Taco FTW

0:06Pushkin. Just two days ago in this very studio, we were talking about whether Trump's designs on the island of Greenland were going to be the straw that broke the back of the global economy. system. Two days later, we're in a very different place. Having said, there was no going back. Trump has gone back on Greenland and served the world a huge Greenlandish taco. This is Unhedged, the markets and finance podcast from the Financial Times in Pushkin. I am Rob Armstrong, coming to you from Unhedged World Headquarters in New York City, where we are awaiting big weekend snowstorm. Today on the show, is the strategy for dealing with Trump as simple as strength?

1:05Joining me today is the cleverest man on Wall Street, the editor of the Lex column, John Foley. John, what do you think? Do we have the blueprint for corporate strategy in the age of Trump? Yeah, it does look that way, doesn't it? Europe was pretty unified in resisting this idea that it was going to give Greenland over. And that, in collaboration with some market moves that might have spooked the president a little bit, seemed to have done the trick. Trump meets strength. He tacos. Taco, of course, standing for Trump, always chickens out. and it's only when he is met with weakness that he follows through and you get another acronym FAFO fool around and find out is that what the f is the first f no it's not what the first f is just checking I've been thinking about this a lot because I've been trying to weigh up what the benefits and risks of sucking up to Trump or not sucking up to him are and there aren't that many people who have stood up to him in a big way at all that you can measure this against but certainly there's not any real evidence that you lose by sticking up for yourself i think like it's hard to identify specific losers from not doing what trump says i think a great example of this is jamie diamond at jp morgan right who runs the biggest bank in the world he's he's mostly towed the line on stuff that trump has said but he's also been quite outspoken when he doesn't agree with him.

2:34Recently, Trump said he was going to cap credit card fees at 10%. That's a big deal for JP Morgan, because I think six of its loans are credit cards. And that cap hasn't happened. And Jamie Dimon hasn't yet been punished for saying it would be a disaster. And by the way, Trump has today dropped a lawsuit against Chase and Jamie Dimon, saying that the bank basically closed his and his family's accounts improperly after January the 6th. And he wants$5 billion for that. But But JPMorgan stock today is up and the market seems to agree that this is not going to be a big problem for them. I will also note to you, John, and I think this is important, that JPMorgan established this.

3:15I forget what it's called, like the resilience investment, something or other. And it's some number of equity dollars of JPMorgan's investing in very Trumpy kind of things, on-shoring, defense, et cetera, et cetera. And this looks to me like a blatant sop to the president to keep him off your back. Might also be good business, though. I'm not saying it's not worth it. I'm addressing your question, which is, does this stuff pay? Yeah. And in either direction, I think the answer is no. I mean, let me give you another example. How many people are going to watch Amazon's big Melania documentary? I mean, focusing on companies now and company strategy, does corporate butt kissing work?

4:03I'm not sure it does. Amazon is a great example. Let's see what happens as a result of this Melania doc and how many people pay to see it at the cinema. Yes. I probably won't be doing that versus watch it presumably for free. Yeah. Or don't watch it at all. Depending on what. Or, and is it worth it for them even if nobody watches it? Yeah. Because they've thrown a bone to the president in the White House. And I think the answer, again, is no. If you think that, because Trump's memory seems to be short, he will say good things about an industry or a company, but then he'll sort of quickly U-turn or he'll do something that gives you the opposite result.

4:41So the oil companies have found this to their cost, right? Yeah. Some oil companies have, I don't want to say sucked up to Trump, but they certainly appeased him. Chevron is a great example of this. Chevron was the first one to start talking about the Gulf of America instead of the Gulf of Mexico. Exxon took a very different stance. They said it's uninvestable. And they made the president mad. That is an interesting contrast. Absolutely. But whose shares did better last year? It was Exxon's. And at the same time, Trump has been talking down the oil price all year. So the oil companies broadly have not done particularly well from him.

5:15Chevron was already in Venezuela. So they have the return on their incremental dollar in Venezuela is probably higher because of the stuff they already have there. I'm sure true. But it's still it's been a nightmare for Chevron because even despite the Gulf of America stuff, they then spent a lot of 2025 wondering whether their permission to drill in Venezuela was going to be canceled. because Trump kept changing his mind about whether to let them operate there. It was very amusing with Exxon. So the Exxon CEO says it's uninvestable unless there's major changes here. And then, you know, Trump in a huff said something like, well, I'm thinking of not letting them in.

5:55And it's like, they just said they don't want to be in. Right. It's like, they're like, great. Yeah, we'll be in, we'll be over here in Guyana making money, you know? Right. So these are very, it'll be interesting to listen. I think Chevron reports in the next week or so. And it will be very interesting to see their comments about Venezuela in that call they do with investors. It's also not clear that being the chosen one, if you are that, is always a good thing. So do investors want Chevron to invest more in Venezuela? I mean, having the ability to do that isn't necessarily a good thing if that capital gets wasted.

