Sore Winner Donald Trump Sorely Lacks Political Savvy

*     The market is materially underpricing risk; the upside/downside is now as unattractive as I have seen in years.

*     As I have expected, the wheels of the new administration may be coming off; certainly, the passage of his policy initiatives are growing less likely.

*     Dysfunction and chaos may be the order of the new administration; Donald Trump appears to be the first sore winner of the presidency, ever.

*     In all likelihood, President Trump will become more brash and, in time, even a part-time president, making market uncertainty and volatility great again.

Surprise #4: "The Unartful Deal" -- President Trump's Popularity Quickly Fades as "The Dude (Doesn't ) Abide." A series of authoritarian executive orders reversing the Obama legacy (affordable care, environmental regulations, birth control, easing of gun control restrictions and immigration among them) results in a coalition of Black Lives Matters activists and college students who launch an extended and boisterous national protest in major cities around the country. Trump imposes curfews but the demonstrations become more violent.

Thanks to a lack of policy depth and an ability and patience to understand and execute complex and cohesive policy, a murky strategic vision and an inability to work with the Senate and House, Trump and his foreign policies of protectionism and suspension of support for NATO upset the world order and create a global crisis. His national civil policies contribute to domestic instability. These policies hurt and dominate the financial markets for the entire year.

By some token, Trump turns out to be more like a Democrat than a Republican and governs like one. While his goal of a massive infrastructure bill is achieved by reaching across party lines to make a budget-busting deal with Democrats (it nonetheless takes time and is slow to be implemented), his Obamacare replacement is all carrots and no sticks and a budget buster. Mainstream Republicans squawk against more spending and deficits as their demands for revenue neutrality are ignored by the president.

Combining proposed fiscal initiatives with promised spending on veterans and the military and individual and corporate tax cuts, the 2018 projected deficit runs to 9% of GDP at the peak of the cycle.

Slowly and over the course of the year, the right wing of the Republican Party begins to abandon Trump (there is no wall to be built and the jobs market fails to improve as the payoff for infrastructure is delayed well down the road). Moreover, lower corporate tax rates end up feathering the bed of executives as they predominantly are used in corporate stock repurchases, for merger and takeover activity and for dividend increases, trickling up and not trickling down.

The Average Joe who sought the help of a Trump presidency begins to feel abandoned. More and more, Trump is seen as an elitist and not representative of our society by the very citizens who voted him into office.

The ensuing debate and reduced popularity of the administration leads to little movement toward the revision of Dodd-Frank as Trump is fighting wars on numerous fronts.

In time, the Alt Right adopts a new chant -- "Lock him up" -- borrowing from the Hillary Clinton "Lock her up" chants. In reaction, Trump throws a few hail Marys toward the end zone to the Republican right by nominating Ted Cruz for the Supreme Court and by provoking Iran in an attempt to show his might.

The Republican establishment (Paul Ryan et al) also grows more hostile, causing a deep rift between the Republican Party and the presidency.

Trump's cabinet of independent billionaires and generals begins to behave increasingly impatient with policy and their roles and become less cohesive and supportive participants of the administration. The first official departure is Secretary of Commerce Wilbur Ross, who resigns near year-end (citing "health problems"). Several others follow and return to the private sector in early 2018.

WikiLeaks moves its target from Hillary Clinton to Donald Trump and exposes his relationships with governments unfriendly to America and highlights his unethical and immoral (business and personal) behavior from the past. WikiLeaks and investigative reporters from The Washington Post and New York TImes also reveal embarrassing information about certain members of the president's Cabinet.

"An old tiger sensing the end are their most fierce and go down fighting."

--Sean Connery (as Allan Quatermain) in "The League of Extraordinary Gentlemen"

Though hostile to the mainstream of the Republican Party, protectionism and trade barriers are about the only thing that Trump can offer his core supporters in Industrial America who have fallen on bad times. He does not disappoint them. Meanwhile, European leaders, taking Trump's role, eliminate free trade agreements and close borders to immigrants. Marine Le Pen, the new French president, proposes leaving the European Union. Germany's Angela Merkel loses popularity and her election (see Also Ran #4).

After labeling China a "currency manipulator," Trump imposes outrageous tariffs on Chinese exports. In response, China devalues the yuan dramatically, blocks iPhone sales and cancels Boeing (BA) and Lockheed Martin (LMT) orders. China enters a recession and world trade stalls, accelerating a domestic economic downturn.

The president pulls out of NAFTA and cancels U.S. membership in the United Nations and NATO.

It is not "Morning in America." Rather, Donald Trump makes uncertainty and volatility great again.

Stocks exhibit a volatility and randomness in price action rarely ever seen -- 1% daily moves become common place.

The S&P Index has a high of 2375 (up 5%) for the year (Friday's close was 2264) and a low of 1815 (down 20%), closing the year closer to the low end of the annual price range (down 15%).

--Kass Diary, 15 Surprises for 2017  

In Wednesday's opener, I made the case that the president and the market now face their most serious test.

I believe the odds are that the test will be failed, and soon.

Specifically, my fourth Surprise for 2017 appears to be right on cue. 

I had expected a vigorous January rally in global equities of about 5%. The S&P Index almost has approached the early-year high of 2375 that I predicted in Surprises. (Note: Yesterday morning the S&P Index hit 2345)
The president is attempting to push back much of the Obama initiatives.

The administration is showing signs of disorganization, in policy and in personnel appointments. If the idea of yesterday's press conference was to convince otherwise, it backfired as The Dudeis not abiding.
The administration's credibility is being undercut by consistent lying by the president, Stephen Miller, Kellyanne Conway and the recently deposed Michael Lynch.