Month: January 2017

House Democrats wasted no time in slamming President Trump’s decision to fire the nation’s top law enforcer after she refused to carry out his directives barring refugees and those traveling from Muslim-majority countries. In a Monday night political thriller, the White House said former Acting Attorney General Sally Yates “betrayed” the Justice Department at the threat of national security and was ousted just hours after she ordered DOJ lawyers not to enforce Trump’s immigration order.

However, the Democrats saw a “more sinister motive”, and according to The Hill, warned that Trump is adopting a tyrannical approach that politicizes the Justice Department and will discourage federal employees from upholding their constitutional duties across all agencies. Democrat lawmakers compared last night’s termination of Yates (which was followed by Trump’s unexplained firing of the acting head of Immigration and Customs Enforcement), to Nixon’s 1973 purge of top officials who defied his wishes at the height of the Watergate scanda, also known as the “Saturday Night Massacre.”

“President Trump has commenced a course of conduct that is Nixonian in its design and execution and threatens the long-vaunted independence of the Justice Department,” said Rep. John Conyers (Mich.), senior Democratic on the House Judiciary Committee. “If dedicated government officials deem his directives to be unlawful and unconstitutional, he will simply fire them as if government is a reality show.”

He was not alone.

House Minority Leader Nancy Pelosi (D-Calif.) hailed Yates’s “courage” (which apparently prevented her from simply resigning in protest but had to engage the president knowing well how its would end) and accused Trump of acting recklessly “to get the answer he wants.” Rep. Steny Hoyer (D-Md.), whose Maryland district is heavy with federal workers, said the firing represents “an alarming step for an administration already raising serious questions about its competence to govern.” And Sen. Patrick Leahy (D-Vt.) warned Trump has set a “dangerous” precedent in ousting an official who simply disregarded an order that “is very likely unconstitutional.”

“President Trump has now put his Cabinet on notice: if you adhere to your oath of office to defend the Constitution, you risk your job,” said Leahy, a senior member of the Judiciary Committee.

Meanwhile, shortly after Yates was fired, her replacement Dana Boente, US Attorney for the Eastern District of Virginia, moved quickly to rescind the guidance in Yates’ letter, noting in a statement released Monday night that the department’s Office of Legal Counsel “found the Executive Order both lawful on its face and properly drafted.” Boente then directed staffers “to do our sworn duty and to defend the lawful orders of our President.”

The fact that another AG disagreed with Yates, however, did not placate Democrats, who said that their – clearly political – concerns “transcend politics” and are warning that firing Yates before a successor is confirmed by the Senate creates a national security vacuum because she alone has the authority to approve requests with the Foreign Intelligence Surveillance Court, or FISA. Really, what they meant is that not having a clearly ideological AG takes away even more leverage from their position and forces them into a blocking opposition role.

“Terminating the only Senate-confirmed official at the Department of Justice who can sign FISA warrants simply because the President disagrees with her interpretation of the law is reckless and shortsighted, and it makes our nation less safe,” Hoyer said.

Trump’s nominee to head the DOJ, Sen. Jeff Sessions (R-Ala.), testified before the Senate Judiciary Committee earlier in the month. The upper chamber could vote on his confirmation as early as this week: he is expected to replace interim AG Boente in the coming days.

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Under Armor shares are down almost 30% in the pre-open, trading at their lowest in 3 years after a triple whammy disaster of an earnings announcement.

Top and Bottom Line miss:

• *UNDER ARMOUR 4Q NET REV. $1.31B, EST. $1.41B
• *UNDER ARMOUR 4Q EPS 23C, EST. 25C

Outlook slashed:

As Bloomberg notes, Under Amour — which has doubled its sales about every three years — is now having a hard time maintaining that rapid growth.

 

Sales this year will increase as much as 12 percent to nearly $5.4 billion, the Baltimore-based company said in a statement Tuesday. That trailed analysts’ $6.05 billion average estimate and would be Under Armour’s smallest annual gain since it went public in 2005.

 

“Numerous challenges and disruptions in North American retail tempered our fourth quarter results,” UAA CEO Kevin Plank said in release.

And C-Suite shake-up:

CFO Chip Molloy will leave for personal reasons; SVP, Corporate Finance David Bergman will serve as acting CFO

The result… almost 30% collapse…

 

to 3-year lows…

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Last night, Nancy Pelosi and “Fake Tears Chuck Schumer” held a protest at the Supreme Court over Trump’s recent immigration ban which has sparked mass protests around the country and ultimately led to the firing of the acting Attorney General Sally Yates last night.

Unfortunately, there were some logistical issues with the protest which Trump has seized upon this morning via Twitter:

Nancy Pelosi and Fake Tears Chuck Schumer held a rally at the steps of The Supreme Court and mic did not work (a mess)-just like Dem party!

— Donald J. Trump (@realDonaldTrump) January 31, 2017

 

And here is the trainwreck in slow motion for your viewing pleasure:

Pelosi:  “Is someone going to deal with this?  Look at that moon.  Introduce the real people now…I’ll do the real people now.”

