Latest news with #TACOtrade
Forbes
5 days ago
- Business
- Forbes
If Trump Fires Powell, You'll Want Own This 8.4% Dividend
WASHINGTON, DC - NOVEMBER 02: (L to R) U.S. President Donald Trump looks on as his nominee for the ... More chairman of the Federal Reserve Jerome Powell takes to the podium during a press event in the Rose Garden at the White House, November 2, 2017 in Washington, DC. Current Federal Reserve chair Janet Yellen's term expires in February. (Photo by) Fire Powell? Keep him around? The question never seems to go away—and the markets, fueled by the so-called 'TACO' trade ('Trump always chickens out,' as the acronym goes), are shrugging it all off. But what if Trump calls Wall Street's bluff? Luckily, there are not one but three ways for us to hedge ourselves from the 'TACO trade' going cold. Below, we'll look at all three and I'll name my favorite of this trio. Plus we'll grab ourselves tidy dividends of 7%+, too. Fire Powell? He's Been On His Way Out (or Not!) for Months If you're experiencing déjà vu, it's because this same story happened back in April, and it sent stocks plunging back then. This latest time, however, it's had little impact at all. But why would stocks sell off based on Powell's firing in the first place? It's because of the Federal Reserve's independence. Its operation of the country's banking and financial system without intervention from the executive branch has been a mainstay since the central bank's creation a century ago. And Wall Street wants things to stay that way. So, can we march forward into the future without worrying that Powell will be replaced and a new Fed chair will be inserted who bows to political pressure? This, after all, could increase the odds that interest rates will be cut too much—as low rates are popular—potentially goosing inflation in the process. In the long term, yes—the chances of a 'new normal,' where the Fed just does what the president says, are basically zero. But in the short term, a selloff driven by this risk is a distinct possibility. That's because, over the last few weeks, markets have become increasingly complacent, and stocks have gone from volatile to solidly positive. As I write this, the S&P 500 is up 7.8% for 2025, which is about where it should be, in my view. And I expect it to end 2025 higher still. But the VIX, the market's 'fear gauge,' soared in April, slowly fell back down, and is now a bit lower than where it started the year. In other words, the markets are now saying that stocks are less risky than they were at the start of 2025—even after all the talk about tariffs firing Powell, neither of which have fully gone away. Why? Because now the markets are banking on the TACO trade: If Trump keeps 'chickening out,' as the acronym goes, he can be easily ignored. However, this is, paradoxically, a risk. Whatever your politics, it's undeniable that Trump follows the equity markets and responds to them. Stocks recovered only after Trump backed off on the tariffs in April, which he did only after stocks fell. Stock market performance clearly matters a lot to Trump. As a result, we're in a weird situation where a continued stock rally could encourage Trump to reverse moves that caused the market to tumble in the past. That would likely cause another drop, which could then prompt Trump to reverse course. As of now, stocks are simply jumping to the last step, rising on the assumption Trump will always back off. Which, ironically, gives him exactly the room he needs to do things that will cause stocks to fall, like firing Powell, for example. It's all a bit exhausting! But this is where those funds I mentioned earlier come in. How We're Hedging Against Volatility for an 8.4% Dividend (at 11% Off) Right now, volatility itself is low, and that means any kind of 'insurance' on the market hitting another storm is cheaper than normal. The 'insurance' I want to tell you about today comes in the form of closed-end funds (CEFs) that buy or sell options on the stocks they hold. Under this strategy, these funds charge a fee, called a 'premium,' to option traders for the right to buy the stocks in their portfolios at a fixed date and price in the future. They then use the premiums they collect to fund their dividends, which, as we'll see shortly, are well north of 7%. This strategy works best in volatile markets—which means today's lower volatility has put many of our favorite covered-call funds on sale. The three 'go-to' covered-call CEFs out there are the Nuveen Dow 30 Dynamic Overwrite Fund (DIAX), which, as the name says, holds the stocks in the Dow Jones Industrial Average; the S&P 500–focused Nuveen S&P 500 Dynamic Overwrite Fund (SPXX); and the Nuveen NASDAQ 100 Dynamic Overwrite Fund (QQQX). Between them, they provide broad exposure to the biggest companies in America, like Visa (V), (AMZN) and NVIDIA (NVDA). In other words, many of the same names you'd get if you bought an index fund. But with this trio, we're getting much higher yields than any index fund pays. And second, unlike