The Termination of Ignorance
"The story is the same every time: some nation, due to a confluence of lucky circumstances, becomes powerful—much more powerful than the rest—and, for a time, is dominant...As the endgame approaches, those still nominally in charge of the collapsing empire resort to all sorts of desperate measures—all except one: they will refuse to ever consider the fact that their imperial superpower is at an end, and that they should change their ways accordingly"
If Donald Trump didn't exist at this latent juncture, someone just like him would soon be invented. Someone to entertain the masses while tearing down the globalized trading system that this country created.
What Trump is doing - the reversal of Globalism - is NOT impossible. However, it IS impossible to accomplish without extreme market dislocation. He wants America's share of trade to increase at the expense of the rest of the world. A share of trade that has been collapsing since the advent of "free trade" under Ronald Reagan 45 years ago.
What Trump doesn't know is that the trade account which is officially known as the "Current Account" and the Capital Account, must be in balance at all times. They are the opposite sides of the national balance sheet, therefore if the U.S. is running a capital account surplus - and pulling money in from all corners of the world, then by definition it must be selling fewer goods globally, because the rest of the world is lending the U.S. the money to live far beyond its means. This "unique" and ever-growing capital account surplus is often called the U.S. dollar "exorbitant privilege", which happens to mean the exact opposite of an "unfair trading system" as characterized by the Circus Clown In Chief. It carries the unique ability to run recurring trade deficits without collapsing the dollar reserve currency and represents the sole American ability to become a Third World country slowly and inexorably over many political cycles, instead of instantly as would happen to any other "unexceptional" country.
It was imported deflation from the Third World that allowed U.S. interest rates to trend ever-lower over four decades of "free trade", while the U.S. middle class was systematically swapped out for a foreign workforce both offshore via outsourcing and onshore via immigration.
This has been an extremely capital friendly regime at the expense of labour.
Under this dollar reserve paradigm, the primary beneficiaries of capital inflows are of course the dollar itself, U.S. Treasuries, and now the fatally doomed group of stocks called "The Magnificent Seven". So what Trump is saying he wants to do is now is make the U.S. less dependent upon imports while lowering interest rates at the same time. Which is IMPOSSIBLE. But unfortunately, no one in the GOP has enough sack to inform their naked emperor he has no clothes.
Therefore it will be up to the markets to inform him.
"Just days after his inauguration, President Donald Trump began applying pressure on the Federal Reserve to cut rates. But Wall Street sees that as unlikely and is even viewing rate hikes as a growing possibility."
"We don’t believe the Fed will cut rates in 2025 — we don’t even believe the Fed is done...Instead, we expect the resilient US economy and Trump’s polices to push inflationary expectations higher and force Fed chair Jay Powell to increase rates from September onwards."
Which gets us to this week. Notwithstanding a mixed bag of earnings Wednesday evening, we got notice earlier in the week that U.S. dominance in AI has been imploded by a $6 million Chinese Chatbot. Trillions down the drain on Monday in the largest single day market cap loss in history for Nvidia.
This is Wednesday's closing view of Nvidia which is now perched precariously at the last line of support.
Also Wednesday we got a hawkish Fed exactly as Trump policies would predict, and he would fail to comprehend. And the Bank of Canada cut interest rates again with a currency now at two decade lows.
Now, Thursday morning, the ECB just cut rates again.
Which leaves only the U.S. and BOJ as the outliers. With the U.S. on a hawkish pause, and the BOJ now tightening at BOTH ends of the yield curve for the first time in history.
"TOKYO – The Bank of Japan (BOJ) made a significant step towards shrinking its massive balance sheet in the week of Jan 20, while market watchers were fixated on the biggest interest rate increase from the central bank in 18 years."
Still, the Fed’s experience points to potential risks ahead for the BOJ as it tries to reduce its balance sheet without spooking markets."
In summary, below in this chart we see the Tech trade is directly correlated to global currency weakness relative to the dollar.
Trump wants this presumed "currency manipulation" which has been bidding up dollar assets to end immediately.
We are witnessing the termination of ignorance.
