Trader: Why Trump Is On Track To Win The "Currency Devaluation Game"

Yesterday morning, Trump raised may eyebrows with his tweet accusing China and Russia of "unacceptable" currency devaluation: after all it was Trump's own policies that sent the ruble reeling in the past month, while the Chinese yuan was as its highest against the dollar since the August 2015 devaluation.

Still, for at least one trader - former Lehman employee and current Bloomberg macro commentator Mark Cudmore - Trump's FX tweet was more 4D chess and less clueless economist, and suggests that Trump is, in fact, on track to win the currency devaluation game. He explains why in his latest macro view note:

Trump on Track to Win the Currency Devaluation Game

Trump’s confusing Monday FX-related tweet emphasized his desire for a weak dollar. He’s likely to get his wish in the long run, even if he’s already seen more greenback depreciation than growth and interest rates would have warranted in isolation.

President Trump tweeted that “Russia and China are playing the Currency Devaluation game as the U.S. keeps raising rates. Not acceptable!”

The yuan has climbed 9.5% against the dollar in the past year. The ruble has fallen 7.5% versus the dollar this month, but only because of U.S. sanctions. Despite that violent Trump-prompted correction, Russia’s currency has still gained versus the dollar since he won the presidential election in November 2016.

The fact that his tweet jars with reality underscores his determination that the dollar needs to be weaker for trade purposes. Trump is the one who’s successfully playing the “devaluation game” -- the Bloomberg Dollar Spot Index has fallen more than 10% since he came to power. He mentions interest rates but, on a total-return basis, the dollar has been the worst-performing currency in the world since his inauguration.

This has happened despite improving U.S. growth and much higher real yields. Economic fundamentals suggest that dollar depreciation has been excessively rapid and 2018 may yet see a powerful bounce.

It’ll only be a bounce though and nothing more -- the long-term downward trend in the dollar is sustainable as its global dominance is slowly being eroded.

The U.S. accounts for less than 25% of the global economy and that number will be in steady decline amid the rapid growth of China and India. And yet the dollar still takes up almost 63% of global FX reserves. That mismatch will gradually narrow over time.

It turns out the dollar’s share of global Swift payments has provided an excellent guide for this theme over the past five years, with roughly a 20-month lead.

The dollar’s percentage of global Swift payments started climbing rapidly from a 31% share in November 2012. The Bloomberg Dollar Spot Index commenced its own rapid ascent 19 months later. Dollar dominance peaked at more than 45% of Swift payments in April 2015 and has been trending lower since. It’s now back to 38%. The BBDXY topped out exactly 20 months later.

The message from the Swift data is clear. The world is trying to wean itself off the dollar. Trump’s impressive start in the “Currency Devaluation” game may be a precursor to long- term victory even if there are setbacks along the way.

 

Comments

Endgame Napoleon Al Gophilia Tue, 04/17/2018 - 08:03 Permalink

Deplorable U:

Back in 2012, I put up a blog post, saying I would switch parties to vote for Trump, who consudered running in that cycle, if he would tackle the offshoring-of-American-jobs issue. Then he made it clear that he was mostly concerned with currency manipulation. When Trump ran in 2016, he focused on an even more immediate problem: job displacement and 40 years of wage stagnation / wage decline due, in part, to welfare-assisted illegal immigration.

Or maybe, that is just what some of us wanted to hear.

In reply to by Al Gophilia

PumpherDumper Tue, 04/17/2018 - 06:21 Permalink

If you haven't figured out that cryptocurrencies are the planned replacement for these devaluing fiat currencies then you aren't paying attention.  This will all end soon.  The Hegelian Dialectic at play.

Endgame Napoleon lurker since 2012 Tue, 04/17/2018 - 08:15 Permalink

Why then is the rent “too d****d high,” leaving half of prime-earning-aged American men — 18 and 34 — and millions of non-womb-productive single women, specifically those qualifying for no pay-per-birth income from government to supplement  wages from temporary, high-turnover, part-time and 1099 gig jobs, the choice to live with their parents in adulthood or in their vehicles? After the too-d****d-high rent is paid, you have less than half of your low, monthly, earned-only income left over to cover everything else. Did I mention the worse thing: the fly-by-night nature of these jobs, with so-called employers—including the largest-scale employers in the country—that appear to lack the consistent business to hire non-welfare-boosted citizens in any real way? 

In reply to by lurker since 2012

BraceforImpact Tue, 04/17/2018 - 06:35 Permalink

And people wonder why the market is 'going up' lmao

 

It's not, especially when put against gold/silver/anything but shitty paper.

