On Monday President Trump sent out an early morning TWEET that sought to admonish the FED for keeping interest rates too high, coupled with an accusation that “two South American have been presiding over a massive devaluation of their currencies, which has not been good for our farmers.” ALL THE PRESIDENT’S MEN IN THE CAPACITY OF ECONOMIC AND TRADE ADVISERS OUGHT TO BE FIRED FOR MALFEASANCE.
This tweet was so off base that it should have forced the media into hyper critical mode to deconstruct its flaws. Brazil and Argentina have not been intervening to depreciate their currencies.
The unstable politics of both countries have led to economic slowdowns, which has resulted in the outflow of massive amounts of foreign investment. Money loves stability and the Argentines and Brazilians have been anything but. Free-floating currencies can go DOWN as well as UP. The REAL has also suffered as Central Bank of Brazil has lowered its overnight rate to 5% from 14% over the past two years in an effort to jump-start its moribund economy.T he Chinese are not static actors for they understand that things are always in FLUX. THE REAL IS CHEAP, down 8.3% on the year. This, combined with the fact there are no tariffs on Brazilian beans makes South American imports a much better buy as long as supply is available.
President Trump was informed that the Chinese would badly need food and would be forced to make a deal for access to U.S. AG products. BUT THE CHINESE HAVE HAD AN ALTERNATIVE SOURCE IN CONTRAVENTION TO THE ASSUMPTIONS OF THE STATIC MINDS OF ROSS/NAVARRO. THE RESULT IS PRESIDENT TRUMP IS ANGERED BY NOT HAVING THE ESCAPE ROUTE OF A DESPERATE, HUNGRY CHINA. (This is not politics but a reading of the ill-informed tweet about Brazil and Argentina. The White House seems to be panicked that the FARM ECONOMY will not be repaired through export growth proving an uncertain outcome for Republicans.)
The TRUMP tweet was a clarion call to the Democrats that Trump is nervous about maintaining the support of the agrarian-heavy states that needed to win the electoral vote. CAN THE DEMOCRATS coalesce around a candidate that can appeal to centrist voters? Again, this is conjecture in response to Monday’s tweet. It is time for Navarro/Ross/Mnuchin to exit as they seemed to have lost the trust of the president. In April 2018 when the U.S. went down the path of tariffs and China reacted by placing 25% tariffs on some U.S. agricultural products, I maintained it was a poorly timed action by the U.S. China could tariff American soybeans because the Brazilians and Argentines had just harvested a record crop. The Chinese demand would easily be satisfied with NON-TARIFFED South American supplies.
The White House was going to destroy 50 years of American agricultural producers building good will to feed the Chinese population. Regardless of how the tariff conflict ends, the Navarro/Ross team has destroyed BILLIONS of dollars of economic GOODWILL. As a noted “vulture” investor, Secretary Ross should certainly understand the cost of this behavior. Will the president pay the cost of that economic destruction? He seems to sense that all is not well. Will a worried president become more aggressive in the international trade arena?
Tags: Argentina, Brazil, China, tariffs, trade war, U.S. trade
December 3, 2019 at 7:54 pm |
great insight Yra as usual. We need you as a White House economic advisor!
December 7, 2019 at 4:37 pm |
raymack 1999,
Hopefully, Yra will let that call go to Vmail > Delete 😏
December 3, 2019 at 9:24 pm |
Talking about malfeasance…today on cnbc Michele Lewis conjectured that in trump’s 2020 campaign trail, trump
may utter the notion on refusing to honour the debt owed to the Chinese. This would amount to a default. When Edward III , Hammer of the Scots, defaulted on the florentine banks they collapsed and so did england’s wool trade as a result.
Does Trump have unilateral power to do so?
What could be the consequences?
If Trump uttered the threat, what would be the consequences?
Trump enjoys being a trickster….for the fun of it.
December 3, 2019 at 11:25 pm |
Bellino
If Trump actually dared to suggest that he would consider NOT honoring US debt held by foreigners, either partially or in full, I think
the USD could drop 3-5 handles in a heartbeat against the Euro
and Yen within 24 hours, especially if he said it during an already
turbulent market.
Here is an equally “preposterous” thought.
What if China et al decided to beat Trump to the punch and announced that they were ditching the dollar.
An Asian-AIIB-backed digital reserve currency.
Gold would have a field day as it regains, overnight, its lodestar
status, one of the few remaining True North Constants in a world
of swirling fiat.
Another far more likely development could be Trump’s decision (again, exercising his executive power) to enact an America First Trade Tax in which he places a 10/15/25% tax on all foreign derived revenue.
That would further destroy global supply chains that took years (decades?) to construct.