ETFs, CEFs (including these three) can trade at a 'discount to NAV,' or net asset value. That's another way of saying we can buy shares of their portfolios for less than they're actually worth. Covered Call CEFs QQQX tends to be my favorite of these because it often yields the most and has the highest discount. But right now, it yields essentially the same as DIAX, while DIAX offers a much wider discount. That makes DIAX the best buy of the lot today. SPXX, with its 7.5% yield, isn't generous enough with its dividend, and its discount of 1.3% is almost nonexistent. So if you want to stay in stocks (or stock-focused funds—which we do!) and hedge for future volatility, DIAX is the way to go. Consider also this chart. DIAX Lags On a NAV basis (or going by the performance of its underlying portfolio), DIAX (in purple above) was pretty closely matching its underlying Dow Jones Industrial Average index (in orange) until late April, when a sudden drop in volatility caused DIAX's portfolio to underperform, and its underperformance has widened since. That's an opportunity for a contrarian pickup, especially given the fund's unusually large discount. DIAX Discount to NAV Back in 2022, when volatility was peaking, DIAX saw a flurry of demand. But as stocks have recovered, more money has flowed to alternatives, setting this fund's discount roughly between 11% and 13%, where it's been for over a year now. That's unusual for DIAX, whose average discount has been 6.7% over the last decade. That makes DIAX a timely contrarian play on a rise in volatility, since its covered-call strategy makes it rise as markets get more skittish—and investors look for more 'insurance' from the next big plunge. Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 10% Dividends.' Disclosure: none
Yahoo
09-07-2025
- Business
- Yahoo
Wall Street's Trump TACO trade has a chicken and an egg problem
Tariff Man is back again — and so is Wall Street's TACO trade. President Donald Trump is once more threatening to lob massive duties on a wide swath of US imports, everything from copper and pharmaceuticals to goods from Japan and Russia. Yet Wall Street is barely flinching, with some investors betting Trump will repeat his tendency to back down from his most extreme threats. The muted response is just the latest instance of what's known as the TACO trade, short for Trump Always Chickens Out. 'He steers us toward disaster and then — at the last minute — steers us away from disaster and says, 'Look, I saved us,'' Michael Block, market strategist at Third Seven Capital, told CNN in a phone interview on Tuesday. That's what happened in early April. Trump announced sky-high 'Liberation Day' tariffs that alarmed investors, convincing many that a recession was imminent. The market freakout — both in stocks and bonds — was so intense that it convinced Trump to back down. He abruptly froze those 'reciprocal' tariffs for 90 days, setting off an epic market recovery that continues today. Flash forward to this week's 'Liberation Day' sequel. US stocks retreated on Monday after Trump sent letters to Japan, South Korea and a dozen other nations dictating tariffs to take effect on August 1. But the selling wasn't dramatic. It was a modest (and arguably overdue) pullback from all-time highs. Markets barely budged at all on Tuesday as Trump vowed to put a 50% tariff on copper, floated a tariff of up to 200% on pharmaceuticals and promised a 10% tariff on Brazil, China, India, Russia and other members of the BRICS economic club. 'At the end of the day, no one really anticipates most of these tariffs will go into effect. The TACO trade is still the market's expectations,' said Ed Mills, Washington policy analyst at Raymond James. Yet there could be a flaw in Wall Street's TACO trade logic. If investors widely bet that Trump will blink, that means there is no market freakout. And no market freakout in turn means no one is holding Trump's feet to the fire, pressuring him to back away from policies that could damage the economy and corporate profits. 'It's a dangerous game when you need a market reaction to get a policy change,' Mills said. It's the market version of a chicken and egg problem. Bob Elliott, CEO of alternative investment firm Unlimited, noted on X that TACO is 'consensus and already fully priced in at these levels.' 'Trouble is, without the pain of falling markets, he won't chicken out,' said Elliott, a former executive at hedge fund giant Bridgewater Associates. The paradox is complicated even further by the fact that Trump himself is aware of the TACO trade. When first asked about TACO, in late May, Trump recoiled and described it as the 'nastiest question' and told the reporter not to 'ever say what you said.' 'I chicken out? Oh, I've never heard that,' Trump said at the time. Then after investors seemed unfazed by the Monday tariff letters, Trump posted a message insisting he won't chicken out this time. 'TARIFFS WILL START BEING PAID ON AUGUST 1, 2025,' Trump wrote on Truth Social. 