by Bill O’Grady, Kaisa Stucke, and Thomas Wash

[Posted: 9:30 AM EST] Happy Inauguration Day!

As President Obama exits the White House and President Trump takes control, the new administration will begin to settle in.  One of the characteristics of any new president and his team is that nearly all the members of the incoming administration are going to face a level of scrutiny they have never experienced before.  There is probably nothing one can do to fully prepare for the experience.  In their former lives, they have usually been accomplished leaders who have developed their own opinions and beliefs.  In most circumstances they can offer their thoughts freely because, for the most part, their opinions don’t change policy.  However, once in a senior advisory or cabinet position, their opinions take on importance.  In watching these transitions over the years (the fifth in my professional life), it is fairly common to hear direct statements that create a media frenzy.  A good example of this was when Paul O’Neil, the first treasury secretary serving G.W. Bush, said 27 days into his term that the U.S. really didn’t always follow a strong dollar policy.  In his previous role as head of Alcoa (AA, 35.42), such statements were unremarkable.  As treasury secretary, they matter a lot.

Thus, investors should be mindful that it takes about six months on the job for an official to recognize the gravity of their role.  After this time period, market-moving comments become less frequent.  In fact, their goal is to reach the level of obfuscation often attributed to Alan Greenspan who reportedly said, “I know you think you understand what you thought I said, but I’m not sure you realize that what you heard is not what I meant.”  So, between now and summer, one should be prepared for seemingly aggressive statements that may move markets but may not reflect policy.

China’s GDP came in on expectations which is no surprise because the number is regularly massaged to meet or slightly exceed target.  We do note that outflows from China appear to have slowed in December but we suspect this is temporary.  The government has been progressively tightening regulations on outflows which have had some impact.  However, history does suggest that Chinese investors eventually figure out ways to evade regulations which will lead to higher outflows later this year.

As a reminder, the Chinese New Year begins on Jan. 28, with the official holiday running from Jan. 27 to Feb. 2.  China effectively closes during this period.  In the Chinese Zodiac, it is the Year of the Rooster.

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