Oh, the mind boggles at the things Trump may suggest as he desperately seeks to stay in power.
I think ANYTHING is Possible with the Orange One.
Back to the Asian-AIIB digital reserve currency. After today’s acrimony at NATO, I daresay the Europeans might be quite interested in joining a new dollar-less reserve currency.
December 4, 2019 at 9:40 am |
Mike—thanks for the response .While I may not get to where you are as of yet—it is certainly a powerful aspect of the conversation especially if the WH begins to panic
December 4, 2019 at 10:31 am
Meanwhile, Trump has stormed out of London because his feelings were hurt that Euro leaders talked out loud what a buffoon he is.
Not even 12 hours after I missed about it, Trump said he will perhaps throw tariffs at Europe for retaliation of their continued underfunding of NATO.
Next “logical” step could, in fact, be foreign revenue tax which I fancifully threw out there as more likely than Trump talking about defaulting on USTs held by foreigners.
2020 is going to be a super volatile crazy world as we hurtle towards Nov elections while the Circus comes to the Senate in the Trump Case.
Buckle up, and buy some gold
Mike
December 4, 2019 at 12:12 pm |
Hi Mike, it’s been a while as I’ve been on hiatius, before replying last time to you as I intended about the UST buying drought overseas (still happening) and coming UST oversupply, which has worsened and led to Non-QE (lol) and is getting worse especially now this month as the Fed is directly funding increasingly out-of-control US gov’t spending. USD negative.
About that Asian-AIIB digital reserve currency, Zerohedge reported last month that China will launch its sovereign crypto in 2020.
https://www.zerohedge.com/crypto/chinas-virtual-currency-could-be-arriving-quite-soon-challenge-us
Asia is particularly ripe for that because cash has already been totally replaced – and is even no longer accepted – in numerous East Asian countries today, as the region has a big lead globally in fintech adoption & technology. As ALL payments must be done via mobile or digitally including in poorer Asian countries like China (and soon even India). Greatly facilitating their switch to sovereign crypto. But that’s a large leap away from a digital reserve currency.
So China’s next step (targeting 2021 as timelines have been moved up due to the trade war), depending on a successful launch of its onshore digital currency in 2020, will then be to establish another sovereign digital currency that’s OFFSHORE, gold-backed and externally audited for credibility/confidence. And THAT might be the game-changer for the dollar (and gold?), especially if, as I expect, USD continues to weaken this month and next year (expecting the dollar index already peaked this cycle above 99 – far short of 104 three years ago – and is next headed down into the 80’s). Nobody wants to accept or hold a currency in reserve that is depreciating like Trump wants for the dollar.
Dollar use is already falling. For example, today heralds the opening of the Russia-China pipeline which was constructed without using one dollar and will never involve a single dollar in its operation – and ditto for Nordstream2 Russia-Germany coming online soon and the Iran-China pipeline later… Most of Russia’s energy exports are non-dollar transacted now and soon most of China’s energy imports will be non-dollar transacted, marking the end of the petrodollar, especially as China (SA’s largest customer) is demanding SA accept non-dollars or it’ll buy elsewhere like Iran, which last month announced the largest oil discovery in decades. But I think we’re far from being able to ditch USD usage yet and I doubt anyone will/can stop using it, least of all China if they wish to sell anything to US.
As for that border tax, yep, Trump was reportedly wanting that when he first took office, but ppl like Cohn, Mnuchin and Tillerson reportedly talked him out of it. With the krazies in the cabinet now, anything is possible. So Trump might want to replace lame Mnuchin, who Trump likely hates anyway for suggesting Powell for the Fed, with someone more krazy. Then he can do that border tax and also ramp the already-started debt monetization, which mathematically seems likely destined to turn Weimar-style anyway sometime, Trump or no Trump.
December 4, 2019 at 12:39 pm
David
Great to hear from you.
Regarding your speculation that Trump might sack Mnuchin, Yra would tell us that that would be his “canary in the coal mine” incident which would signal Trump Presidency going off the rails in terms of economic and financial policies.
Hope all is well in the Midwest
Best
Mike
December 4, 2019 at 1:37 pm
Oh, I hadn’t heard that one. Well, I’m not qualified to speculate about Mnuchin except that he seems lame, though not as krazy as some.
As for the NATO incident, whether or not you’re a Trump supporter (I’m not anymore), I think the behavior of the heads of states towards Trump was inexcusably childish (again). Especially Trudeau, who got caught doing the same thing at the G7 he hosted last year, which prompted Trump to call him “weak and dishonest” as Trudeau called Trump “insulting”, having this time called Trudeau “two faced”, while Macron and Erdogan similarly engaged in name-calling like “brain dead”.
