Trump’s Gambit, or Opening Strong With The Dollar
Addison Wiggin / December 2, 2024
“We the BRICS countries need to play our role as responsible major countries. We need to advocate extensive consultation, joint contribution and shared benefits in global governance, and push for reform of the global economic governance system.
– Xi Jinping
December 2, 2024— President-Elect Trump had a busy weekend. He continued to give the Washington and Madison Avenue establishments a rash with new cabinet appointments.
Most notable to the D.C. swamp creatures is the appointment of Kash Patel to head the FBI. Patel has long called out the existence of a “Deep State,” and has even suggested that the FBI move its headquarters out of the D.C. bubble. He has, in fact, stated on “day one” he’d close the Hoover Building and reopen it the day after as a “museum of the Deep State.”
Heh. Even as an apolitical observer, we can’t help but be entertained by the public spectacle.
The tweet that caught our eye however wasn’t even a tweet after all, but a repost on TikTok in between our kid’s Corgi videos and scantily clad swimsuit models prancing around Ibiza.
The MAGA-In-Chief is looking out for America in part by exposing a quiet rebellion against the U.S. dollar in global markets. Grey Swan readers will be relieved that the President-elect is at least talking about global geopolitics with some intent.
And yet it could be the biggest gamble of his second term. Per Truth Social:
You’ll recall we’ve spent more time analyzing the development of a “BRICS Buck” than any mainstream news outlet.
Perhaps our research is making it to Trump’s desk? Heh. He wouldn’t be the first President to read our stuff.
As we’ve well documented here, the U.S. dollar represents 58% of global trade settlements. That’s a lot. But it is significantly down from the 71% at its height in 1999, prior to the advent of the euro. Continue to erode the dollar’s global market share… and the U.S. has a problem.
In the next crisis, printing $1 trillion or so would mean far more inflation in America when spread around 330 million Americans vs. a global population of over 8 billion. That’s why French Minister of Finance Giscard d’Estaing called having the world’s reserve currency an “exorbitant privilege,” a term later attributed to his boss, President Charles de Gaulle.
Trump’s tariff gambit is a hot open. He’s already gotten a surprise visit from Canada’s WEF wunderkind Justin Trudeau. Mexico’s Claudia Sheinbaum has suggested they may close their own Southern border to appease the new Prez’s bluster.
Here’s what at stake.
Trump’s wagering the strength of the US consumer economy v. China’s Xi Jinping, the Mexican Cartels, Russia’s Putin, North Korea’s Kim Jong Un, the religious nuts in Iran, Lebanon and Gaza, and the entrenched interests of the World Economic Forum… all at once!
What a time to be a writer. You can’t make this sh$t up.
The soft underbelly here is obvious. U.S. consumers are tapped out. Credit card debt has soared over the past few years. Personal savings? They’ve dropped from pandemic highs of over 15% and stand at 4% today, less than half their long-term average rate of 8.9%.
In other words, the demand to buy cheap goods from overseas has a natural limit. Not least of which is fueled by this outgoing “death cookie” left in Trump’s path:
The jobs report for October posted by Global Markets Investor on November 6 shows the creation of just 12,000 jobs. And that’s following that bizarre August revision lower by over 818,000.
But we appreciate that Trump is at least identifying the threat that a BRICS Buck poses to the U.S. dollar’s reserve currency status. We’ll see how his gamble with the U.S. dollar plays out.
Meanwhile, negotiations don’t happen in a vacuum. The BRICS nations have seen how heavy-handedly the U.S. has treated Russia following its invasion of Ukraine. Russia was cut off from the SWIFT payments network, its stocks were delisted on U.S. exchanges, and assets were frozen, only to be thawed to fund weapons and other material to Ukraine.
The ball is already rolling on a BRICS Buck, and the tough tariff talk may accelerate those plans. The real question for the BRICS nations is how quickly they want to be cut off from Western financial markets, and the “almighty” American consumer.
