Trump seeks to drive the dollar down

Outlook:

We wrote yesterday that financial markets would return to normal after the threat of Trump was put down. But Trump was not put down and now we are in for loss-es on a major scale as well as choppiness on impulsive comments passing for plans. As the FT puts it, Trump "ushers in the era of political improvisation."

The election outcome carries a promise to dance on the grave of the Republican party as well as Wash-ington elites. The only thing resembling a plan on this front is the promise to do away with lobbying. Since Congress is funded by lobbyists and would have to pass any such law, it's a forlorn hope that Trump, of all people, would get money out of the Washington political mix. After all, this is the guy who bought off a Florida prosecutor using money from a charity funded by others.

impulsive comments passing for plans. As the FT puts it, Trump “ushers in the era of political improvisation.”Trump intends to make mostly unspecified changes in foreign policy, immigration, trade, and taxes, all of which will affect financial markets. Of lesser concern to markets are intended changes in Obamacare, climate change and the Supreme Court. Again, the only thing resembling an acceptable change would be a big cut in corporate taxes and a big rise in taxes on the rich, but again, this could be only the usual electioneering false promises. Speaker of the House Ryan is the man most to be pitied in America today for being forced to work on his favorite topic, taxes, with an economically illiterate, bullying blowhard.

Actually, the first action is most likely the promised tariff war. The president has greater authority to act on trade than any other issue without consulting Congress. Capital markets will not like it. Voters think they will like it—giving a comeuppance to trader partners "cheating" the US—but they will not like the inevitably higher prices and falling job opportunities that always accompany a tariff war.

And we thought Bush Two was bad. Just wait.

The conflicts of interest about to occur are staggering. Weirdly, US law forbids nearly every federal em-ployee from having a business, but not the president. What will Trump sell to the Chinese in return for the right to build hotels all over the place? The Chinese are very smart. They will not be bought off cheaply.

Nobel winner Krugman writes in the NYT that markets will never recover. "... putting an irresponsible, ignorant man who takes his advice from all the wrong people in charge of the nation with the world's most important economy would be very bad news. What makes it especially bad right now, however, is the fundamentally fragile state much of the world is still in, eight years after the great financial crisis.... You can bet that the Fed will lose its independence, and be bullied by cranks. So we are very probably looking at a global recession, with no end in sight. I suppose we could get lucky somehow. But on eco-nomics, as on everything else, a terrible thing has just happened."

Another NYT columnist, Douthat, notes that Nov 9 is the French equivalent of the date in 1799 when "Napoleon Bonaparte led a coup against the revolutionary government, established himself as First Con-sul, and set about redirecting world history as few men have done before or since." Trump is no Napole-on, but a "comic-opera authoritarian" who engages in self-sabotage and is the worst prepared president ever. The Trump promise is a threat to traumatize the US like nothing else and to fail more catastrophi-cally than any other president.

European Council Pres Tusk and EC Pres Juncker lost no time in writing to Trump to invite him to a EU -US summit as soon as possible, appealing to him to support the Ukraine against Russian threats to sov-ereignty, among other goals. Trump seemed not to know Russia had invaded Ukraine and stolen a chunk of it. Putin is probably laughing up his sleeve at the chance to embarrass the US. Heaven only knows what Chinese leaders are thinking. It won't be long before we start hearing of an intention to dump Treasuries—all of them—on a Trump initiative to balance trade.

Reuters writes that German Defense Minister von der Leyen called Trump's win a "huge shock," while "France's foreign minister worried what it will mean for the West's foreign policy. Former Swedish foreign minister Carl Bildt called it a ‘year of double disaster of the West,' referring to the Brexit vote too." The international response is just beginning and aside from Putin, universally negative.

Bloomberg headlines "Trump's Victory Is Being Felt in the Most Far-Flung of Markets." The report notes "The market-implied odds of an interest rate cut in Australia by mid-2017 have soared to 60 per-cent, rising from 30 percent before the results flooded in, amid expectations that weaker investment and trade flows from its Asian partners will crimp economic output." Separately, a company in a sky-scraper partnership with Trump in Turkey saw its stock rise 12% in Istanbul overnight. In China, a company with a name that sounds like "Trump wins" in Chinese also soared.

It's not doom-and-gloom for everyone. Copper futures, already feeling frisky, rose some more on the idea of Trump infrastructure spending. There will be some winning sectors, like pharma, and some los-ing sectors, like eco-friendly windfarm companies. In fact, the partial recovery from the crash in all the markets is remarkable. The 10-year note yield crashed but then recovered. The dollar crashed and then recovered, at least partway. The dollar index is quoted at 9732 at 6:46 am ET from the close at 97.97 and up off the low at 95.89 overnight. See the chart.

This seems nice and a possible return to "normal" after any big and long-expected Event—but trad-ers are whistling past the graveyard and operating on wishful thinking. The wishful thinking relies on the US constitutional system of checks and balances. We didn't elect a dictator. Congress and the courts have a say. And maybe a Trump cabinet can rein him in. After all, the smug Kellyanne Conway took away his Twitter. You'd feel pity for Melania, as unprepared and unqualified for the First Lady job as Trump is for the presidency, except she married the buffoon. Never has a gold-digger met such an awful fate.

