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If Trump Likes Low Rates, Yellen Should Be Toast

April 12, 2017
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In the past few weeks I’ve talked about: 1) reasons Janet Yellen should be on the way out, 2) why, if you like gold you should be buying it, and 3) why a correction for stocks was underway and should continue for the next few months, or until we get visibility on the size and timing of growth policies out of Washington.

Remember, a few months ago, the Wall Street Journal interviewed President-elect Donald Trump.  If I recall, a reporter called him on his cell phone.  He picked it up, and “an interview” commenced.  What came of it, were click-worthy headlines saying Trump thinks the dollar is too strong, and the speculation ran wild that the new administration would change course on the long lived U.S. government favor toward a “strong dollar policy.”

Three months later, the dollar is only a touch stronger against the basket of major currencies (the dollar index). Today, the WSJ is back with another Trump interview.  This time, they get the President’s view on the dollar, Yellen and rates (a biggie).

On the dollar, he says, the dollar is “getting too strong.”  His response when asked if Yellen was “toast” when her term is up next year, was “no, not toast.”  And then he followed with the desire to keep the low interest rate environment intact (note: this is key to give growth policies, when they come, the full power of the punch).

Now, this commentary on the dollar, Yellen and rates is all great, but it doesn’t add up.  As we know, Yellen and company have been driving rates UP, and are projecting an aggressive rate path, which is dangerous for an economy that still hasn’t been able to muster 2% inflation (on core PCE) or anywhere near trend economic growth. It could choke off the existing slow recovery, and water down the fiscal stimulus that’s coming.

Meanwhile, when rates go up, the dollar goes up. And when the dollar goes up, exporting becomes tougher.  And exporting, rebalancing trade, is a cornerstone of the Trump administrations plan to restore jobs and a more robust and sustainable economy. So I’ve made the case in past weeks that Yellen should be rising to the top of Trump’s confrontation list.  I think she is and should be toast, and sooner than her term expiration in January of next year.  

As for Trump’s public statement on the dollar, it’s another reason to buy gold.  Gold is up more than $80 (about 7%) since Trump’s comment back in January.   

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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