That’s why we see a likely trade war scenario in 2025, which could mean far more volatile markets ahead.
And why you’ll want to own assets such as gold, which the BRICS nations are buying in droves, and bitcoin, which operates without any political or government permission.
The stock market has been gobbling up global capital. The S&P 500 hit its 52nd record high last week. Now, leveraged at an all time high.
Global Markets Investor notes that leveraged ETF funds have soared, with assets under management (AUM) doubling since 2022 alone.
For now, markets are ignoring this potential global economic flare-up. In fact, they’re betting heavily the world will continue just fine.
On the tariff issue, Trump has gone all-in, pushed all his chips to the center of the table.
And like any good gambler, sometimes you win by holding the better hand, and sometimes you just get the other guy to go with his gut and fold.
We’ll let Grey Swan contributor John Rubino give a quick overview of how the rest of the world is faring, and why they may just fold their hand for now. ~ Enjoy, Addison
CONTINUED BELOW…
Trump’s “2nd Term Playbook”
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CONTINUED…
Recession Watch: Bad News From Around the World
John Rubino, John Rubino’s Substack
China
From the Kobeissi Letter:
China’s consumer confidence index dropped to 86 points in August, near the lowest in 30 years. Over the last 3 years, consumer confidence in China is down ~ 50 points. Such a drop in consumer assessment of the Chinese economy has almost never been seen before.
Foreign firms are also pulling money out of China for the first time in 30+ years. In Q3 2024, investors withdrew $8.1 billion from China, according to recent data. Year-to-date, investors have withdrawn a total of $12.8 billion from China, the most since at least 1998.
And even with the prospect of stimulus, deflation in China continues. Prices in China fell for the sixth consecutive quarter in Q3 2024, the longest streak since 1999. This is 3 times longer than during the 2008 Financial Crisis when deflation lasted for 2 quarters.
Germany
German economy ‘floundering’ as business morale deteriorates
(Daily Sabah) – The German business sentiment index fell more than expected in November, a key survey showed on Monday, amid political uncertainty following the collapse of the country’s coalition government and Donald Trump’s U.S. election win.
The ifo Business Climate Index, which is based on a survey of roughly 9,000 companies across the country, dipped by 0.8 points to 85.7 points, the institute announced.
The survey comes as Germany heads for new polls in February following the collapse of Chancellor Olaf Scholz’s coalition and with businesses facing the threat of higher tariffs on exports to the key U.S. market once Trump returns as president.
Philipp Scheuermeyer, economist at public lender KfW, said it was “no wonder” that the index had fallen.
“Donald Trump’s election victory is likely to create new headwinds for the already hard-hit German export industry,” he said.
“There is also the threat of a prolonged period until a new government is formed, during which German politics will hardly be able to react, let alone provide any stimulus.”
The picture in both the service sector and construction industry worsened significantly, according to the survey.
ifo President Clemens Fuest stressed that “sentiment among companies is still a long way off from being positive.”
“The German economy is floundering,” Fuest said in a news release announcing the results.
Meanwhile, here in the US
(Kobeissi Letter) – Auto loan early delinquency rates jumped to 8.12% in Q3 2024, the highest in 13 years. Serious delinquency rates surged to 2.90%, also the highest in 14 years. 90+ day delinquencies are now just 58 basis points below the record levels seen in 2009.
In 2024, auto loan delinquencies have risen at the fastest pace since the 2008 Financial Crisis. All while US households’ auto debt rose by $18 billion in Q3 and hit a new all-time high of $1.64 trillion. Americans are missing loan payments as if a recession is here.
Inventory of New Single-Family Houses Jumps to Highest since 2007. Unsold Spec Houses Jump to Highest since 2009 as Sales Suddenly Plunge
(Wolf Street) – Big homebuilders cannot sit out this market, they have to do what it takes to build and sell homes to keep their businesses intact and keep their shares from tanking. So they’re building at lower price points, buying down mortgage rates, and throwing in other incentives at a substantial expense to them. Though that may not have been enough.