And never have pollsters met such an awful fate, either. We love data. We enjoy every screen swipe of John King and Steve Kornacki on cable TV. But every single pollster and analyst got it wrong. Why? The autopsy is not completed yet, but we'd bet that the answer is that those being surveyed simply lied about their voting intentions. They knew perfectly well that Trump is unqualified and temperamentally unfit for the job, but they are hopping mad and "not going to take it anymore." Their rational minds told them to vote against the showman but at the last minute, their lizard brain took over. Some aca-demics go so far as to say the Trump message was propaganda on the same level as Hitler's—and equally full of lies--and with the same outcome. Trump and others compare the victory to Brexit, in which the voter allowed irrationality to cloud judgment on where self-interest lies, not realizing that it's not something to be proud of.

Many analysts are worried that Brexit and now Trump mean that a big swathe of the global political scene will go populist, too. Jean-Marie LePen tweeted "Today the United States, tomorrow France." Reuters reports a director of the German Council on Foreign Relations "said Trump's bare-fisted tac-tics amounted to a model for populist European parties in the looming campaigns. ‘The broken taboos, the extent of political conflict, the aggression that we've seen from Trump, this can widen the scope of what becomes thinkable in our own political culture.'"

In December, Austria holds a presidential election that could put the first far-right guy into office since WW II. Renzi's referendum might fail and push the Grillo camp into power. "Right-wing nationalists are already running governments in Poland and Hungary." An important point is that a party doesn't have to be in power to shape the debate. The UKIP has only one seat in Parliament but still pushed Brexit home.

We won't have to wait until after the inauguration in January to see financial market effects, if only because Trump is undisciplined and won't be able to resist shooting from the hip and making irrespon-sible comments. A couple of ECB board members can see it coming. According to Reuters, the Bank's chief economist Praet called for "calm" while "Slovenian central bank governor Bostjan Jazbec and his Austrian counterpart Ewald Nowotny stressed the ECB's preparedness to act if needed. ‘We are defi-nitely prepared to intervene in an emergency,' Nowotny told reporters." It's the first mention of inter-vention and less than 12 hours from the election outcome. Oh, dear. The Japanese are no doubt thinking it.

Something we will all be holding our breath to hear is whether Trump will demand Yellen's resignation and try to pack the Fed Board with cronies. This is actually less of a worry than it might be, because Trump doesn't actually have any cronies—yet--except Carl Icahn, who is a gloomster and on his third straight year of fund losses. But we guess the first big institutional crisis of the Trump presidency will pertain to the Fed and its independence. We might end up with the likes of Larry Kudlow.

If we buy the Brexit comparison, the FT's Authers writes, "A big sell-off of US assets is a given, as is a subsequent bounce." Authers deduces that the market sell-off will stay the Fed's hand. Also, "Emerging markets will be a particular victim due to their dependence on trade. They appeared to be at the beginning of a renaissance; that is now in question. Markets tend to overshoot, and this will produce some buying opportunities and bargains." Authers is always to be heeded. He writes "Extreme volatili-ty is certain."

Make no mistake: the US voter electing Donald Trump is an unmitigated disaster for the economy and for financial markets. We cannot write a scenario is which it's dollar-favorable, either. And for all we know, Trump seeks to drive the dollar down—it's good for exports, right? Never mind that insulting and offending other countries puts at risk the vast amount of US government debt held by foreigners. In fact, the majority of the debt is held by US entities, including state and local governments, pension funds, mutual funds, and the Fed, for about 68% of the $19+ trillion in issuance. Foreign countries hold 32.5% of the total, but that's still a mind-bending sum, about $6.5 trillion. Maybe Trumps' reckless offer to "make a deal" with foreign holders of the US debt entails a trade-off between partial default—writing it down—and trade deals.

Sometimes we show monthly charts to get a feel for the really big picture. Here is the euro. A test of the resistance line yields a reading of 1.3015 by next June. Admittedly, support and resistance lines on this scale are never the best indicator, but it's hardly a silly forecast.

		Current	Signal	Signal	Signal
Currency	Spot	Position	Strength	Date	Rate	Gain/Loss
USD/JPY	102.18	SHORT USD	NEW*WEAK	11/09/16	102.18	0.00%
GBP/USD	1.2417	LONG GBP	WEAK	11/04/16	1.2489	-0.58%
EUR/USD	1.1085	LONG EURO	NEW*WEAK	11/09/16	1.1085	0.00%
EUR/JPY	114.37	LONG EURO	STRONG	11/03/16	114.30	0.06%
EUR/GBP	0.8926	LONG EURO	WEAK	09/19/16	0.8564	4.23%
USD/CHF	0.9752	SHORT USD	WEAK	10/03/16	0.9726	-0.27%
USD/CAD	1.3409	LONG USD	STRONG	09/15/16	1.3203	1.56%
NZD/USD	0.7300	LONG NZD	WEAK	11/03/16	0.7301	-0.01%
AUD/USD	0.7669	LONG AUD	WEAK	11/03/16	0.7668	0.01%
AUD/JPY	79.12	LONG AUD	STRONG	10/06/16	78.48	0.82%
USD/MXN	19.9872	LONG USD	WEAK	10/31/16	18.9054	5.72%