Tragedy and Comedy on Trump

Outlook:

Inauguration day today is a day of mour ning for our country. We have elected a president who is a narcissistic, uninformed, lying, erratic buffoon. It will be very hard for serious market players to keep their heads about them when all around are losing theirs, to misquote Kipling.

We already have the first instance—Trump saying the dollar is too strong—and we confidently expect the next Shock, a trade initiative against Mexico and China, probably within the first week.

As for any effect from Trump having said the dollar is too strong (when that is the thrust of his policy proposals), Trump's nominee for TreasSec Mnuchin told the vetting committee that what Trump meant was not a long-term policy endorsement. In other words, Trump does want a strong dollar, just not this strong, this fast. Or at least that's one obvious way to interpret Mnuchin. We say policy guidance from a second uninformed jackass has no more value than it had from the first one, president or not. No one in government authority can "manage" the dollar. Mnuchin is a hedge fund guy who ripped off mortgageholders in California and has $100 million stashed offshore that he forgot to put on his disclosure form. How do you forget $100 million?

Most of Trump's cabinet choices are ethically challenged and nearly all of them are screamingly obviously unfit for the job. The education secretary doesn't believe in public schools. The environmental protection agency guy thinks it's bad to interfere with polluters. The housing guy said, more than once, he knows nothing about housing (but he's black, so that's okay). The energy secretary pick wanted to eliminate the energy department when he was running for president and didn't know "energy" encompasses nuclear. The only one you can't point to as a joke is Tillerson at State. This is a reprise of the Bush Two strategy of proving that government is always bad by literally making it bad.

Trump claimed he would drain the swamp but then nominated exactly the people who are attuned and associated with the Swamp Things, the lobbyists. Besides, the bigger lobbyist targets are the Congressmen themselves. As a card-carrying lobbyist himself, Trump has no problem with that.

And experts far and wide, including those officially tasked with the transition, are appalled at the Trump mismanagement of the process. By this point in the handover process, some 600+ jobs should be filled with the new Trump guys. Instead, fewer than 100 have been filled. And Trump intends to take the weekend off and start work on Monday, clearly not knowing that presidents don't get weekends, although another report, from Reuters, has a Trump insider saying the team has some 200 executive orders ready to be signed pertaining to healthcare, climate policy, immigration, energy and numerous other issues.

The report goes on, based on comments from Trump press secretary Spicer, "Trump is expected to impose a federal hiring freeze and take steps to delay a Labor Department rule due to take effect in April that would require brokers who give retirement advice to put their clients' best interests first. He also will give official notice he plans to withdraw from the 12-nation Trans-Pacific Partnership trade deal and renegotiate the North American Free Trade Agreement with Canada and Mexico."

Also, "Trump is expected to sign an executive order in his first few days to direct the building of a wall on the southern border with Mexico, and actions to limit the entry of asylum seekers from Latin America, among several immigration-related steps his advisers have recommended. That includes rescinding Obama's order that allowed more than 700,000 people brought into the United States illegally as children to stay in the country on a two-year authorization to work and attend college, according to several people close to the presidential transition team. It is unlikely Trump's order will result in an immediate roundup of these immigrants, sources told Reuters. Rather, he is expected to let the authorizations expire."

To be fair, Trump has some virtues. He doesn't drink, but at the same time, he doesn't acknowledge any drawbacks due to his age (70), which runs counter to all folklore and scientific knowledge alike. It is probably a virtue to acknowledge that the demographic most harmed by globalization, blue collar workers, deserve a voice, too, and slick economist talk demonstrating that free trade is always better for the greater public welfare is just that, slick economist talk. Factory workers may make up a minority, but it's a big one, and when you add blue collar service workers, the total is slightly over half of all workers among whites (and more among non-whites). Third, the US needs tax reform. We won't get a fair version, but we will get something.

In trying to make up a list of good things that might come from the Trump presidency that becomes real at noon today, that's about it—three things. The rest of it is a trainwreck. Those yearning for lower debt or maybe even a balanced budget should despair.

Don't forget that enemies tend to test new presidents in the first few months with some outrageous insult or another. The presidential historians are out in force wondering who will be first to challenge Trump. Within a day of Obama taking office, there were challenges from three of the usual suspects— Russia, Iran and N. Korea. Russia said "Poland's agreement to allow U.S. weapons on its soil is an act of aggression we cannot overlook. We reserve to ourselves the right to take preemptive intervention should we deem it necessary." Iran demanded the US withdraw its military from the region or "face annihilation from Allah's righteous wrath." And North Korea warned that "unless U.S. payments to us are resumed we may be forced to undertake punitive measures."

