Currencies are the most political of financial assets.
So even before the new president takes the reins of power, one thing is clear: Under Donald Trump‘s regime, the dollar will be far more sensitive to the vicissitudes of the presidency than at any time since the Reagan Era.
After the election of Mr. Trump, the greenback staged one of its strongest rallies in decades. But it has started to retrace the move since the beginning of the year, with USD/JPY lower by more than 500 pips off the highs.
Part of the reason for the move is simply a normal correction after such a strong rally.
But perhaps the single biggest factor that has kneecapped the buck were comments overnight by Mr. Trump regarding the Border Adjustment Tax. The BAT attempted to tax imports manufactured from abroad while exempting business exports from taxation. Mr. Trump rightly criticized the bill as “too complex” and as open to manipulation and abuse by the corporate sector.
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| When the president speaks, the U.S. dollar market listens. |
Taking a page from Ronald Reagan — who always tried to craft the simplest possible policy rules — Mr. Trump suggested, in an interview with The Wall Street Journal, that he preferred to see a lowering of corporate tax to 15%.
Although many critics have pointed out that such a reduction would be revenue negative, there is little doubt that it would be viewed with great enthusiasm by the financial markets. And will very likely trigger massive capital inflow into dollar–denominated assets as a result.
I have long argued that the Trump rally was predicated on the idea that the new president should focus all his energies on economic reform while sidestepping the more radical points of his social agenda.
However, that won‘t be easy: Even The Wall Street Journal made a note over the weekend that “the apparent divide between the incoming president and Congressional allies underscores the challenge Mr. Trump will face advancing his agenda, and in particular his planned tax cuts. The transition team and House leaders have been talking but they clearly have some details and agreements to work out.“
So, whether the Trump trade (long equities, short bonds, long the U.S. dollar) has legs really depends on who wins the first 100 days in office. If Mr. Trump can get his agenda through Congress, the Trump trade revives. If on the other hand, there are bumps in the road, it may be time to add a bit more caution.
Happy Trading,
Boris
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The Trump trade is dollars for gold and bullets.
What’s so magic about 100 days? He’s already demonstrated unfitness for office, so good luck making it that far.
One thing about the future, it always becomes the present. It just takes time and time is a one way street.
im pretty upbeat the worst president this country has ever seen is finally leaving YEAAAAA FINALLY so as i look back at the obama yrs i see corruption graft but what do you expect from those chicago politicians
OK, I will bite. How, during a mere 4 days has he “demonstrated unfitness for office”?
Would now be the time to short the dollar?
what this makes no sense
“Part of the reason for the move is simply a normal correction after such a strong rally.”
Nothing is simple here. Currency markets are subject to leveraged speculation by those who can afford it. This has nothing to do with those who work their asses off every day for every dollar they need to survive.
The challenges that Twitler will face are his huge ranting mouth and tiny little crapitalist brain that believes everything is simple. No so, dude. He’ll have to learn the hard way.
Tax cuts for the already bankrupt U.S., proposed by the crown king of bankruptcy.
Gimme a break.
hey lets not forget frank obama doubled the national debt in a short 8 yrs to 20 trillion gave us scandal after scandal
Let’s see, we have a Republican President and a Republican Majority Congress and history has shown us that this combination is a financial disaster where ONLY the rich get richer and the average American gets even poorer.
Now add in a President who sounds immature and certifiable in his tweets and who may have pictures of him and some Russian Hookers who seems to be having a love fest with one of the worse Russian Dictators since Stalin and we have a REAL problem, aye……?
Personally, I’m betting we will spend more time in inverse funds and shorts for how ever short his Presidency turns out to be!…. :(
Thank you
You left out China. That is the giant elephant in the room. And when the yuan drops 25-35% in value what will happen to your stocks? And if there is a shooting war with China or N. Korea? China is bleeding money and breaking the peg on their currency and sliding down about 30% or so is their only acceptable option for them. They don’t understand Trump and what he believes he can negotiate the will consider impossible. Therefore, art of the deal meets existential problems. Just watched a James Rickards webinar. None of the presidential candidates had perfect answers for the upcoming problems.
They (not the) will consider impossible
Trump appeal was/is about “antiestablishment” posture by a “private citizen” not a professional politician, critique of exporting US jobs, the high prices of drugs, the high
cost of military hardware, bad trades NAFTA, TTP, WTO, high taxes, education, immigration, corruption etc. etc. sounded like “music” to most Americans, the question now is: will the Republican Party (professional politicians!) allow Trump to Govern to
his “vision”?