 

Once again, we are mathematically and inevitably SCREWED. There is NO good way out.

Dilluminati BraceforImpact Tue, 04/17/2018 - 06:51 Permalink

there are/were some vendors who would trade in bitcoins, and when the money was there.. smart people did so... but similar to gold the post collapse market rewards neither very well.   The picture of what hyperinflation really looks like.

https://www.zerohedge.com/news/2018-04-16/what-hyperinflation-venezuela…

What can a gold coin buy in Venezuela?  If you have rings of gold, jewelry, what does it effectively trade at?  Have you taken an item to a pawn store and asked, what will you give me?

Gold and Silver are to some of my thinking a luxury prepping item or an investment diversification of the very wealthy.  

https://www.zerohedge.com/news/2018-04-16/axel-merk-explains-how-i-own-…

This sums it up pretty well.

I have watched silver down 12% YTD and Gold up 3% YTD and cannot help but notice that the 10 year in CD's is close to that of the 30 year or 2.8%.  So with the bid/ask it has been bad for gold and silver and meets all the issues of Gold is often criticized for not generating income. However, your twenty-dollar bill in your wallet doesn’t generate income either. When you deposit $20 in your bank account, you might earn an income, but note that you’ve converted your twenty-dollar bill, a liability of the Federal Reserve, into a loan to the bank.  

There are people who are ass-burned over the 1800 gold, it can be mined profitably for much less, it is going to be a long-long time my friend.  

And again.. in a crisis can't pinch hit.

That said I stack in moderation, very moderately.  I also invest in the other precious metal lead.

In reply to by BraceforImpact

Dilluminati Tue, 04/17/2018 - 06:36 Permalink

Some good reads here if you actually have money and are interested in finance.

https://wolfstreet.com/

I don't see the connection with Trump and the facts cited in the article and all of the larger trends, too little time from trump in office to jump to any conclusion on anything.  Then there is the assertion a tweet is an act.  A tariff is an act, an airstrike is an act, a presidential tweet is quotable, but it is not an act.

when the tweets become blah-blah-woof-woof and in the absence of facts we can get back to facts, those sticky things

Dilluminati Al Gophilia Tue, 04/17/2018 - 06:57 Permalink

That bid-ask is the issue, there is no fungible market for the metals.  Looking at the bid-ask delta, cost of storage, etc.. unless that stuff is in a bubble it is a tough investment.  Problem with Kitco is their prices are subject to fungibility.

djective

LAW

adjective: fungible

  1. (of goods contracted for without an individual specimen being specified) able to replace or be replaced by another identical item; mutually interchangeable.

    "money is fungible—money that is raised for one purpose can easily be used for another"

https://www.jmbullion.com/starter-pack/

Funny but now is more expensive by shitcoin than by check, and nobody wants to pay the CC charge either

But if you bought at spot, true spot and then went to sell back at Kitco, what is the bid-ask spread?

That 10 year CD at 2.8x% your discover barclays, etc.. need to buy a brokered CD say for an IRA.  That returns on 100K in 10 years close to 30K, and with the bid-ask of metals what?

Will the shitcoin and CD be there in a black-swan event? maybe.. maybe not

But even shitcoin is suffering from fungibility where even the metal pimps don't want any longer

In god we trust all others pay cash

https://online.kitco.com/sell/1122/1-oz-Silver-Buffalo-Round-999-1122

Even if you bought for true spot, you need with handling and taxes on re-portable income what to invest in metals?

Again I own a 357 and stack.. but invest in lead that other precious metal also.

coins are a luxury preppier item and a diversification for the ultra wealthy

I own much of my gold through OUNZ, but also have significant gold holdings in both coins (mostly Canadian Maples) and bars (mostly kilobars).

how many kilo bars do you need to be considered ultra-wealthy?

In reply to by Al Gophilia

Dilluminati Al Gophilia Tue, 04/17/2018 - 07:33 Permalink

Oh you say your purchasing power is declining because of our trade imbalance?  That powerful interests want a weak dollar to sell overseas goods?  You mean to tell me that clever people that own now nearly everything manipulate the foolish?

Tell me it isn't so!

Get out of debt.

Stop doing drugs and alcohol and put your resources to things that create ROI, if you smoke cigarettes or have other foolish habits then discontinue them, take a second job and cut the cord.

Then buy 10 year brokered CD's and start stacking and put math to work for you!

Capitalism isn't evil.

It takes discipline.

https://www.bogleheads.org/forum/viewtopic.php?t=168511

I was taking a look at the broker CDs being offered by Fidelity and came across a 10 yr 3.20% non-callable offering.  (2015)

That puts the person at 7-years at 3.2

http://markets.wsj.com/us

30 year at 3.037

I'll not even discuss the churn and bid-ask issues~

This is the solid advice your churn and earn broker will not share.

