Tuesday, 31 January 2017 10:59

Is Time to Short America? Macro Risks + Unpredictable Administration / Geopolitical Uncertainty = ? Featured

Burnt DollarThe animal spirits are whispering... They are calling into question the stability of the US in light of the significant geopolitical uncertainties introduced by the new US administration and how that plays into increasingly unprecedented global macroeconomic forces coming into play as the EU and US achieve their long sought after inflation in a world of negative interest rates and central bank sponsored asset purchases to distort the markets.

These spirits are whispering... Is it time to short the United Stages of America?

 

Macro Risks

  1. Inflation rising at highest rate since 2011
  2. Fed will counter with higher rates, which are increasing on their own – business input costs rising
  3. Dollar strengthening, will dampen exports
  4. Economic growth is here, but will it grow as fast as inflation/rates/input costs?
  5. If the answer to question above is no, then STAGFLATION

Policy Risks

  1. Administration’s Protectionist trade agenda has already sparked trade war sentiment?
    1. Merkel defends euro against Trump admin comments.
    2. Australia, close US ally, distanced by Trump immigration policies, moves towards China for trade, and away from US.
    3. China threatened by Trump trade rhetoric, solicitations towards Taiwan, busting one China Policy
    4. Mexico alienated by Trump aggressive trade and nationalist rhetoric, threats to make Mexico pay for $$18B border wall
    5. Implicit threats to start war in Mideast and get “another chance” to “take their oil”
  2. Tax holiday for corporate capital repatriation borne on faulty premise, one that history clearly illustrates
    1. The last tax holiday that we've had was in 2004, allowing U.S. multinational companies, allowing them to repatriate foreign profits at a 5.25% tax rate. Consequently, corporations reptratied $362 billion into the American economy. That is $456 billion in 2017. These funds were used primarily for paying dividends to investors, repurchasing shares, and M&A activity - basically, the acquisition of finacnial assets. In 2011, Senate Democrats, arguing against another repatriation tax holiday, issued a report asserting that the previous effort had actually cost the United States Treasury $3.3 billion, and that companies receiving the tax breaks had thereafter cut over 20,000 jobs.[2] A second repatriation tax holiday was defeated in the United States Senate in 2009.[1]

Competency and Execution Risks

  1. Early signs of coordination incompetency in organizing inauguration, but can possibly be explained away by low popularity. No A-list talent and protests that outnumber the actual inauguration in number of participants. While this didn't look good, it shouldn't be considered a strong negative indicator.
  2. Performance in post-election interviews – Trump does not instill confidence at all, and to the contrary offer easily disprovable falsehoods (lies) as facts, repetitively, as does his advisors and press secretary. This undermines both confidence and credibility in the administration – nationally and globally.
  3. Logistic, communication, legal, execution and implementation snafus in Executive Order on immigration ban
    1. The ban to vet immigrants wasn’t vetted itself.
    2. Ban went out against counsel of DOJ
    3. Communication with Congress was non-existent.
    4. Ban resulted in unprecedented backlash nationally and internationally when it was not necessary. Protests and rallies onshore and abroad led to unprecedented backlash
    5. Executive Order was stayed by several federal judges
    6. Federal offices defied Federal Judges orders in detaining immigrants and denying access to counsel
    7. US Attorney General refused to argue in defense of EO, stating it was unconstitutional and illegal in her opinion.
    8. POTUS removes US Attorney General, replaces her with employee who will do administration’s bidding, instantaneously calling into question the independence and politicization of the DOJ

This is all in just 10 days of office! I’ve tasked my analysts (who’re offshore) to give me objective data on each bullet point, which I will collate for subscribers into a yay or nay.

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Then there's those rates and the dollar. Higher rates will create a higher hurdle... A hurdle we have not seen stateside for several years. 

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Last modified on Wednesday, 01 February 2017 05:38

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