If this is the best leadership that NATO countries have to offer nowadays, then what’s even the point of protecting and perpetuating it? At least the others like Xi and Putin, love them or hate them, are capable of acting respectfully and presidentially. NATO heads-of-state can’t even act their age, nevermind civilly or presidentially. They’re like teenage girls, ostracizing one of their own, giggling and talking behind the backs of one another, then name-calling in public.
December 5, 2019 at 4:04 pm |
David
“Ostracizing one of their own…”
After the way Trump has disdainfully disrespected virtually all European leaders (while showing nothing but love for Kim, Putin and Xi), I think they have chosen to act out against Trump, who is clearly NOT one of them.
Also, they were giggling in private, not public.
They simply got caught
December 5, 2019 at 5:28 pm |
Fair enough, but actually it was Trudo with the open mic and big mouth (again), who isn’t European but wishes he was. Not sure I agree about Trump’s love for Kim, who named him “Dotard”, nor for Xi, about whom Trump recently said, ” “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”. But enough of that. I’m thinking that for most of the year, FX markets have had little flow and very low volatility. Vol is still low but not as bad as before and FX has finally found a flow and rhythm. USD weakness seems to be establishing itself with six consecutive down days and a tradable top from Oct if this USD breakdown is the real deal – don’t know yet. But USDSEK, often a leading indicator for US v Europe, topped in October and recently broke the lower barrier of a year-long wedge, boding well for broad USD weakness and potential for a break to the upside (perhaps a substantial one) in the range-bound EURUSD. But I’ve been waiting and posted here earlier this year about potential USD weakness with nothing much happening in FX except zzzzzz. But, how about that Pound suddenly! Others to follow SEK and GBP?
December 5, 2019 at 6:02 pm
David
We can talk Trump/politics off line, so as to keep the site on topic.
As for USD, I don’t disagree with your “early bird” warnings of weak crosses in some unfamiliar places.
All VOL has been crushed this year in the EVERYTHING bubble.
If/when things start to unravel as we enter the most vitriolic Presidential race since 1860 (imo), VOL should rise on ALL assets, including FX. Perhaps that is when USD weakness takes hold.
I think USD can really hit the skids if Sanders or Pocahontas win the Democratic nomination. Even old Joe would probably portend further USD skitters.
There is no question that Trump, himself, wants to weaken the USD….But, while he also pumps up stocks, that seems to steal
the thunder from any bear raids against the USD, in my view.
In such a world of great uncertainty, I think gold (and silver) have rarely been this CHEAP.
Of note, this will be the 2nd consecutive year of record CB purchases of gold.
And, 2019 marks a watershed year for M&A dealmaking in the PM sector. Smart operators realize it is FAR FAR cheaper to drill for
gold on Wall Street/Bay Street than in far off jungles or far north
latitudes where political states are not so friendly.
So many analysts have punished Kirkland for its outrageously high
bid for Detour Gold with its “high” AISC of $1150ish. I daresay
that by the end of Q1 2020, analysts will be lionizing Kirkland for its
prescient buyout as an orebody with an AISC of $1150 will look like
a master stroke.
Put me down for the following….Gold to $1750+ by end of Q1.
Silver could really skyrocket, with an overshoot to $25+ in same time frame.
Let’s check back on April Fool’s Day!!!
Mike
December 6, 2019 at 10:31 am
Indeed. And now we have a Chinese gold miner, Zijin Mining, paying $1.5-billion all-cash and a 30% premium in a friendly acquisition of Continental Gold. It says that someone in the business still sees much value in gold. It also says the much-ballyhooed USD shortage in China might be an exaggerated narrative (I’d not call it a false narrative but it’s probably overblown).
December 6, 2019 at 10:37 am
And don’t forget that CBs will have purchased another record setting amount of gold again in 2019.
Don’t they know that stocks are where it’s at, especially today.
Mike
December 6, 2019 at 10:48 am
I think I read the Swiss SNB is now selling stocks (buying some gold)?? The SNB seems to be better traders than bankers.
December 8, 2019 at 3:22 pm |
David—the latest IMF release on Swiss reserves does not reveal that the SNB has been selling some equities as reserves grew more in the latest report–but I believe that they are in a very enviable position relative to the rest of the world’s central banks
December 8, 2019 at 6:25 pm |
Thanks Yra for clarifying that. A quick search revealed that what I read & remembered about the SNB selling stocks (incl >1M appl shares) was over a year ago, not recently. Although I supposed SNB could be rotating equity sectors now or selling a small amount of stock whose total value is less than the appreciation of their portfolio. https://snbchf.com/2018/11/durden-swiss-national-bank-stocks-q3-dumping-million-apple-shares/