump Trades in the stock market, <strong>one reason why we are lagging behind could be valuations.<br /></strong>The S&P500 wasn’t nearly so expensive in late 2016 from a forward P/E perspective, and therefore a long stock position here relies heavily on earnings to deliver as valuations are already high.</p><p><strong>In FX</strong>, I can explain USDJPY – the Ministry of Finance in Japan limits the upside there.<br />But why would USDMXN not trade much higher as it did in 2016?</p><p>It seems FX markets are <strong>leaning towards tariffs being used as a negotiating mechanism rather than actual sizable tariffs being imposed</strong> on several countries in the end.</p><p>I think FX markets are largely underestimating Trump 2.0 and the volatility he will bring.</p><p>But also remember that in the medium term, <strong>macro conditions >>> reaction to short-term political agendas:</strong></p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F1bc8a0e4-f85b-4d7c-8906-382ffa72d82c_1198x677.png" target="_blank"><div class="image2-inset"><source type="image/webp" /><img alt="" class="sizing-large" height="678.1302170283807" src="https://substackcdn.com/image/fetch/w_2400,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F1bc8a0e4-f85b-4d7c-8906-382ffa72d82c_1198x677.png" width="1200" /><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg class="lucide lucide-refresh-cw" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg class="lucide lucide-maximize2" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>The chart above broadens the perspective on Trump Trades and it looks at <strong>180 trading days after a Trump victory became clear in 2016 and 2024.</strong></p><p>Notice how:</p><p>- US banks and small caps almost flat-lined after the initial enthusiasm, while the S&P500 kept going</p><p>- A short 10-year bond position lost money after the initial burst</p><p>- USDMXN longs ended up losing (!) money after 180 trading days</p><p>- Bitcoin kept going vertical and the punchiest part of the rally only happened much later</p><p><strong>In 2017, global economies exhibited a miraculous concerted global growth amidst disinflation.<br />When it comes to 2025, I am not so sure that should be the base case.</strong></p><p>I think Trump 2.0 is very much focused on foreign policy, and that this time around tariffs will become an important macro theme that stays with us for a long time.<br />If I am right, Trump 2.0 might sacrifice some short-term growth in exchange for harsher tariffs to pressure foreign economies to ‘’rebalance’’.</p><p>The outcome would be an increase in short-term inflation expectation but coupled with weaker growth, and a Fed likely to ‘’look through’’ the inflationary threat from tariffs to protect the US economy.</p><p><strong>If that unfolds: most financial assets suffer, bonds do ok, the USD acts as a hedge.</strong></p><p>This was it for today, thanks for reading.<br />Feel free to share the piece with a friend or colleague:</p><p class="button-wrapper"><a class="button primary" href="https://themacrocompass.substack.com/p/trump-trades-more-room-to-run?utm_source=substack&utm_medium=email&utm_content=share&action=share"><span>Share</span></a></p><p><br />Before you go - don’t forget to take advantage of the offer.<br />It’s valid only for TODAY!</p><blockquote><p><em>The first 20</em> TMC readers who will use the <em><strong>code MACROFRIDAY</strong></em> for our Long-Term tier will get <em>40% OFF forever.<br /></em>You’ll end up paying only <em>EUR 239/year.</em><br />That’s only ~20 bucks a month to read my macro insights every single week.<br />The offer is valid only for <em>TODAY!</em></p></blockquote><p>Use the link below. Be amongst the 20 who get in:</p><p class="button-wrapper"><a class="button primary button-wrapper" href="https://buy.stripe.com/dR6bIX9K59eB9HyeUX"><span>Yes, Get Me 40% OFF!</span></a></p>