Mario Draghi’s swan song as he turns over the reins as president of the ECB to Christine Lagarde sings of more weakness - and therefore more stimulus. The ECB didn’t disappoint this week when it lowered the already negative deposit rate an additional 10 basis points and launched what may now be referred to QE infinity as the ECB will now buy $20 billion a month in asset purchases for as long as it deems necessary.
“In view of weakening economic outlook and continued prominence of downside risk, governments with fiscal space should act in an effective and timely manner” ECB President Mario Draghi said. Markets across the world drifted higher on the release. As long as their liquidity and easy money addiction is being fed, they behave and go higher, which is what everyone wants, right?
The weakening move of the ECB caught the attention of President Trump who took the opportunity to once again blast rhe Federal Reserve in a series of tweets.
“The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have a great currency, power and balance sheet…The USA should always pay the lowest rate.”
“it is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of “Boneheads.”
What surprised me about the tweet was not his ever increasing attacks on the Fed and the U.S. dollar, nor that he ramps up the aggressiveness before each Fed meeting. The Fed meets next week and Trump will continue to beat the drum for 0% interest rates, assuring that whatever cut the Fed does do next week will disappoint.
Nope. What I noticed most was the accent sign and the diaeresis (double dot above the i) he used as he typed the word naïveté Into his twitter feed.
I’ve been writing for a long time and I had to look up both what a diaeresis was and how to put an accent sign above a letter! That exercise took 10 minutes for me to review and it leaves me with a major takeaway. Donald Trump had help writing this tweet. We all know spelling is not among his strong suits.
In fact, I simply typed in to Google “spelling mistakes made by Trump in tweets” and was offered hundreds of web pages that covered the topic. This little observation about one word of a tweet I will argue has deep significance.
What it means to me is that Trump’s ongoing attacks against the Fed are not those of an unhinged lone wolf impulsively tweeting in the middle of the night as many people believe. Rather, this and his other tweets attacking the Fed are coordinated and designed to create a narrative. A narrative for whom is the real question?
Trump’s main expertise is in labeling and branding, certainly not spelling.
Trump’s attacks on the Fed reflect his instinctual ability to attack weakness and set up a fall guy for any failure in the economy.
That Trump had help typing this tweet seems obvious. But what does it really mean?
I believe Trump may very well have his own deep state being formed around his attacks against the Fed. There’s no question in my mind that Larry Kudlow and Steve Mnuchin are both supportive and involved in this strategy. I wouldn’t be surprised if Jay Powell himself wasn’t a silent partner in the attacks.
While many in the media and government have publicly criticized Trump’s attacks on the independent institution, suggesting that his bullying could make the Fed appear weak if they go along. I’m starting to sense the opposite. I am now of the opinion that Trump is actually providing the cover that the Fed needs to make their rate cuts without having to signali that the economy is weakening.
Let’s not forget that the Fed has indicated that they don’t see any signs of a slowdown or a recession on the horizon. Their last meeting brought us the term “mid-cycle adjustment”, indicating that their recent reversal from tightening, to patient, to cutting is not an indication of a slowing economy.
Trump’s tweets asking for 0% allow Powell to cut 25 or 50 basis points and still disappoint Trump while getting the market what it is looking for.
We are in the midst of a currency war and a race to zero and Trump may very well be giving the Fed the cover they need to make these cuts without signaling weakness. The bottom line? Our dollar is overvalued and perhaps there is a deep and covert coordinated effort to weaken it. If that’s the case it’s time to buy more gold!
Adam Baratta is the author of the national best-selling book "Gold Is A Better Way." He is one of the leading voices in the field of investments and precious metals today. Adam is the co-owner of Advantage Gold, the highest rated precious metal firms in the country, and the creator of an educational member site. To receive a free copy of his book, go to: https://goldisabetterway.com/
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