Consider various unknown but not uncertain events: Toss of a coin, roll of a dice, flip of a card from a deck -- all of these are unknown outcomes within a very defined data set. Because of that, mathematicians can quantify the probabilities of these outcomes; we know what the distribution looks like. From that, gamblers can derive estimates of risk.
However, once we venture into the realm of wholly unknown possible outcomes -- e.g., building a border fence, imposing a huge tax on imports, shutting down immigration -- calculating risk becomes difficult to impossible.
Which brings us back to the period since the markets began to stall after the election: My thesis is that Trump has re-introduced true uncertainty into the equation. Many market participants are coming to realize they have no idea what is going to happen next.
Our collective wishful thinking assumed he would pivot to the middle, to being presidential, to predictable professionalism. None of that has happened, and markets have been somewhat put off by the president’s erratic, even bizarre, behavior. The sort of stability that is good for business has been notably absent.
Consider what we had instead: a series of presidential actions that have led to all sorts of unexpected actions with unpredictable outcomes:
• A divisive and the dark inaugural address with an insistence that “America first” -- whatever that means -- would serve as a guiding policy.
• The usual rule-making and oversight procedures that constrain our administrative state are being ignored.
• Havoc at U.S. airports after an executive order (now put on hold by the courts) that barred permanent foreign residents from re-entering the country -- not to mention temporarily barring entry from seven majority-Muslim nations.
• Lending misguided support to plans to attack the Federal Reserve’s independence.
• Behavior that has unsettled world leaders -- adversaries and allies alike.