In reply to by Al Gophilia

MARDUKTA Tue, 04/17/2018 - 06:46 Permalink

Within 15 years, all world currencies will be replaced by one crypto currency.

It will happen, just a question of when.  Then all this BS will cease.

Money_for_Nothing MARDUKTA Tue, 04/17/2018 - 06:58 Permalink

Crypto currencies get the cost down and allow cell phones to act as wallets. Analogous to paper currencies allowing more inflation than coin currencies and wallets taking over from bags. Crypto currencies will allow monetary authorities more control not less and will make planned inflation easier. The BS will not only continue it will get thicker. Why do you think there will only be one crypto currency? What about subway tokens, meal tickets, concert tickets, SNAP, etc?

In reply to by MARDUKTA

indygo55 Money_for_Nothing Tue, 04/17/2018 - 07:14 Permalink

"allow cell phones to act as wallets"

Yup,,,, until it gets hacked. Every cellphone is already hacked through the Stingray or newer systems. Anyone with a Stingray or similar system can look right at your shit in a second. Look at what they actually publish about China. They know everything about you crossing the fucking street. 

https://www.washingtonpost.com/news/democracy-post/wp/2017/08/18/chinas…

 

In reply to by Money_for_Nothing

Brazen Heist Tue, 04/17/2018 - 06:53 Permalink

President Trump tweeted that “Russia and China are playing the Currency Devaluation game as the U.S. keeps raising rates. Not acceptable!”

The Orange Clown is not an economist....

Endgame Napoleon Brazen Heist Tue, 04/17/2018 - 08:47 Permalink

Trump is not an economist, but he also did not preside over the housing collapse, wealth concentration from assortative mating, 40 years of wage stagnation in the USA and the creation of a welfare-boosted workforce—including a welfare-aided legal / illegal immigrant workforce—that drives down wages, etc.

Many highly paid economists cheered those policies on. As a businessman, Trump did capitalize on some of those middle-class-depleting trends, including the offshoring of jobs, but in his campaign rhetoric, he seemed to be rethinking that course of action, regarding it as bad for the country.

All voting is a willing suspension of disbelief. We could stand in long lines to vote for $60-million-book-deal Obama, suspending our disbelief by thinking his motives were all hope / change, or we could vote for an end to the middle-class-killing policies of welfare-assisted mass immigration and offshoring of jobs, suspending our disbelief to vote for Trump.

It does, indeed, make sense that, if the currencies of other countries are stronger, foreigners can buy more goods. To American citizens, the point is where the goods are produced. If foreigners use their strong currency to buy Made-in-China / America-in-name-only goods, it will not increase the employment prospects of American citizens at all, nor will it if people overseas use a strong currency to buy Made-in-America / Illegal-Aliens-on-Welfare-Made goods.

In reply to by Brazen Heist

Let it Go Tue, 04/17/2018 - 06:58 Permalink

The amount of wealth that escapes the coming global economic crisis will set the bar that determines inflation or deflation in coming years. This is very important because when that wealth comes out of hibernation it will soak up all the tangible assets on the planet.

Most likely much of the wealth currently held in forms of paper promises such as pensions, annuities, and even investments in stocks will not survive the "shell game" of wealth transfer. The article below explores this subject.

 http://How Much Wealth Will Escape The Next Economic Crisis?html

Dilluminati Let it Go Tue, 04/17/2018 - 07:19 Permalink

Exactly.. wealth destruction is deflationary, and so is effectively shitcoin similar to gold at 1800/oz.  When that stuff is in a bubble get out, grab the money and run!  You made no profit until you took it, paid taxes on it, and then pocket the profit!

Nobody knows where the next crisis will start, but all the inflation yapping was NOT what we saw as people try and service debt when a market contracts.  So the banks encouraged running a debt service of low interest rates, now they are raising again, and why is it I think I have seen this deja-vue all over again?

Wait until that statement comes home in the mail and the balance is much lower.. even if you had to raid the 401K the $ isn't there.  You might not have the funds to escape debt on say a home and that compounds the debt destruction.

In 2016 I bought the 10 year at close to 3% brokered CD.  I'm pulling that now at 8.  Non callable, SIPCA, FDIC, I sleep well.  I stack CD's and metals, and again.. invest in the other precious metal lead!

It takes phenomenal cunts in places like Venezuela who think they can just say there is shit on a shelf when it is not to create inflation. 

In reply to by Let it Go