With the U.S. dollar tumbling more than 1 percent, now trading near the 100 level on the USDX, and gold and silver surging, here is what you need to know about what is happening in markets and around the world.
But before we get to that, take a very close look at the remarkable commercial all-time record long position in U.S. 10-Year Treasuries (see stunning 23-year chart below):
Commercials Now Have All-Time Record Long Positions In U.S. 10-Year Treasuries!
And now here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness: Days ahead of the inauguration I’d like to make a formal introduction. ‘Reality of governing,’ I’d like you to meet ‘Rhetoric of campaigning.’ ‘Rhetoric’, sometimes you would sound so exciting (tax cuts, regulatory relief) but also dangerous at times (constant tariff threats and bizarre tweets)…
‘Reality,’ we’re about to hear more from you and I so hope you can get along well with ‘Rhetoric’ on the tax and regulatory side but I know that won’t be as easy as it sounds. On the topic of trade, hopefully you can teach ‘Rhetoric’ the dangers of ad hoc tariff slapping and that a 35% border tax on German cars is not a good idea. I hope this can be a beautiful match and one that works well together.
The beginning of this hook up though is on bumpy ground on the tax side. DJT in the WSJ said “Anytime I hear border adjustment, I don’t love it. Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.” He referred to it as “too complicated.” All readers know that a key component of the success of the border adjustment tax is the assumption of a 20-25% dollar rally. As I’ve been waiting for that tweet saying ‘the yuan is too weak’, instead we got this first in the WSJ: “Mr. Trump said the US dollar was already ‘too strong’ in part because China holds down its currency, the yuan. ‘Our companies can’t compete with them now because our currency is too strong. And it’s killing us.” Oh boy and remember that FX trades $5 Trillion notional per day. Getting it to where one wants it to go sometimes works and sometimes it doesn’t.
As the border adjustment tax is supposed to ‘pay for’ about half the cut in the corporate income tax, what will this mean for where the corporate tax rate will ultimately end up if it is not part of the bigger package? I wish for once there was discussions about cuts in spending to pay for it but I have not heard any talk about that.
The market response is obvious, it’s a bit of a reversal of the ‘Trump Trade.’ The dollar index is at 6 week low, gold is near a two month high, the 10 yr yield is near a two month low, and the S&P’s as of this writing will open around a two week low…..More Here