Trump Does What Few Presidents Have Dared
Answers to your biggest questions... More on Trump and the U.S. dollar... Trump does what few presidents have dared... Inflation continues to rise... 'The beginning of a tectonic shift'... P.J. O'Rourke: The Inaugural Address I'd Like to Hear a President Deliver...
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Yesterday, we mentioned President-elect Trump's recent comments about the U.S. dollar...
These comments were part of a broader interview with the Wall Street Journal on Friday, where Trump criticized the new Republican Congress' corporate tax plan as "too complicated."
He also implied the plan would cause the dollar to rally further against other currencies, saying the dollar was already "too strong." He even said the U.S. might need to "get the dollar down" if it remains elevated. According to Trump, "Having a strong dollar has certain advantages, but it has a lot of disadvantages."
We won't delve into the details of the Republican plan and how it may differ from Trump's proposals today... As we've discussed, we still know very little about what policies his administration will pursue.
But it's worth noting that Trump's comments are unprecedented... U.S. presidents of either party have rarely discussed the dollar in public. As the Journal noted yesterday...
The dollar tumbled to its lowest level in a month after Donald Trump suggested to The Wall Street Journal he favored a weaker dollar, breaking with decades of tradition and intensifying investor concern over the incoming administration's capacity to surprise...
Mr. Trump's remarks represent a departure from a bipartisan tradition where presidents generally leave commentary about the U.S. currency to the Treasury Department, which typically says little more than that a stronger dollar is in the country's best interests.
Of course, this isn't the first time Trump has said something unexpected or controversial. But this could be more than just another off-the-cuff statement...
Yesterday, one of Trump's top economic advisers – former hedge-fund manager Anthony Scaramucci – went even further...
Speaking at the World Economic Forum in Davos, Switzerland, Scaramucci said a stronger dollar would make it harder for Trump's policies to boost the economy. He also implied that the Federal Reserve must be careful that its policies don't add to the dollar's strength. As he said (via news service Reuters)...
The Fed has to be independent and we have to be careful about the rising currency... We need to be careful about the rising currency, not just because of what is going on internationally but it will have an impact internally to the United States as well.
This week's comments suggest the incoming Trump administration could be far more "dovish" than many expect. If he's willing to speak openly about weakening the dollar, there's no telling what else he may be willing to do.
These comments also suggest Trump – who has already criticized Federal Reserve Chair Janet Yellen several times in the past – may be willing to break with tradition and pressure the Fed to be more accommodating, too.
Expectations of higher inflation and economic growth have driven the "Trump Trade" higher...
While it's not clear Trump's proposals will be successful at improving long-term economic growth, we've been following several signs that inflation is already stirring.
In recent months, producer prices and consumer prices – what most people recognize as "inflation" – have been rising in many of the world's major economies, including the U.S., Europe, China, and even Japan.
Earlier this month, we noted that inflation in Germany – Europe's most important economy – more than doubled in December, while inflation in the broader euro area grew at the fastest pace in four years.
Today, we learned U.S. prices continue to rise, too. This morning, the U.S. Bureau of Labor Statistics reported the Consumer Price Index rose at a 2.1% annual rate in December...
This represents the fastest rate of inflation in more than two years and the biggest full-year increase since 2011, according to financial-news website MarketWatch.
After years of deflationary fears, the global economy appears to be quietly shifting back to into inflation...
Importantly, this trend began even before Trump's surprise victory in November... meaning it could continue even if Trump's policies fall short of expectations.
On the other hand, if Trump is successful, inflation could rise faster than almost anyone believes possible today.
We're not alone in this thinking...
Kyle Bass – founder of hedge fund Hayman Capital Management, who earned a fortune betting against subprime mortgages during the financial crisis – believes we're at the "beginning of a tectonic shift" in the financial markets. As he wrote in his year-end letter to investors (courtesy of Yahoo Finance)...
Today, global markets are at the beginning of a tectonic shift from deflationary expectations to reflationary expectations...
Over the past several years, economic gravity has been pulling one way and central banks have been using aggressive monetary policy to pull the other...
From here on, we expect to encounter significant changes in global fiscal policies along with a continuation of the upward movement of general price levels for consumers and producers alike.
Of course, higher inflation – and the higher interest rates that are sure to follow – will be terrible for bonds over the long run...
Remember, bonds and interest rates trade inversely. By definition, higher rates mean lower bond prices. And today's bond investors are more exposed to interest-rate risk than virtually any time in history.
But higher inflation could be great for equities... up to a point. As interest rates rise above a certain threshold – approximately 5%, according to JPMorgan Asset Management – higher yields will begin to act as a "magnet" that draws money out of stocks. For the first time in nearly a decade, cash could again become a real investment alternative to financial assets.
Higher rates will also quickly weigh on the weakest corporate credits – like those we've recommended shorting in Stansberry's Big Trade – that have become dependent on cheap financing for survival.
New 52-week highs (as of 1/17/17): Apple (AAPL), BlackRock Floating Rate Income Strategies Fund (FRA), Northern Dynasty Minerals (NAK), and Shopify (SHOP).
A slow day in the mailbag. What's on your mind? Let us know at feedback@stansberryresearch.com. As always, we can't provide individual investment advice, but we read every e-mail. And be sure to stick around for P.J. O'Rourke's latest essay, in which he writes Trump's inaugural address.
Regards,
Justin Brill
Baltimore, Maryland
January 18, 2017
The Inaugural Address I'd Like to Hear a President Deliver
On Friday morning, President Donald Trump will deliver his inaugural address.
