The Brewing Trump Trade
The Brewing Trump Trade
Taxes, Rates, the Dollar...and the path forward for the empire
Reading Time: 16 minutes
Prediction markets and polls notwithstanding — this election will be extremely close. No one knows what will happen so I will add layers that apply to both candidates even if will focus on a Trump victory.
So… how will the landscape change in a Trump 2.0 Presidency?
Investors are looking for clues from:
What Trump/Vance are saying
What Donald tried to do last time
And what actually happened last time
For me that’s not enough — you need CONTEXT. And so to do this I will tackle this thematic from the following angles:
Politics
Geopolitics
Economics
Sentiment
Context Reading
Big Picture Context
The US is on the cusp. Global competition from other “hegemons” has been increasing for decades. The Eastern bloc (basically, the BRICS) is consolidating power and uniting against the West in all sorts of ways.
Instead of seeing the Big Picture (addressing systemic problems and global competitiveness) the powers that be in the States are wasting energy on “Peak Empire” domains like divisive domestic politics and short-term solutions with no substance. Typical!
American Politics sees how far society has fallen — and they understand that shooting for long-term solutions means a pain that modern society has no will to endure. And so, they dangle in front of thm short-term solutions that will only amplify the problems — but a bit further down the line!
Kicking the can down the road… This is the mindset that got us where we are.
I think Trump sees this — I think he understands the position of the US on the global arena and is willing to make geopolitical (and not only) concessions for the sake of becoming more economically efficient.
This is the business-minded approach, right?
The thing is, Donald is forced to play the political short-term game too. But even worse, he is forced to rule (if he wins) the country in a much worse state than when he took over in Trump 1.0.
—> The cure is worse than the disease.
Following the 4 layers mentioned above, let’s analyse the setup with the intention of uncovering traps, risk and opportunities from a Trump 2.0 Administration.
Let’s dig in…
1. US Politics
Let’s start locally. What would happen within the States if Trump/the Republicans are elected? What are they telegraphing?
I think Florida Senator Rick Scott sends a message that all Republicans agree with — that Bidenomics must be stopped. The problem is, the economy will take a long painful time to adjust out of the incessant fiscal pumping of the last few years (and yes, that includes Trump’s $2 trillion Covid-era stimulus package).
US Senator Scott revises what’s happened in the past few years, I highlight a few excerpts I think are important for context. Read his 2-page letter here.
Biden and the Democrats hijacked the COVID-19 pandemic to force America into a new era of super-government control and, with it, unbelievably reckless government spending. Under the Biden administration, the national debt has skyrocketed by nearly $8 trillion and is now nearly $35 trillion.
You would think that in the face of these terrifying numbers, Biden would reverse course. Instead, he’s doubled down and recently proposed a $6.8 trillion budget.
Let’s put this into perspective: the population has increased by only 2% since 2019, but spending has increased 55% during the same time. When you think about it, that is $400,000 in government spending per new person in the population.
The cost of this spending and debt is skyrocketing inflation and a historic burning of tax dollars on federal interest expense. These are the consequences of this administration’s failed Bidenomics agenda, and if it is not stopped it will destroy our country.
Inflation has skyrocketed since Biden took office. The cost of eggs is up 84% and beef is up 47%. The cost of rent is up 21% and the price of gasoline is up 63%. These high prices are piling up, and living day to day now costs families in my home state of Florida an extra $1,203 a month. This means that to live the same life they did before Biden took office, folks have spent an additional $28,812 in after-tax dollars over the past three years.
Our government’s massive debt and reckless spending caused this, and people in every state are rightly furious that so-called leaders in Washington are fueling the problem.
A Return to Central Planning
George Soros protégé and former CIO Scott Bessent is extremely critical of Bidenomics. This is a copy of a speech he made this June.
The Biden administration chose to put central planning at the heart of its economic agenda. The resulting economic calamity was the predictable result.
Bessent, an economic historian, gives us some great historical context.
He explained that Reagan took several years to unwind excessive government interventions of the previous Democratic administrations, and by doing so unleashed the “productive capacities of the U.S. economy”.
That state of affairs held until…
But the Obama administration featured a return to heavy government intervention in the private sector, particularly through its turbocharged expansion of the regulatory state, delivering an economic constipation similar to that which plagued the U.S. before the Reagan revolution. The Trump administration’s pursuit of tax reform, deregulation, and fair trade produced noninflationary growth that generated the fastest increases in real wages in a generation.
YES — context always matters, Biden took over during the peak of Covid/Post-Covid era with geopolitical risks exploding — while Trump ruled mostly during benign times. Obviously inflationary risks are different…but that’s not the crux of the matter: Bidenomics is an abomination.
Yet the Biden administration actively chose to disregard the roadmap for economic dynamism that Presidents Reagan and Trump left behind. Instead, the Biden administration reached back for the Carter model. “Bidenomics,” or under Treasury Secretary Janet Yellen’s more nomenclative framing of “modern supply side economics,” is neither modern nor supply side nor economical. At its core, Bidenomics represents a return to the discredited economic philosophy of central planning.
President Biden’s economic team hoped, in the words of former National Economic Council Director Brian Deese, that the Bidenomics experiment would result in a “new equilibrium of higher productivity, higher wage growth, [and] higher GDP growth as a result of this set of policy interventions.” But like all prior attempts at central planning, it failed to deliver prosperity, and instead generated a substantial upward price-level shock, accompanied by an insidiously persistent inflationary environment that has eroded standards of living in the United States. Continual economic anxiety has replaced abundance and prosperity.
Domestic Politics Conclusion: There will be a push to unwind Bidenomics — but with the economy having “adjusted” to post-Covid and subsequently Bidenomic stimuli; there are downside risks to that unwinding.
“My optimism is tempered by the insight that the time when past excesses are corrected is the period of greatest risks.” —George Soros
Dollar Reserve FX and US Manufacturing
VP Candidate JD Vance seems to want a weak Dollar.
He mentions his tough childhood growing up in an Ohio struck by the loss of manufacturing jobs — as Eastern competition rose to take rural America’s loaf of bread.
JD Vance (and many around him) seem to feel that having the world’s reserve currency is a burden to the US economy. Their reasoning is that a strong dollar means expensive prices —> making it impossible to compete with foreign markets.
Philo’s Take: First-level thinking tells you economies with cheap currencies benefit from boosted exports. But if it were so simple, any country with a falling currency would be benefitting from increased exports.. That isn’t the case.
—> There were other things happening that caused manufacturing job losses in the US. Primarily, the rise of China and its entry into the WTO in 2001 — a much more competitive exporter, while the US was losing its competitiveness. Business is tough!
In actuality, a strong dollar means the US can borrow on the cheap, using the money to spend within its economy and sustain jobs. If it couldn’t borrow at beneficial rates, it would have to curb government spending —> and that fiscal contraction would probably bring a recession.
So, let’s see if Vancenomics manages to bring down the dollar by intervention, and how that will affect the US’s ability to fund its deficit on the cheap from foreign lenders... More context here: Peak American Empire
We’ll get to the conclusion in the end.
Now let’s move on to potential effects on clean energy, oil & gas, legalisation of cannabis, education, taxes, Big Tech and more.