Some Syrup With Those Waffles, Mr. Trump?

So, now, China isn’t a currency manipulator.

And NATO is good, not obsolete.

And Steve Bannon is obsolete, not good.

Same with Putin – not good, anymore … though not, yet, obsolete.

Fed Chair Janet Yellen is no longer obsolete either, and that’s good, according to our new president, because “I do like a low-interest rate policy, I have to be honest with you” – this despite blasting Ms. Yellen a year ago for keeping interest rates “artificially low.”

Meanwhile, “We should stay the hell out of Syria” is now bomb the hell out of Syria.

And on Nafta: “The worst trade deal maybe ever signed anywhere,” is now not so bad after all and, per news reports this week, in need of just a wee bit of constructive tweaking.

So much waffling going on this week in Donald J. Trump’s White House that it seems Trump voters should have received a waffle iron with every vote cast.

These are important developments – so important, bigly – because they begin to change the dynamics in D.C. and perceptions on Wall Street.

Trump Bump to Trump Slump

Trump won the White House on a certain set of promises made to a certain set of American voters who bought into his certain brand of bravdo.

Now, however, his platform promises are melting away, seemingly by the day. His base is none-too-pleased with many of these flip flops. And what was once a belief on the Street that what Trump promised is what he was going to deliver is now a muddled puddle of piddle, at best.

He failed to deliver on Obamacare … which, in turn, impacts his ability to deliver on tax reform, predicated in part on saving a boat-load of money on healthcare reforms. So tax reform is already in trouble before it has even hit Congress.

As a result of all of this, the Trump Bump is turning into a Trump Slump as global Wall Street comes to the realization that all if had hoped for from a Trumpian White House is probably not in the cards anymore. At the moment, it’s a slow burn lower. That, of course, could easily turn into a raging conflagration on short notice. Stocks have been on a southerly trajectory for nearly a month and a half. Gold is on the ascent. So, too, are bonds. The dollar is falling.

These are not signs of strength. They’re signs that all is not well in the land of Trumponomics.

The irony is that DJT told the WSJ that the dollar’s strength “is partially my fault because people have confidence in me.”

Or not…

Ego Aside, the Strong Dollar is Not a Function of Trump

The strong dollar, such as it is, is entirely the result of events external to Donald Trump. The buck has been marching higher since 2011, largely for three reasons:

  1. Europe has had a debt crisis to manage along its southern flank, and the European Central Bank’s efforts at doing so brought down the value of the euro relative to the dollar.
  2. Japan is into its third decade as an economy wasting away, and Japan’s government and central bankers have been sacrificing the yen to save the economy.
  3. The Federal Reserve has been promising to raise rates for several years, so currency traders were positioning themselves in front of that wave to ride it to big profits.

Trump? He has had precisely zero net impact on the buck. In fact, after a very brief post-election flirtation with Ecstasy, the dollar today is back to where to where it was when Trump won in November.

All of this tells me that the dollar is going lower, gold is going higher, and the Fed is not likely to raise rates again anytime soon, a boost for Treasurys. It also likely means expectations for the Trump economy will soften, and that will lead U.S. stocks lower, which will power European stocks higher as stateside money searches for greener pastures.

Our Investment Strategy

  • Increase exposure to the euro, either through ownership of European stocks or by way of a euro currency ETF. On the stock side, I prefer WisdomTree SmallCap Dividend Fund (DFE). Smaller companies tend not to have much currency exposure and are more reliant on domestic, Continental economies – and Europe is looking up. Plus, it has a nice dividend kicker, currently topping 5%, and the Western world is certain to remain in a low-interest rate environment well into the 2020s. On the currency side I prefer the Guggenheim CurrencyShares Euro Trust (FXE).
  • Increase exposure to intermediate-term U.S. Treasurys through Guggenheim Total Return Bond ETF (GTO).
  • And, as always, own gold. At this point, it’s both insurance and an opportunistic investment on Trump driving the dollar lower.

By the way, can any Canadians ship me some maple syrup for my Trump waffles?

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