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8/21/2018 – A positive day with the Dow Jones up 63 points (+0.25%) and the Nasdaq up 38 points (+0.49%)
President Trump is in real trouble. And no, were are not talking about Mueller, Cohen or Monafort. We are talking about the upcoming implosion of the Trump’s ‘Everything Bubble’
You see, the sugar rush associated with Trump’s tax cuts to the rich/corporates (stock buybacks) and the weak dollar are wearing off. Understandably, the above was used to cover up massive imbalances of debt, speculation and crony capitalism. Unfortunately, this Ponzi Scheme of massive proportions is about to make its maker.
That is why Mr. Trump is so desperate and is now attacking the FED.
Trump Complains About Fed Rate Hikes: Expected Powell to be “Cheap Money Chair”
Trump, in an interview with CNBC, said he does not approve, even though he said he “put a very good man in” at the Fed in Powell. “I’m not thrilled,” he told CNBC’s Joe Kernen in an interview to air in full Friday at 6 a.m. ET on “Squawk Box.” “Because we go up and every time you go up they want to raise rates again. I don’t really — I am not happy about it. But at the same time I’m letting them do what they feel is best.” “But I don’t like all of this work that goes into doing what we’re doing.”
Exclusive: Trump demands Fed help on economy, complains about interest rate rises
After leaving its policy interest rates at historic lows for about six years after the 2008 global financial crisis, the Fed began slowly raising rates again in late 2015.
Trump said China was manipulating its yuan currency to make up for having to pay tariffs on imports imposed by Washington. “I think China’s manipulating their currency, absolutely. And I think the euro is being manipulated also,” Trump said.
“What they’re doing is making up for the fact that they’re now paying … hundreds of millions of dollars and in some cases billions of dollars into the United States Treasury. And so they’re being accommodated and I’m not. And I’ll still win.”
Watch Out Dollar Bulls: Trump’s Criticism of the Fed is Getting Serious
This puts investors in-between a rock and a hard space.
On one end: the Fed’s continuing to tighten – which is bullish for the dollar.
‘Real’ interest rates (inflation minus nominal rates equals the real rate of interest) are still near zero – maybe slightly negative.
And because of this, the Fed’s rate hikes haven’t caused the ‘tightening’ in the economy many expected.
Thus, until the Fed achieves their 3% rate target by the end of 2019 – or until U.S. growth plummets – expect them to continue hiking.
But on the other end: Trump’s worried about the strong dollar and continues criticizing The Fed’s tightening – both which are bearish for the dollar.
If the Fed continues raising rates – or if the dollar continues being, as Trump calls it, “overvalued” compared to U.S. trading partners – Trump may personally step in.
Our view remains the same, President Trump has dug his own grave associated with everything bubble and must now lay in it. Here is why…
In simple terms, it is too late. The bubble is too big, the yield curve is already flat enough to cause a recession, Trump’s trade war is idiotic and damaging to the US, interest rates will keep going higher, the dollar is too strong, the bullish spirits are running at peak levels and if that wasn’t bad enough, the Democrats have a very good chance of winning in November.
Let us step away from the fundamental analysis for a second, something we have beaten to death here over the last few months, and answer the question from our TIMING and MATHEMATICAL perspective.
Our cyclical composition of various markets suggests the following.
The FED will continue to hike interest rates until the yield curve inverts (nearly there) and causes a recession. The simple truth is, they have no choice as they need to reload for the next recession. The US Dollar will continue to much higher levels. Not immediately, but don’t be surprised to see the DXY at $99 or above within a year.
Further, inflation will vanish into thin air, only to be replaced by deflation. Trump’s ill timed trade war will be disastrous for all involved and the stock market will crater. Once again, the above is based on the cyclical composition of various market.
If you would like to find out exactly when all of the above happens, based on our timing and mathematical work, please Click Here.
