It has been a month since I last wrote. My hiatus was inadvertently extended as Ecclesiastes certainly entered my personal life. My sister Joyce suddenly passed away, which caused me to slow my mind and reflect on many things. Losing your baby sister will cause one to ponder, or as it was said in Cool Hand Luke: “When a man’s mother dies and he gets to thinking rabbit and running, a night in the box.” So I have put myself in a mental box. However, I have also experienced the birth of my second grandson, thus to every season a time and purpose.
During the seven-plus years I have been writing Notes From Underground I have shared many life-changing moments with my extended family of readers. So it is with a renewed spirit and laser focus thoughts that I embark on analyzing the global-macro world in search of profitable trades and investments. The FRA podcast I posted January 29 (click the highlighted text) is a renewal of this year’s focus on crafting the NOTES narrative. There has been much in the way of global political events during my hiatus but I will refer to some as significant in various aspects as we proceed.
***The G-20 meeting in Baden-Baden over the weekend ended with no real conclusion as the United States would not compromise on allowing the phrase “RESIST ALL FORMS OF PROTECTIONISM” to be inserted the COMMUNIQUE. The previous G-20 agreements have said the standard, “We will consult closely on exchange markets. We reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and will not target our exchange rates for competitive purposes.” This line is NONSENSE as New Zealand, Australia, and especially Switzerland regularly cite concerns over the strength of their currencies when setting their monetary policy. Even the FED has referenced an overly strong DOLLAR when using the phrase “financial headwinds” as a reason to maintain unreasonably low interest rates and too much liquidity in the system.
The trade issue was really set aside until the full meeting of the G-20 in Hamburg this summer with the ultimate rhetoric of benign neglect: “We will strive to reduce excessive global imbalances, promote greater inclusiveness and fairness and reduce inequality in our pursuit of growth.” So it is incumbent on Germany, China and the U.S. to correct either a massive current account surplus or deficit. While the finance ministers and bankers were in Baden-Baden, Chancellor Merkel was in Washington D.C. holding talks with President Trump. The discussion between the key leaders was “frosty” as Trump was not as diplomatic as he should have been, especially in regards to his personal attacks upon Frau Merkel. But I urge my readers to carefully watch the U.S. DOLLAR as the Trump administration may pursue a weak dollar policy in response to Germany’s threats of legal retaliation in response to any border adjustment tax (BAT). German Finance Minister Schaeuble openly threatened a legal challenge at the WTO if the U.S. institutes the BAT.
If the U.S. cannot improve its excessive trade imbalance through a “tax” program or tariff then look for the DOLLAR to be the mechanism that The Donald utilizes to get the world’s attention. As I warned last month when Ford CEO Mark Fields said, “currency manipulation was the mother of all trade barriers,” watch for the U.S. to pursue a weak dollar policy to placate the National Association of Manufacturers. When auto executives are openly critical of currency manipulation by foreign governments it is time to pay attention, especially when the overwhelming currency positions are LONG DOLLARS and as many analysts bought into the idea of a BAT and its bullish impact on the DOLLAR. Even this weekend’s Barron’s front page comes to the Santelli /Harris position discussed on February 21. The border adjustment tax is a major mistake.
***Thank you for all of your support and if there are any issues that warrant a discussion feel free to contribute in the comments section. I will certainly take everything into consideration.