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Breslow: Beware How You Trade The Cohn Exit

Courtesy of ZeroHedge. View original post here.

Amid the cacophony of very strong opinions issued this morning  in response to Cohn’s departure- which included virtually every single Wall Street analyst, trader and strategist – one belonged to Bloomberg macro commentator Marc Cudmore who, while looking at the relatively modest drop in overnight futures which managed to recoup much of their losses, warned that “Cohn’s resignation is worse than market’s think.

Then, in an amusing twist, none other than Richard Breslow, another Bloomberg commentator, issued his own take on the Cohn departure, one which appeared to target, without explicitly naming, the “hot take” by Cudmore (published earlier), and which warns traders to “beware of thinking” they know what Cohn’s exit means.

His argument is simple: one man’s meat, or in this case trade war, is another man’s poison, and as such a blanket, uniform condemnation of the Cohn news should treated with case, because as he responds to his rhetorical question, “should equities care?”, he says: 

Yes, but there are legitimate cases to be made that it’s bullish as well as bearish. And I’m not just talking about individual companies or sectors that win or lose. Stocks were off and running well before Cohn was hired and I doubt there will suddenly be a push to toughen banking regulations just because Wall Street lost their best friend in the White House

Maybe bonds, traditionally the “more intelligent” asset class hold the answer? Don’t hold your breath.

As far as bonds are concerned, do you think currency intervention will lead to reserve managers buying? Or do you think fiscal stimulus means the dots need to go up and supply will scare investors away? Like it’s often argued, identifying just what a safe haven is any more is a tough question. And consider whether or not the recently hawkish-sounding Governor Lael Brainard was stating the obvious or supporting new messaging desired by Chairman Powell.

So what “tell” will Breslow be following?

This is going to sound odd, but, for today, I plan on watching what emerging market currencies do. If the world is as clearly upset as they purport to be, we should see real pressure here. Yet they seem to be trading calmly with a small initial bid. Why that’s the case may be the best question to begin with.

Not only they, but looking at most other asset classes, one can make a case that we actually close green…

His full note below:

Beware of Thinking You Know What Cohn Exit Means

This is a toughie. As the relocation van is summoned once again in Washington D.C., it’s best to remember just how many moving parts there are in the markets right now. Whether you are of the belief that the resignation of Gary Cohn is a really bad thing or a neutral thing in the grand scheme of the country, how individual assets react won’t be at all clear. There are a lot of disparate global constituencies buying and selling. And what looks to one investor as a clear-cut sell on the facts can look to another like a suddenly more attractive entry point.

It’s often remarked upon that even if you knew certain numbers in advance you wouldn’t necessarily be assured of making money on their release. Similar caution should be exercised here. How this plays out remains to be seen. Just yesterday morning we were being assured that the adult in the room was working to sort everything out.

Is this going to be good or bad for the dollar? There is no single answer to that, because in this situation it’s the wrong question to ask, at least in the short run. We got dollar news with different effects on each counterpart. It’s hard to argue with the knee-jerk reaction of buying yen and selling Mexican pesos. But it also can’t be ignored that there are several central bank meetings coming up which could bring counter-reactions with potentially longer lasting consequences.

You have to be a motivated buyer ahead of ECB President Draghi’s press conference on Thursday to want euros so close to impressive resistance. Doing so afterward might or might not be another thing altogether. And let’s not forget the fact that this market has a remarkably short attention span. Just wait for the Sunday talk shows and wouldn’t it just be predictable to hear someone say he might not have made the cut anyway?

Should equities care? Yes, but there are legitimate cases to be made that it’s bullish as well as bearish. And I’m not just talking about individual companies or sectors that win or lose. Stocks were off and running well before Cohn was hired and I doubt there will suddenly be a push to toughen banking regulations just because Wall Street lost their best friend in the White House.

As far as bonds are concerned, do you think currency intervention will lead to reserve managers buying? Or do you think fiscal stimulus means the dots need to go up and supply will scare investors away? Like it’s often argued, identifying just what a safe haven is any more is a tough question. And consider whether or not the recently hawkish-sounding Governor Lael Brainard was stating the obvious or supporting new messaging desired by Chairman Powell.

This is going to sound odd, but, for today, I plan on watching what emerging market currencies do. If the world is as clearly upset as they purport to be, we should see real pressure here. Yet they seem to be trading calmly with a small initial bid. Why that’s the case may be the best question to begin with.


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