19 Comments

while I think you make some excellent points here, I assure you Americans were voting for more than simply an economic resurgence, but to regain what are critical aspects of the American experience, namely unfettered free speech. while nobody will willingly pay to address climate change, there are clearly millions of Americans, myself included, who see the issue as paramount to the future of the nation. if other nations have difficulty coping with change, that is not generally going to be of grave concern in the States.

the global world resulted in China very effectively gaming the system to produce goods and sell them at uneconomic levels thus hollowing out Western manufacturing processes. while Europe, now that it has lost access to cheap energy, will never recover, the US is the closest nation to self-sufficiency there is, and I would contend that is the goal.

I agree the dollar will likely rise not fall, but remember, if the trade deficit declines, think of the chaos that will undermine other nations with their $100 trillion of USD debt and limited ways to get hold of the dollars necessary to service and repay it if we are not spraying them all over the world.

while inflation still seems likely to rise, I think it will be kept in check by a combination of that strong dollar and weaker energy prices (remember, we are back to drill baby drill) so employment will be the driving variable in monetary policy.

I would also not discount Elon from coming up with ways to save substantial amounts of money for the government to help the fiscal accounts. after all, he is a pretty smart guy.

China, Russia and India all know that the game has now changed and their room for maneuver has been reduced. I would challenge your view that there will be more violence and instead call for the opposite.

Expand full comment

I do not believe that China has been selling most of the goods at uneconomic prices most of the time. If that would be true, they wouldn't have accumulated all of the capital (as in terms of infrastructure development as in terms of accumulation of treasuries and other investments.

Expand full comment

Infrastructure development (funded domestically) is separate from treasury and other Fx accumulation, which is a function of exchange rate management

Expand full comment

Astute insights.

One point - Japan is 'losing' in that workers see real wages suppressed (especially in gold terms) as you pointed out.

However the Japanese government has generated significant fiscal space from the combination of yen devaluation and a large stock of foreign assets - US$ treasury interest revenue is massive when translated back into devalued yen.

How does the US finance itself in such an environment, if devaluing against a trading partner isn't an option? My feel is that it has to inflate assets, and then indirectly 'tax' that revenue. A wealth tax is anathema to Trump, but income taxes are inadequate to fund the bloated state. Asset price inflation (as opposed to wage inflation) appears to be the future.

Expand full comment

It's not clear to me the US has to raise tax revenue. 6% gdp deficit and inflation is under control for the moment. Only when trasuries collapse will revenue raising be considered

Expand full comment

To me, the more important question is what happens if other developed countries start copying the US playbook? The US & Japan both run fiscal deficits at the Central Govt level over 6% of GDP even in the absence of a recession. The former has the reserve currency, the latter a large stock of domestic savings. If the Eurozone and UK join in, surely something breaks, somewhere?

Or do deficits really not matter anymore, if so what do we pay taxes for?!

Expand full comment

Trump 2.0 will be very different from Trump 1.0: inflation and rates are rising from the secular lows in 2020-21 and the slack in the economy is essentially not existent. So I forecast a Liz Truss moment for the Us Treasury market, which will increase risk-premiums also in the corporate bond market: this would cause lasting damages to Us big corporations earnings, which will also suffer from the decoupling of other economies. In any case, even the most powerful country in the world cannot change the laws of math: it can only destroy the value of its currency.

Expand full comment

The reaction in other markets will.be key. If the US starts losing allies - then change is possible. If US cuts Ukraine loose - then EU faces a big decision on its future.

Expand full comment

My impression is that turkeys has voted for Christmas: the problems for Trump will arise from his staunchest supporters when inflation will not abate.

Expand full comment

The experience of politicians in Turkey (Erdoğan) and Russia (Putin) suggest that high inflation isn't necessarily detrimental to their popularity, especially if real growth is relatively robust and coupled with authoritarian rule and "culture wars".

Expand full comment

Putin and Erdogan, when they rised to power, chrushed hyperinflation in their countries in first place: this explains their popularity within the middle-classes. Only later they promoted inflationary policies.

Expand full comment

Full employment seems more important than inflation concerns

Expand full comment

I do agree, however in Erdogan's case you can made a credible argument that inflation has been unusually persistent since, less so for Putin.

Regardless I expect that the sugar hit from a combination of handouts to the rust belt and chest-thumping "greatness" can endure for longer than you think... Remember that the median voter is not that sophisticated

Expand full comment

even for the BTC, I am not sure that it is not US invented or at least controled...

Expand full comment

At what point to declining bonds/rising interest rates pose a headwind to equities/valuations?

Expand full comment

THE NEXT STAGE IN WESTERN CIVILIZATION DAWNS? Seriously? I hate to be the bearer of bad news. But BRICS isn't going anywhere and the world will get rid of the dollar and countries will continue to dump US treasuries. . Biden did permanent damage that Trump will not be able to undo. Russia and China will NEVER take the US's word for anything ever again. And what is Trump going to do about the out of control Jews? Do you think his son in law can wave a magic wand?

Expand full comment

Good piece! Macro risks for Africa increase in this scenario.

Expand full comment

'America first policies also includes others must fail politics' - great point

Where does this leave you on the USD? Your long-standing thesis that pro-labour policies will dominate the next era implies countries should want strong exchange rates/high real wage growth rates. But if America First means reducing the US trade deficit (at the cost of everyone else's export sectors) wouldn't that imply a weaker USD, as Trump, Lighthizer, Bessent etc have talked about being necessary? Which way do you think they go? thanks

Expand full comment

Weaker dollar via plaza accord was necessary if you were committed to free trade. Tariffs imply strong US dollar. Also implies the need for stimulus in exporting nations. All inflationary I think

Expand full comment