The Trump Trade is Sinking the US Dollar

Considering the immense turmoil it had experienced over the last two weeks, the Trump administration no doubt has seen slightly better days.

Amid the legislative setbacks, in-house tensions and firings, more controversial comments and tweets to fill the gap, and to top it all off (at least for now), a second intercontinental ballistic missile test by North Korea, with a brazen taunt that the ICBM’s can reach just about every major US city--despite all of this, Trump can find comfort in the fact that the Trump Trade is pushing the stock market rally to heights never seen before.

In fact, as is customary for Trump, he jubilantly tweeted about it Monday morning.

The stock market’s performance has been spectacular, no doubt. But one has to take some caution and think about what exactly has been driving the markets.

In fact, we covered this in an article a few weeks back. Do you remember this image?

Are American households driving the rally? No, not quite. Are corporate institutions loading up on their positions? Definitely not. In fact they have been selling quite heavily. Is the rally fueled by corporate stock buybacks? That’s correct. Last thing: might the low interest rates, thanks to the Fed, have anything to do with the money corporations have borrowed to buy back their own stock? Bingo!

So there you have it. Now, there’s a good and bad to all of this. If you are heavily invested in the markets, you are certainly enjoying your unrealized profits. But do exercise a little sobriety, for the currency upon which the value of your equities “float”--the US Dollar--has been steadily sinking.

And if you happen to be one of the unlucky majority who missed the boat with regard to this rally, guess what, you are holding cash whose value just got diluted.

The Trump dollar trade is “HUGE!” but it’s going in the opposite direction.

Here’s an image to put it all into perspective:

This image tells us that currency traders are expressing their lack of confidence in the US economy through transactions made in the $5.1 trillion-a-day global currency markets. In fact, they are wagering on even further declines as the dollar continues to sink.

According to Trump, this may not be a bad thing. After all, he had stated on several occasions that dollar strength generally hurts US manufacturing, which is a key component of his agenda (America First).

But you also have to take into account how the dollar had been rising as the certainties of a Trump presidency were getting closer and closer--bringing with it the promise of renewal in America’s “greatness”--only to fizzle as healthcare reform and tax reform didn’t get off the ground as quickly as everyone had hoped.

Whatever the case may be, further declines in the US dollar appear on the horizon which, according to Invesco’s global market strategist, Kristina Hooper, can either be “a vote of confidence, or lack of confidence, in the US economy.”

On the upside, gold had risen by 11%, slightly higher than the S&P 500’s 10.4% gain from January to the present.

Spot gold started just above $1,150 per ounce and is currently at $1,275, an 11% gain as compared to the S&P 500 is up 10.4%. In short, gold is performing just as well as stocks.

The only difference is that gold offers sound value while stocks, especially at these high levels, are comparable to casino bets. Are you an investor or gambler? It’s a question you’ll have to ask yourself.

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