‘TACO’ Turns Tart: How the ‘TACO Trade,’ and Exploited and Weaponized Information Asymmetry are (Un)Settling the Markets

For people who have spent time gauging market condition in the last thirteen months, excessive, immediate-run market volatility has often been anchored to the ‘TACO Trade.’ Setting aside the core anchor to the acronym, the ‘TACO Trade’ may be considered execution of a trade solely on the basis of schnell commitment to a strong bias about immediate-run market directionality… all based on vague public knowledge about the current direction of the wind of exercise of coercive U.S. government authority. (I am sorry about employing such a cumbersome definition in the stead of four simple words… but bear with me, as the tone of this short piece gets insufferably diplomatic.)

For example, when a presidential confidant alludes to the possibility of putting pressure on the government of a major oil-producing country, market makers quickly decide on an investment position/strategy, which most completely exploits such vague information for short-term profit.

For all the profits and losses it engineers, the ‘TACO Trade’ has been wildly successful in shifting investor sentiment in making pursuit of gains through resource shifting—instead of value creation—not just tempting, but fanciful. This is because gains through resource shifting—vis-à-vis high-stakes gamble with increasingly volatile markets—have given lucky, insider investors a sense of sophistication.

Because of all this, the possibility of gains or losses has become a heuristic for the prudence of governance decisions in both government and private enterprise. In this reality, strategic objectives are subsumed under a profit-or-loss mindset. In this context, decisions will always yield short-term profit… for a select few, at least… until a strategic blunder draws out the deleterious consequences of a patently poor policy or decision. Here, all investors—not just connected insiders—pay the price, as markets, ceteris-paribus, always settle without sentiment.

Markets may now be “headed south” due to a possibly failed calculus of a kurtz military campaign in the Middle East. This pain may only get worse with the revelation of every miscalculation about this supposedly schnell strife.

I would, however, not be surprised if U.S. financial markets found one more trick for decoupling (themselves) from the gnawing reality of war and global geopolitical instability.

The directionality of financial markets in relation to the current realities of global conflict notwithstanding, every investor is best served by working with a fiduciary adviser who puts your interests first. Bargeld Financial’s client-needs-centered financial planning and investment management can only help place, and keep, you on a path to financial balance.