'No extensions will be granted.' But investors aren't buying it. No extensions — 'until further notice,' Ed Yardeni, president of Yardeni Research, said to CNN. Yardeni said there is 'far less panic' in markets today than in early April because investors are betting Trump doesn't want to sink the US economy and hurt his own political standing. 'The market figures this is the art of the deal. While there is a lot of bluster here, this is the way Trump negotiates,' Yardeni said. 'Trump is going to have to put this issue behind him by the end of the summer or early fall because he's risking causing a recession that would diminish the odds that Republicans hold onto their thin majorities in the Senate and the House.' Of course, there is a risk that without an outcry from Wall Street, and emboldened by mostly upbeat economic numbers, Trump goes forward with the same tariffs investors are betting against. Sign in to access your portfolio
CNN
09-07-2025
- Business
- CNN
Wall Street's Trump TACO trade has a chicken and an egg problem
Tariff Man is back again — and so is Wall Street's TACO trade. President Donald Trump is once more threatening to lob massive duties on a wide swath of US imports, everything from copper and pharmaceuticals to goods from Japan and Russia. Yet Wall Street is barely flinching, with some investors betting Trump will repeat his tendency to back down from his most extreme threats. The muted response is just the latest instance of what's known as the TACO trade, short for Trump Always Chickens Out. 'He steers us toward disaster and then — at the last minute — steers us away from disaster and says, 'Look, I saved us,'' Michael Block, market strategist at Third Seven Capital, told CNN in a phone interview on Tuesday. That's what happened in early April. Trump announced sky-high 'Liberation Day' tariffs that alarmed investors, convincing many that a recession was imminent. The market freakout — both in stocks and bonds — was so intense that it convinced Trump to back down. He abruptly froze those 'reciprocal' tariffs for 90 days, setting off an epic market recovery that continues today. Flash forward to this week's 'Liberation Day' sequel. US stocks retreated on Monday after Trump sent letters to Japan, South Korea and a dozen other nations dictating tariffs to take effect on August 1. But the selling wasn't dramatic. It was a modest (and arguably overdue) pullback from all-time highs. Markets barely budged at all on Tuesday as Trump vowed to put a 50% tariff on copper, floated a tariff of up to 200% on pharmaceuticals and promised a 10% tariff on Brazil, China, India, Russia and other members of the BRICS economic club. 'At the end of the day, no one really anticipates most of these tariffs will go into effect. The TACO trade is still the market's expectations,' said Ed Mills, Washington policy analyst at Raymond James. Yet there could be a flaw in Wall Street's TACO trade logic. If investors widely bet that Trump will blink, that means there is no market freakout. And no market freakout in turn means no one is holding Trump's feet to the fire, pressuring him to back away from policies that could damage the economy and corporate profits. 'It's a dangerous game when you need a market reaction to get a policy change,' Mills said. It's the market version of a chicken and egg problem. Bob Elliott, CEO of alternative investment firm Unlimited, noted on X that TACO is 'consensus and already fully priced in at these levels.' 'Trouble is, without the pain of falling markets, he won't chicken out,' said Elliott, a former executive at hedge fund giant Bridgewater Associates. The paradox is complicated even further by the fact that Trump himself is aware of the TACO trade. When first asked about TACO, in late May, Trump recoiled and described it as the 'nastiest question' and told the reporter not to 'ever say what you said.' 'I chicken out? Oh, I've never heard that,' Trump said at the time. Then after investors seemed unfazed by the Monday tariff letters, Trump posted a message insisting he won't chicken out this time. 'TARIFFS WILL START BEING PAID ON AUGUST 1, 2025,' Trump wrote on Truth Social. 'No extensions will be granted.' But investors aren't buying it. No extensions — 'until further notice,' Ed Yardeni, president of Yardeni Research, said to CNN. Yardeni said there is 'far less panic' in markets today than in early April because investors are betting Trump doesn't want to sink the US economy and hurt his own political standing. 'The market figures this is the art of the deal. While there is a lot of bluster here, this is the way Trump negotiates,' Yardeni said. 'Trump is going to have to put this issue behind him by the end of the summer or early fall because he's risking causing a recession that would diminish the odds that Republicans hold onto their thin majorities in the Senate and the House.' Of course, there is a risk that without an outcry from Wall Street, and emboldened by mostly upbeat economic numbers, Trump goes forward with the same tariffs investors are betting against.