Some demand has shifted to new houses from existing houses whose sales have plunged to the lowest levels since 1995 because their too-high prices have triggered large-scale demand destruction. But inventories of new houses have been piling up, and then there’s this sales issue in October with spec houses.
Unsold inventories of new single-family houses at all stages of construction – from not yet started to completed – jumped by 9.3% year-over-year to 492,000 houses, not seasonally adjusted, the highest since December 2007, according to Census Bureau data today. That’s getting on up there. Supply rose to 8.2 months.
Homebuyer sentiment has never been worse
(Kobeissi Letter) – A near record 84% of Americans believe it is a bad time to buy a home, according to Reventure. Over the last 4 years, this share has increased by a whopping 50 percentage points.
By comparison, at the peak of the 2006 housing bubble, ~40% of Americans thought it was a bad time to buy a home. Even in the 1980s when mortgage rates were as high as 18%, this metric was 5 percentage points lower, at 79%. Homebuyer sentiment has never been worse.
US credit rejection rates are spiking
(Kobeissi Letter) – The average rejection rate for credit hit 22.9% in October, the most in at least 11 years according to the Fed credit access survey. Meanwhile, the credit card rejection rate rose to 20%, the highest since 2014. Credit card limit increase rejections skyrocketed to 45%, a new record since the survey began in 2013.
Additionally, mortgage and auto loan rejection rates DOUBLED over the last 3 years to 23% and 14%, respectively. It has rarely been tougher to access credit in the US. Is the debt bubble bursting?
~~ John Rubino, John Rubino’s Substack
Regards,
Addison Wiggin,
Grey Swan
P.S. Part of the reason Trump has the political capital to gamble on tariffs and global brinksmanship with the BRICS is because the Biden administration is so brazenly corrupt.
As if to prove the point, Biden pardoned his son Hunter over the Thanksgiving holiday weekend. The blanket pardon covers any federal crime Hunter committed over the past 10 years, not just the gun charges and tax charges that carried potentially up to 7 years in prison and over $1.3 million in fines.
That date is important. In 2014, Hunter started working at Burisma, earning $50,000 per month as a board member of a gas company.
If reports from an analysis of Hunter’s laptop are true – and if this were 2020, the mainstream media would be bending over backward to tell you it wasn’t – the gig came solely from being the then-Vice President’s son. It certainly wasn’t from hard work or extensive industry experience.
President Biden may want to grant himself a blanket pardon before leaving the White House in January.
For now, it’s another piece of political capital for Donald Trump to ante up with, even before he steps back into the Oval Office. And he intends to go all-in on protecting the U.S. dollar, whether with tariffs, trade wars, or derailing the ambitions of the BRICS coalition.
Meanwhile, reader Dean M. writes in:
Perhaps I don’t see all of the consequences of the projected tariffs, but my reading over the years suggest to me that they are a form of bullet-free war. Tit for tat that often kills trade, particularly for Americans who will suffer the increased cost of goods by the dismantling of a highly profitable trading partnership. It’s unlikely that China, Canada, Mexico, and Russia will simply roll over and watch the highly profitable trade disappear and just say “Oh well….
High tariffs are an economic war-like action; a theoretical method that will likely beggar other nations, whether allies or “enemies.”
Looking for an escape from the massive national deficits created by drunken sailors managing government spending for the past decade +, this is likely intended to show the American people that Trump is serious about turning the American ship away from the fast approaching economic iceberg. A hard right rudder will more than likely turn the ship of state straight into oncoming traffic.
Before the Covid pandemic hit in 2020, the roughest patch of Trump’s first term was in 2018. Financial markets didn’t like the first round of a trade war. This time around, many companies may be better prepared, but we could still see supply chain issues, inflationary pressures, and other factors that bode poorly for today’s high-flying investors.
At Union Market, Washington, DC this morning. (Source: Addison Wiggin)
Send your thoughts on Trump’s tariff wars and 2025 predictions here: addison@greyswanfraternity.com