6:34I guess I would say for my part, we have now learned that you don't get that much for sucking up. And I would think that taking a principled stand on certain issues would be very good for your corporate reputation and keep you out of trouble in the long run. You know, so I think we do have a blueprint for companies now, which is polite but firm and don't bother trying to ingratiate. It doesn't work. I think that's right. Taking the focus now from companies to investors, Aaron Dubé, an economist at the University of Massachusetts, posted the following on Blue Sky. the taco cycle. Markets want to price in taco, but taco only works if Trump sees stocks tank.

7:25So we get a loop. Trump does things, then nothing happens. That emboldens him to do more until markets start to think he might not taco and then stocks fall. Taco is restored. And then he goes on to say, and I think this is might be the salient, one of the salient points here. Here's the really bad part. Over time, this dynamic breeds bigger and bigger crises. Markets keep updating their beliefs about taco. So it takes ever more extreme actions to convince them he might not taco. Buckle up. Right? So there's a kind of unstable equilibrium here back and forth between the markets and Trump. And so he's getting diminishing returns from his threats, basically.

8:10And so he ramps up. Yeah. To get the same effect. And that is a very good description of what happened in Greenland. He clearly broke into new territory. Oh, you're not listening to me? How about I invade a NATO country? Are you listening now? I don't know why we're laughing at the other country. No, it's not funny. But what can't, you know, it's a laugh or cry kind of a situation. This is great, though, for Wall Street, right? Wall Street loves volatility. Volatility equals trading revenue for the banks, the Goldman Sachs and the JP Morgans. And we've seen they're like raking in trading revenue at the moment.

8:43It's been great. But they don't love those, you know, the tail risk. They don't love things crashing. They just love things wobbling around a bit. And Trump is absolutely delivering that. He's like giving people enough of the willies that the things like eventually like dip. And then he like underwrites it and says, sorry, I'm not going to invade after all. Now, if you're a trader, do we now know what the smart buy point in this crazy, like, sine wave of a cycle? Like at what point you buy the dip? Yes. I mean, it was sometime early yesterday, this time around. But can you see that in advance?

9:19That's a great question. Right. So, like, if you're looking at LVMH, which was getting punched in the face, a European luxury company, Trump was rattling on about tariffing champagne. which is an old classic of his. What was the time to buy there? And the thing is, LVMH will, this will happen to LVMH again. Next time Emmanuel Macron stands up to Trump in some way, he's going to again threaten champagne and that is going to cause LVMH stock to drop. So you think it's playable? I suspect it is. I wouldn't play it. Yeah. But there's got to be some algorithm that someone has invented that does it for you.

9:55Okay. Here is an added wrinkle to this question of what is the right company strategy and what is the right investor strategy dealing with this crazy Trump world. I have two questions for you about Trump personally. And these are questions about loss. is Trump losing a power over time or be his mind over time? And do those mean that the risk of trying the risks for companies and investors are actually greater here? Like the first one is a bit easier to answer. I think that the second one about whether he's losing his mind, but certainly like, is he losing power? I mean, I think it's, it's become reassuringly clear that some powers that trump may have thought he had he does not have so the power of the executive order which is how he tries to make policy is limited there are some things that only really congress can do um an example again like going back to this credit card cap i mean credit card cap was supposed to have happened already a couple of days ago and it sort of hasn't really because it and now he's saying i'm going to try and get congress to rush that through that that makes more sense right he says stuff but then we're like well that doesn't really happen just because he says so.

11:16There are other things that do happen because he says so. Tariffs. Yes, but that may not be true, right? We're about to hear where we keep thinking each day is the day the Supreme Court tells us whether he has the power to levy emergency tariffs. Yes. So, yeah, let's caveat that too. He may not even be able to bring in tariffs with the stroke of a pen. So, it's kind of a sense that checks and balances, in some sense, are still that particularly for kind of economic issues, right? For like financial policy, for the stuff around the Fed. I wouldn't have actually framed that in terms of checks and balances.

11:53I would frame it in terms of being a wasting political asset, like every second term president is, and especially an older person, controversial, not terribly popular overall, though extremely popular with some people. he gets pushback from just enough congresspeople in an evenly split congress where he realizes this ain't gonna work you know what i mean he's feeling he's feeling the power he might have enjoyed in his first term slip away from him or leading to your second question which i'm not going to definitively try and yes opine on but um he just doesn't he his attention goes elsewhere Yes.