CNN
09-07-2025
- Business
- CNN
Wall Street's Trump TACO trade has a chicken and an egg problem
Tariff Man is back again — and so is Wall Street's TACO trade. President Donald Trump is once more threatening to lob massive duties on a wide swath of US imports, everything from copper and pharmaceuticals to goods from Japan and Russia. Yet Wall Street is barely flinching, with some investors betting Trump will repeat his tendency to back down from his most extreme threats. The muted response is just the latest instance of what's known as the TACO trade, short for Trump Always Chickens Out. 'He steers us toward disaster and then — at the last minute — steers us away from disaster and says, 'Look, I saved us,'' Michael Block, market strategist at Third Seven Capital, told CNN in a phone interview on Tuesday. That's what happened in early April. Trump announced sky-high 'Liberation Day' tariffs that alarmed investors, convincing many that a recession was imminent. The market freakout — both in stocks and bonds — was so intense that it convinced Trump to back down. He abruptly froze those 'reciprocal' tariffs for 90 days, setting off an epic market recovery that continues today. Flash forward to this week's 'Liberation Day' sequel. US stocks retreated on Monday after Trump sent letters to Japan, South Korea and a dozen other nations dictating tariffs to take effect on August 1. But the selling wasn't dramatic. It was a modest (and arguably overdue) pullback from all-time highs. Markets barely budged at all on Tuesday as Trump vowed to put a 50% tariff on copper, floated a tariff of up to 200% on pharmaceuticals and promised a 10% tariff on Brazil, China, India, Russia and other members of the BRICS economic club. 'At the end of the day, no one really anticipates most of these tariffs will go into effect. The TACO trade is still the market's expectations,' said Ed Mills, Washington policy analyst at Raymond James. Yet there could be a flaw in Wall Street's TACO trade logic. If investors widely bet that Trump will blink, that means there is no market freakout. And no market freakout in turn means no one is holding Trump's feet to the fire, pressuring him to back away from policies that could damage the economy and corporate profits. 'It's a dangerous game when you need a market reaction to get a policy change,' Mills said. It's the market version of a chicken and egg problem. Bob Elliott, CEO of alternative investment firm Unlimited, noted on X that TACO is 'consensus and already fully priced in at these levels.' 'Trouble is, without the pain of falling markets, he won't chicken out,' said Elliott, a former executive at hedge fund giant Bridgewater Associates. The paradox is complicated even further by the fact that Trump himself is aware of the TACO trade. When first asked about TACO, in late May, Trump recoiled and described it as the 'nastiest question' and told the reporter not to 'ever say what you said.' 'I chicken out? Oh, I've never heard that,' Trump said at the time. Then after investors seemed unfazed by the Monday tariff letters, Trump posted a message insisting he won't chicken out this time. 'TARIFFS WILL START BEING PAID ON AUGUST 1, 2025,' Trump wrote on Truth Social. 'No extensions will be granted.' But investors aren't buying it. No extensions — 'until further notice,' Ed Yardeni, president of Yardeni Research, said to CNN. Yardeni said there is 'far less panic' in markets today than in early April because investors are betting Trump doesn't want to sink the US economy and hurt his own political standing. 'The market figures this is the art of the deal. While there is a lot of bluster here, this is the way Trump negotiates,' Yardeni said. 'Trump is going to have to put this issue behind him by the end of the summer or early fall because he's risking causing a recession that would diminish the odds that Republicans hold onto their thin majorities in the Senate and the House.' Of course, there is a risk that without an outcry from Wall Street, and emboldened by mostly upbeat economic numbers, Trump goes forward with the same tariffs investors are betting against.
