The vote on the Trump health care plan is important only from the perspective of what the Freedom Caucus was promised in return for acquiescing to the desires of the White House. President Trump is desirous of a win, any win and the Freedom Caucus seems to know they have great leverage in the current political scrum. Whatever the House passes the Senate will have home field advantage and last bat so the initial Trump victory will Pyrrhic at best. What was compromised to assuage the conservative wing of the Republican party? How far will Trump have bent to bring this deal to fruition? The strident nature of the Freedom Caucus has been elevated and what value was extracted?
The price to be paid will certainly be great for the Trump agenda will be destroyed by those who really wish to drain the Washington swamp. The equity markets will rally on any initial sense of a Trump victory but I will curtail my enthusiasm until I have a sense of the cost of victory.
***Yesterday, the Reserve Bank of New Zealand announcement its interest decision and decided to maintain its overnight “Official Cash Rate” (OCR) at 1.75%. The important issue for global finance was the Governor Graeme Wheeler again invoked the need to pressure the Kiwi dollar lower. “The trade-weighted exchange rate has fallen 4 percent since February, partly in response to weaker dairy prices and reduced interest rate differentials. This is an encouraging move, but further depreciation is needed to achieve more balance growth.”
The G-20 opposes currency manipulation but yet many central banks express the need to keep stimulative monetary as an effort to weaken currency values. The unfortunate thing is that it plays right to Peter Navarro and the White House. Currency depreciation will be a tool of the Trump White House when needed and statements from the RBNZ and others will provide political cover.
***The Swiss National Bank (SNB) must be reading Notes From Underground. Today, Andrea Maechler, one of the three members of the SNB Governing Board, issued a statement about the SNB investment policy and its distinctive features. Maechler admits that the global uncertainty has kept upward pressure on the Swiss Franc forcing the SNB to be ever more aggressive in its currency intervention program. She said:
“Since the Swiss franc is an exceptionally strong currency, the SNB is able to hold a higher share of its foreign exchange reserves in equities than is deemed appropriate for most other central banks. The main difference between the SNB and institutional investors such as pension funds is that the SNB is unable to hedge the biggest risk factor for its investments–currency risk–because doing so would conflict with its monetary goals.”
The SNB reinforces my point and what reader Asherz wrote last night in the blog post: The Swiss are running the largest hedge fund in world and they can’t hedge because it would only put upward pressure on the Swiss franc. So the SNB needs to begin purchasing a basket of commodities, especially large amounts of GOLD as the ultimate hedge against global financial uncertainty. Just imagine the political uproar in Switzerland if global equity markets depreciated over the next five years. It’s alchemy at its finest.