Take your pick.

We can't expect authentic authority, namely Fed chief Yellen, to offset every tweet from the Trump twits. Yesterday Yellen said she doesn't see the economy picking up growth and certainly not overheating any time soon, reinforcing the gradualism stance. At least the Atlanta Fed GDP Now estimate was 2.8% yesterday, the same as on Jan 13 when the chart looked like a dip was in the making.

Looking forward, fixed income investors are in two camps, according to the WSJ. The excellent WSJ reporter Min Zeng elucidates the issues and offers a splendid set of charts. One camp is professional investment management firms, aka the fuddy-duddies, who see a tepid economy, slowing population growth and failing productivity—yields can't rise that much more. In the other camp, the hot-to-trot hedge fund managers, yields can keep going up on rising inflation, tax reform, fiscal stimulus and all the other presumed Trumpy policy initiatives. The friction between the two groups has driven "steep moves" in the bond market (and rattled other markets, too). In other words, noise.

"One popular trade has been to sell Treasurys and to buy Treasury inflation-protected securities. A $13 billion sale of 10-year TIPS drew strong demand on Thursday, the latest sign investors are flocking to assets that offer a shield against higher inflation. Indirect bidding, a proxy of foreign demand, soared to a record 77.1%."

We think the hedgies are going to win out over the fuddy-duddies—i.e., yields will continue to rise and will soon match and surpass the old high of 2.639% from Dec 15. Once the old high is broken, the bandwagon effect kicks in and we get yet more rises, warranted by data and events or not. This is dollar- favorable but don't start cheering—it may well be overly volatile, too. Just look at the USD/CAD, which fell from 1.3598 on Dec 28 to 1.3030 on Jan 12 and then rose back to 1.3378 today. This kind of whipsawing can be traded only by those with a super-short timeframe and it annihilates trendfollowers. Today we get Canadian CPI and retail sales, but whatever effect that has needs to be considered minor, because if Trump drops the other shoe next week—ending NAFTA—it won't only be the Mexican peso that takes a hit. See the weekly chart of the peso below, still outrunning its own standard error channel.

And for a final note ahead of this tragic weekend, Soros is the gloomiest guy on the planet these days. Bloomberg reports an interview yesterday in which Soros says "America has elected a would-be dictator as president, the European Union is disintegrating, U.K. Prime Minister Theresa May won't last long as her nation prepares to secede from the EU, and China is poised to become an even more repressive society." Trump is a con man and will fail. May will not remain in power for long. Britons are "in denial about the economic impact of Brexit."

Soros said "Uncertainty is at a peak, and actually uncertainty is the enemy of long-term investment. I don't think the markets are going to do very well. Right now they're still celebrating. But when reality comes, it will prevail." But Soros got it wrong already. "Soros's pessimism has been costly to him. He lost nearly $1 billion as a result of the rally spurred by Trump's surprise win, the Wall Street Journal reported earlier this month. The octogenarian's wagers became more bearish immediately after Trump's victory, but the S&P 500 Index has jumped 5.8 percent since Election Day." But we never argue with Soros.

		Current	Signal	Signal	Signal
Currency	Spot	Position	Strength	Date	Rate	Gain/Loss
USD/JPY	115.21	SHORT USD	WEAK	01/05/17	115.93	0.62%
GBP/USD	1.2284	SHORT GBP	WEAK	12/16/16	1.2444	1.29%
EUR/USD	1.0633	LONG EURO	WEAK	01/10/17	1.0587	0.43%
EUR/JPY	122.50	LONG EURO	STRONG	11/03/16	114.30	7.17%
EUR/GBP	0.8655	LONG EURO	WEAK	01/09/17	0.8649	0.07%
USD/CHF	1.0082	SHORT USD	WEAK	01/05/17	1.0113	0.31%
USD/CAD	1.3368	SHORT CAD	WEAK	01/05/17	1.3253	-0.87%
NZD/USD	0.7141	SHORT NZD	WEAK	12/19/16	0.6963	-2.56%
AUD/USD	0.7521	LONG AUD	STRONG	01/05/17	0.7343	2.42%
AUD/JPY	86.65	LONG AUD	WEAK	10/06/16	78.48	10.41%
USD/MXN	21.9424	LONG USD	STRONG	10/31/16	18.9054	16.06%