Traders bet on backtracking How "taco traders" are cashing in on Trump's zigzag course

Donald Trump implements his policies radically - but can also change his mind quickly. The "taco traders" are taking advantage of this - and earning handsomely.

Since Trump's Greenland U-turn, the term has been on everyone's lips again: taco. The term was coined by a columnist for the Financial Times after Liberation Day last year and has since become a household word. The acronym stands for "Trump always chickens out".

The expression refers to Trump's habit of threatening to impose high taxes, but then softening, postponing or even scrapping them altogether. This tendency forms the basis of a veritable investment strategy, the so-called "taco trade".

And it works like this: Taco traders stock up on shares when there is a threat of tariffs, for example. If Trump finally backs down for fear of a sharp fall in share prices, they sell at a profit.

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Taco trade after Greenland U-turn

The taco principle was first observed during Trump's second term in office in April last year. Back then, the president imposed tariffs on almost every country in the world. Fears of damage to the US economy caused prices on the leading index, the S&P 500, to fall by almost five percent within a day. A week later, the first retreat followed, with many of the tariffs imposed being suspended for the time being. This resulted in rising share prices. Something similar could be observed in the trade war with China.

Savvy taco traders were also able to strike in January. This was because Trump's increasingly strong Greenland ambitions put pressure on the stock markets. When the President finally announced punitive tariffs against eight European countries that opposed his Greenland plans, share prices plummeted again. However, Trump backed down again during the WEF in Davos. The President suspended the punitive tariffs and declared that he did not want to take the Arctic island militarily. Share prices finally recovered.

Saxo strategist Neil Wilson explained: "From a market perspective, this is a classic 'taco trade'". The turnaround has boosted the markets as the very real threat of a trade war has receded," he told the British Guardian.

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Two thirds are invested in equities

The origins of Taco can be traced back to Trump's first term in office. It quickly became clear that the fickle president could quickly change his mind, either due to massive political resistance - or falling share prices.

Because every president has a big problem when they are on the slide. Almost two thirds of US citizens are invested in the stock market. Share assets play a key role in the retirement provision of many Americans - especially in the context of a "401k", a state-subsidized model for retirement provision.

Incidentally, Trump himself wants nothing to do with tacos. When asked about the nickname by a reporter, the president reacted angrily and called the question "nasty".