About a year ago, I was watching Real Vision (highly recommend subscribing if you aren’t already subscribed) and saw an interview with Kyle Bass where he made a very prescient observation. Eventually, President Trump will discover that the President has the power to wield tariffs against any country as he wishes. Then all hell will break loose. It really was one of those “aha moments” for me.
My question is; when will Trump realize that the President almost certainly has the power to devalue the US Dollar?
If there’s been one overlying theme in the past three years, it’s that if Trump is tweeting it, he’s probably already scheming in some way. He’ll make his move when least expected—that’s his way of keeping people off guard. (If you haven’t read Trump: The Art Of The Deal at least twice, stop what you’re doing and suffer through it. You can’t trade these markets without being able to get yourself into Trump’s head).
Global macro is about more than just reading charts. If charts made you rich, the technical analysts would be wealthiest guys in finance. Have you ever met a billionaire chart guy? Investing is about thinking 3 steps ahead and positioning your book for only the first of those steps—with imbedded optionality to capture steps 2 and 3 in case the timeline somehow accelerates.
China just launched the first move of what will be a global currency war. You can defend yourself in the usual ways (hint: gold). However, with everyone crowded into long US Dollar trades, I have to keep asking myself if this is an epic trap for longs.
I’m short the US dollar for the reasons noted previously. Thus far, it hasn’t exactly worked, but hasn’t not worked either. It’s only on massive down days that you see how investor positioning is as everyone unwinds their VAR. US Dollar isn’t up today. During the GFC, the Dollar roared on down market days. Could everyone be fighting the last war? What if this time the Dollar drops as Trump has a surprise devaluation? It is the trade that almost no one is positioned for.
Disclosure: Short US Dollar against various currency pairs