The Trump Presidency continues to be a boon for stock investors with Trump’s tweeting having become a kind of administrative PPT that ignites a new rally any time stocks are in danger of breaking down.
However, the reality is that Trump can only tweet the markets into rallying for so long. Trump is inheriting an eight years of the most profligate Fed monetary policy in history: a balance sheet expansion of $3.5 trillion, and seven years of ZIRP, which permitted the US to double its debt load.
Put simply, whatever economic or financial issues arise, the Fed has little if any dry powder available. At best the Fed can walk back its hawkishness: rate cutes and additional QE could not be implemented unless a full-blown financial crisis unfolds.
Meanwhile, the US is lurching into recession.
Much of the unmassaged economic data began contracting in 3Q16, however, this was ignored as most commentators focus on the highly political and highly dubious “official” GDP numbers.
This has continued. Even the Fed’s GDP NOW has begun adjusting lower from the ridiculously unrealistic estimate of 3+%. As it stands, 1Q17 GDP growth is sub-2.5% and likely to drop further as more data weakens in the coming weeks.
In this context, the notion that the Fed is going to embark on an aggressive tightening schedule is ludicrous. As mentioned before, the Fed has engaged in seven years of the loosest monetary policy in history. The notion that the Fed is going to tighten aggressively when the US economy is contracting (and dramatically underperforming Europe for that matter) is absurd.
All of this points towards a much weaker US Dollar in the coming months. Trump campaigned on numerous issues including trade, manufacturing, immigration, the US economy, debt levels, and more.
However, in terms of economics, all of Trump’s policies boil down to one central theme.
A weaker US Dollar.
Manufacturing, trade imbalances, accusations of currency manipulation= all of these will require the US Dollar to be lower.
Those who realize this and allocate capital accordingly will make a killing in 2017.
On that note, we’ve put together a Special Investment Report outlining three investment strategies that will produce major returns as a result of Trump’s economic policies.
It’s titled How to Profit From the Trump Trade and we are giving away just 99 copies for free.
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Chief Market Strategist
Phoenix Capital Research
This post originally appeared on Zero Hedge