12:36So he says a thing and then says another thing and then starts thinking about something else and doesn't really remember to go back to the thing that he said last week. I mean, I will say that accusing the president of going senile is an old and august American political. I am old enough to remember the conversations in 2024 about Joe Biden slipping up on his words. And that turned out to be true. Cognitive decline. That turned out to be true. He was in cognitive decline, as we all saw in the debate. It also turned out to be true in the case of Reagan, right, who we now know from his aides. Last six months of his presidency, he was not running the country.

13:17He was coming into the office and somebody else was doing it. But there was also a lot of talk about this with George W. Bush. And there was a lot of kind of Internet chatter. Oh, something's good. He's going into early. He's having some mental problems or whatever. So there is a people seeing what they want to see problem with this stuff. But on the other hand, if you can't remember the name of the country you're suggesting you might invade, that seems to me to be, if not a red flag, pretty deep shade of orange. I would say the redder flag is the fact that the press secretary immediately tweets denying that he said what he obviously said in front of everyone.

14:04That is an excellent. So I would imagine like to your point about Reagan, the mental well-being of the president is super important. But what's more important is the people around him in every sense, either because they're running the country in his mental absence or because they are making things worse. It was telling that the press secretary of the president of the United States, faced with this fact that he had mixed up Iceland and Greenland in a speech several times, chose to outright lie about it. Yeah. She did not say. He just misspoke. Everybody makes that mistake, which, by the way, we do.

14:41Sometimes these are easy islands to confuse. For sure. Lots of ice on both. But she just said no. He referred to it as a block of ice. She just went with the bald lie, which tells you something. I agree with you. That might be a redder flag. Yeah. Okay. Let's turn to the final question for today. It was the chief executive of UBS who said this week that diversifying away from America is impossible. In other words, if all this stuff we've been discussing scares you, Tina, there is no alternative. There's no bond market deep enough. There's no stock market liquid enough. There is no economy big enough to replace America in portfolios, in how banks do business, in how global companies do business.

15:36So the idea that was also floated this week that the world can twist America's tail by sending its capital or its business elsewhere. Some people think that's just a fantasy. I'm curious what you think. Yeah. So I think it is a fantasy. And I think so. Our colleagues at FTL for them have done a good job of explaining why it's hard slash impossible. We had Toby on the show earlier. The Treasury is great on this topic. So we've sort of dealt with that. I think there are some signs. So at Lex, we've been looking at signs that people might be diversifying away from America. And one thing that people are pointed to is the strong performance this year of emerging markets.

16:13Emerging markets are doing quite well. We seem to be getting quite generous inflows into emerging market funds. And that might be a sign that people are moving away from America. Actually, I would argue it's kind of the opposite. It's a sign that emerging markets will do well when America does well. Howard Lutnick, the Commerce Secretary, said in an op-ed that he wrote for the FT, actually, he said, you know, that when America shines brightly, the rest of the world shines too. And it might always be comfortable to think in that way, because we don't want the kind of bullying tactics that we've talked about to be successful.

16:40But it does, I think it's true that like when the US is doing well, those emerging markets that are producing AI related hardware, for example, in Korea's case, are going to do really well. So what looks like diversification might almost be sort of doubling down on the US and saying the US is going to be okay, the economy is going to be okay. I guess my closing thought on this would be you might have to suffer some pain to get America back on track. Right. In other words, there has to be there might have to be some shock therapy here applied by America's friends. I think that's true. And it also might not be great for Americans.

17:16Look at the stocks that are underperforming. It's like consumer goods. It's the stuff that it's like real folks in America stuff. Whereas what's doing really well is tech is, you know, finance. So it's going to be a K-shaped, to use that old sort of cliche, it's all going to be very K-shaped globally, not just in the US. We'll be right back with Long and Short.

17:52Welcome back, listeners, to Long and Short, the part of the show where we short things we don't like and we go long things we do like. John, what's your long or short today? My short today, Rob, is Grönlandsbanken, which is the listed Greenland. You're sure I had all my money in Grönlandsbanken? Shares have been up like 50 % in the last couple of months. It's trading at 1.5 times book, I think, which is more than Barclays. But I think it's the end of that rally. Who do they lend money to? It's not clear. I should have done my homework more, shouldn't I? John, I'm going to be long in an ugly and difficult world.

18:32one of the most beautiful things there is, which is New York City in the snow, I will hold out that there is nothing better than walking down a New York City street with the snow gently falling. With that wannabe poetic statement, we will be back in your feed next Tuesday. Until then, stay sharp out there. Unhedged is produced by Jake Harper and edited by Brian Erstat. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhez. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn, and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free.

19:19A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Rob Armstrong. Thanks for listening.

19:37We'll be right back.