CNN
09-07-2025
- Business
- CNN
Wall Street's Trump TACO trade has a chicken and an egg problem
Tariff Man is back again — and so is Wall Street's TACO trade. President Donald Trump is once more threatening to lob massive duties on a wide swath of US imports, everything from copper and pharmaceuticals to goods from Japan and Russia. Yet Wall Street is barely flinching, with some investors betting Trump will repeat his tendency to back down from his most extreme threats. The muted response is just the latest instance of what's known as the TACO trade, short for Trump Always Chickens Out. 'He steers us toward disaster and then — at the last minute — steers us away from disaster and says, 'Look, I saved us,'' Michael Block, market strategist at Third Seven Capital, told CNN in a phone interview on Tuesday. That's what happened in early April. Trump announced sky-high 'Liberation Day' tariffs that alarmed investors, convincing many that a recession was imminent. The market freakout — both in stocks and bonds — was so intense that it convinced Trump to back down. He abruptly froze those 'reciprocal' tariffs for 90 days, setting off an epic market recovery that continues today. Flash forward to this week's 'Liberation Day' sequel. US stocks retreated on Monday after Trump sent letters to Japan, South Korea and a dozen other nations dictating tariffs to take effect on August 1. But the selling wasn't dramatic. It was a modest (and arguably overdue) pullback from all-time highs. Markets barely budged at all on Tuesday as Trump vowed to put a 50% tariff on copper, floated a tariff of up to 200% on pharmaceuticals and promised a 10% tariff on Brazil, China, India, Russia and other members of the BRICS economic club. 'At the end of the day, no one really anticipates most of these tariffs will go into effect. The TACO trade is still the market's expectations,' said Ed Mills, Washington policy analyst at Raymond James. Yet there could be a flaw in Wall Street's TACO trade logic. If investors widely bet that Trump will blink, that means there is no market freakout. And no market freakout in turn means no one is holding Trump's feet to the fire, pressuring him to back away from policies that could damage the economy and corporate profits. 'It's a dangerous game when you need a market reaction to get a policy change,' Mills said. It's the market version of a chicken and egg problem. Bob Elliott, CEO of alternative investment firm Unlimited, noted on X that TACO is 'consensus and already fully priced in at these levels.' 'Trouble is, without the pain of falling markets, he won't chicken out,' said Elliott, a former executive at hedge fund giant Bridgewater Associates. The paradox is complicated even further by the fact that Trump himself is aware of the TACO trade. When first asked about TACO, in late May, Trump recoiled and described it as the 'nastiest question' and told the reporter not to 'ever say what you said.' 'I chicken out? Oh, I've never heard that,' Trump said at the time. Then after investors seemed unfazed by the Monday tariff letters, Trump posted a message insisting he won't chicken out this time. 'TARIFFS WILL START BEING PAID ON AUGUST 1, 2025,' Trump wrote on Truth Social. 'No extensions will be granted.' But investors aren't buying it. No extensions — 'until further notice,' Ed Yardeni, president of Yardeni Research, said to CNN. Yardeni said there is 'far less panic' in markets today than in early April because investors are betting Trump doesn't want to sink the US economy and hurt his own political standing. 'The market figures this is the art of the deal. While there is a lot of bluster here, this is the way Trump negotiates,' Yardeni said. 'Trump is going to have to put this issue behind him by the end of the summer or early fall because he's risking causing a recession that would diminish the odds that Republicans hold onto their thin majorities in the Senate and the House.' Of course, there is a risk that without an outcry from Wall Street, and emboldened by mostly upbeat economic numbers, Trump goes forward with the same tariffs investors are betting against.
