The 'Orange Swan' Returns, and the Markets Are Spooked

* Risk happens fast -- Trump's NATO comments and wrong-footed trade policy whack futures overnight
* Hastily crafted policy that conflates politics is dangerous in a flat and networked world 
* The return of an untethered Orange Swan is market-unfriendly ... brace yourselves 
* The Supreme Tweeter will likely "Make Economic Uncertainty and Market Volatility Great Again" (#MUVGA)
* This week I turned back net short

"Germany is a captive of Russia... It's very inappropriate."
-- President Donald J. Trump (at a meeting with NATO Secretary General Jens Stoltenberg) 

"We should beware of the demagogues who are willing to declare a trade war against our friends, weakening our economy, our national security and the entire free world, all while cynically waving the American flag."
--Ronald Reagan

What a bizarre and Orwellian way to start a NATO summit. 

Rather than talking about mutual gains, the president continues a common theme that has been intensifying of late -- he conflates policy with politics. 

Like the guy at the end of the bar who has had too many drinks, Trump continues to undermine and dismantle the relationships with our allies, and he continues to misrepresent the facts or he simply has no historical context for our relationships.

In undermining America's most-vital alliance, NATO, I would describe Trump's conduct as diplomatic malpractice.

An administration and president who is against the free flow of people and the free flow trade is making economic uncertainty and market volatility great again. #MUVGA!

To make matters worse, the administration has threatened another $200 billion of additional trade tariffs against China.

At worst, the ignorance of White House policy has the potential of tearing down our $20 trillion economy, and at best it will be adversely impacted -- for, at some point, business and consumer confidence will be a secondary impact of his policy, inflammatory rantings and tweets.

Certainly the new regime of volatility in 2018 is a by-product of The Orange Swan, President Trump.

Bottom line

"Watching President Trump's diplomatic maneuvers - in Singapore last month and during the run-up to his meetings over the next week in Brussels and Helsinki - I wonder whether analysts have been making a mistake explaining his bargaining style in terms of the brash young personality described in his 1987 memoir, "The Art of the Deal."

The Trump we're watching is a much needier person than the youthful tycoon who vaulted to the top of the world. The current version of Trump sees himself as chief executive not of a thriving enterprise but of one that has nearly been run into the ground by his predecessors. Rather than warmly embracing longtime partners in Europe, he resents them and their success. He picks needless fights and tries to humiliate people he feels have slighted him.

This scarred, prickly Trump is looking for new friends and investors. It's almost as if he is ready to fold what he sees as a losing hand and draw a fresh set of cards - ones in this case bearing the faces of North Korea's Kim Jong Un, China's Xi Jinping and Russia's Vladimir Putin."

--David Ignatius, The Washington Post, "Trump's Neediness Is at the Core of His Diplomacy" 

Regardless of one's political views, we are at a critical moment in our financial, social and economic history. 

The markets and perhaps the real domestic economy no longer may be dulled by the policy, inflammatory behavior and incomprehensible rantings of an arguably untethered president who seems to be further retreating toward isolationism and an American Firstpolicy. 

Though the administration may not care or possess a historical context about the manner in which policy seeps into the real economy, the markets do recognize that history rhymes. 

Two days ago I moved to a net short exposure based on a sharp climb in the S&P back to the top end of my projected trading range and my calculus that, on three measures, downside risk dwarfed upside reward by more than 10 to 1. 

Yesterday I expanded my short exposure by adding to my SPDR S&P 500 (SPY) short, selling my Alphabet (GOOGL) trading long, buying ProShares UltraShort S&P 500 (SDS)and establishing trading shorts in Apple (AAPL) and Facebook (FB) . 

We remain in a trading and not eating-sardine market in a new regime of heightened volatility.