This is not the kind of thing Trump is very good at. But it's a low bar. Most presidential inaugural addresses stink.
There've been a few exceptions. Lincoln's second inaugural address was a model of soaring rhetoric: "With malice toward none, with charity for all, with firmness in the right as God gives us to see the right..."
Washington's second inaugural address was a model of how all elected officials should speak. Which is briefly. His speech was 135 words long.
Most other inaugural addresses weren't memorable. Or if we do remember them, they don't stand up to scrutiny.
FDR said, "The only thing we have to fear is fear itself." What does that even mean? A more reasonable statement at the time of Roosevelt's inauguration in 1933 would have been, "We have nothing to fear except being broke, out of a job, shoeless, hungry, and having the bank foreclose on our mortgage."
If we hadn't been afraid of all those things, FDR would never have gotten elected.
JFK said, "Ask not what your country can do for you, ask what you can do for your country." That's worse than nonsensical. It's wrong. National service may be an obligation during periods of extreme crisis. But the early 1960s wasn't one – until Kennedy made it so by bungling the crisis in Cuba. Nations exist to serve people. People do not exist to serve nations.
So I won't listen to Trump's inaugural address. I mean, I'll watch it on TV. Like any good reporter, I've got to keep my eye out in case Trump does or says something outrageous. (He has been known to do so.) But I won't really be paying attention.
Instead, I'll be working on an alternative speech, my "Inaugural Address I'd Like to Hear a President Deliver." And not just President Trump, but any president from either party.
It will go something like this:
My fellow Americans...
I want to thank the people who voted for me. I also want to thank the people who voted against me. Democracy is meaningless if it doesn't result from a meaningful competition between ideas – the way the college football national championship game would have been meaningless if Clemson had played the tailgaters in the Raymond James Stadium parking lot.
Furthermore, I want to thank the people who didn't vote. It's not wrong to not vote. A person who doesn't vote is reminding us all that there's more to America than its government.
And there's more to America's government than the man who's the head of it. In fact, it could be that America has been giving too much power and privilege to the man who is the head of its government.
I'm the new president. But I am only an individual. And we are a nation of laws, not men.
Because we are a country guided by rules instead of by personalities, I've been reading the rule book. I've been studying the Constitution for the United States of America.
I intend to play by the rules. I'm the president, but you the people own this country. You are the stockholders. Your elected representatives in Congress are the board of directors. And the chairman of the board is, again, you the people. I just work here.
In the Constitution, the president of the United States isn't even mentioned until Article I, Section 3. And the only reason that he's mentioned there is to explain how Congress can impeach him.
Actually, the vice president is mentioned before the president. That's because the vice president holds the office of president of the Senate, where he has a tiebreaking vote.
Article I, Section 1 of the Constitution says, "All legislative powers herein granted shall be vested in a Congress of the United States." To judge by that, our Founding Fathers were more concerned with what goes on in Congress than what goes on in the White House... which, incidentally, they didn't bother to build until 1800.
The Constitution doesn't get around to listing the powers of the president until Article II, Sections 2 and 3, and the list is only four paragraphs long.
I'm "commander in chief" of the military. But in Article I, Section 8, the Constitution says Congress has the power to "declare war," to "make rules concerning captures on land and water" and to "raise and support armies." So I guess "commander in chief" really means that when the Marines yell "gung ho!" and charge, I'm supposed to go first.
I'm not looking forward to this part of the job because I'm a little concerned that the huge Secret Service motorcade with all the flashing blue lights that follows me everywhere I go will attract enemy fire.
Some people think the president is in charge of America's foreign policy. I don't know where they got that idea.
Yes, I'm allowed to make treaties but only "by and with the advice and consent of the Senate." And two-thirds of the Senate has to agree to the treaty. Two-thirds of the Senate can't agree on what they had for lunch in the Senate Dining Room.
And notice that while the Senate has the "consent" thing covered – it loves to vote on stuff – it tends to come up short on the "advice" part. The only advice a president gets from a senator is, "You should help me raise funds for my reelection campaign."
By the way, if you'd like a little advice and consent of my own, I'd advise you to consent to be more careful about who you elect to the Senate and the House of Representatives.
We've got some real nut-buckets up on Capitol Hill.
Anyway, as I was saying, I also get to appoint ambassadors, my Cabinet, and when the occasion arises, Supreme Court justices. Unless, of course, the Senate advises me that they won't consent.
I have the "Power to grant reprieves and pardons for offenses against the United States." Although, by custom, my major campaign donors won't get out of jail until the very end of my second term.
But I can fix my teenage son's speeding tickets – if he's careful to do his speeding only inside the District of Columbia and not go over to Virginia and get arrested for speeding under a state law.
However, that huge Secret Service motorcade usually has traffic tied up in the District. So I'm afraid the kid won't get much of a chance to speed.
Mostly what I'm supposed to do as president, according to the Constitution, is "take care that the laws be faithfully executed." I'm the national hall monitor.
The rest is paperwork. I can "require the opinion, in writing, of the principal officer in each of the executive departments, upon any subject relating to the duties of their respective offices."
And under the Freedom of Information Act, so can the New York Times. A fat lot of good it does either of us.
Now let's all go have some fun at the inaugural balls. I'm attending all of them and will have a few drinks at each. If I wake up late tomorrow with a bad headache and don't feel like working, don't worry. My job isn't all that important.
Regards,
P.J. O'Rourke