 

Once the mics started working, Pelosi told protesters that she was happy to stand in defiance of a President that “undermines our values and is not in support of the oath of office that we take, to support and defend the Constitution of the United States.”  Per CNN:

“I’m very proud to stand her with members of the House Democratic Caucus, soon to be joined by the Senate Democrats as well, sharing views in a bipartisan way with many of our Republican colleagues who agree that what the President did undermines our values and is not in support of the oath of office that we take, to support and defend the Constitution of the United States.”

“Fake Tears Chuck Schumer” chimed in as well:

“This order is against what we believe in in America. The order will make us unsafe. The order will make us inhumane. And the order will make us less of America because this order is what America is all about. It will make us unsafe because it will encourage those who are lone wolves as they get more and more isolated, which is our greatest danger.”

 

“But most of all, it is against what America is all about. America for its history has been a shining beacon and it has said, we welcome you if you are oppressed because of your religion, because of your political beliefs, because of who you are.”

 

“We will not let this evil order make us less American. We will fight it with everything we have and we will win this fight.”

Doesn’t sound like Democrats are quite ready “give him” the rest of his Cabinet…may be time to take advantage of that “nuclear option”.

When will the Democrats give us our Attorney General and rest of Cabinet! They should be ashamed of themselves! No wonder D.C. doesn’t work!

— Donald J. Trump (@realDonaldTrump) January 31, 2017

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Precious Metals As Safe Havens – Reassessing Their Role

New research confirms that not just gold but also the other precious metals –  silver, platinum and palladium bullion – act as safe havens, especially from ‘Economic Policy Uncertainty.’ This is something that is particularly prevalent today due to the ‘Hard Brexit’ impact on the UK and the Eurozone, risk of trade wars and heightened financial and geopolitical risk under the Trump Presidency.

In their just released paper, Reassessing the Role of Precious Metals As Safe Havens – What Colour Is Your Haven and Why?, Dr Brian Lucey and Sile Li, of Trinity College Dublin and Trinity Business School, examine the “safe haven properties versus equities and bonds of four precious metals (gold, silver, platinum and palladium) across eleven countries.”

The research suggests that each of the precious metals “play safe haven roles” and that “there are times when one metal is not while another may be a safe haven against an asset.”

“Stock volatility, exchange rates, interest rate and credit spreads are also found to be significant” and the results are found to be “quite mixed for different markets and are fragile of model specification.” This is to be expected somewhat, given the broad range of the study of four precious metals performance versus a range of assets in 11 different countries.

 

Dr Brian Lucey and Sile Li attempt to “identify robust economic and political determinants of precious metals’ safe haven properties.”  Of note is that they find that ‘Economic Policy Uncertainty’ is found to be a “positive and robust determinant of a precious metal being a safe haven” and that this “holds across countries”.

The research attempts to characterize those periods under which political, economic and ?nancial conditions, gold, silver, platinum and palladium are more likely to become safe haven assets and hedge the risks of market declines.

“Political risk is found to be a positive and robust determinant across countries when precious metals are safe haven against stock and bond markets tail events.”

The research strongly suggests that the precious metals are safe havens and financial insurance against event and fat tail risks. It corroborates the large body of academic and independent research which has found that gold is a safe haven asset and suggests that the other precious metals – silver, platinum and palladium – have a role as important investment diversification and portfolio insurance.
As per the Abstract:

“The role of gold as a safe haven asset has been extensively studied in recent
years. This article extends previous literature and examines time varying safe
haven properties versus equities and bonds of four precious metals (gold, sil-
ver, platinum and palladium) across eleven countries. Results suggest that
the metals each play safe haven roles; there are times when one metal is not
while another may be a safe haven against an asset.”

Dr Brian Lucey told me yesterday how the research suggests that the precious metals are safe havens that help protect against extreme, unexpected events and tail risk. They hedge and protect against risk events such as Brexit or the election of Donald Trump and that it is not just gold that insulates investors from these risks – it was frequently just as likely to be silver.

So gold did not always act as a safe haven and when this was the case, silver frequently acted as a safe haven showing the complimentary nature of gold and silver and indeed of the other precious metals.

We have long advocated owning all four precious metals for diversification and financial insurance purposes with larger allocations to silver and especially gold due to its monetary characteristics and smaller allocations to platinum and palladium.

Conclusion

Although tail events that negatively impact investment portfolios have traditionally been rare, they result in large negative returns. They are becoming more frequent due to heightened  ‘Economic Policy Uncertainty’ and therefore, investors now more than ever before need to hedge against these events. Hedging against tail risk with precious metals enhances returns over the long-term, but investors must be willing to except short-term costs.

The precious metals in bullion coin and bar format are forms of financial insurance. People realise the benefit and are happy to pay annual premiums for their car, health and other insurance. An insurance buyer is not upset when they buy insurance and then do not break their leg or crash their car that year. They are happy and had the security of owning insurance that they did not need to use.

Similarly, a bullion coin or bar buyer who takes delivery or stores in secure storage has to pay a slight premium for this added security. Owning gold, silver, platinum and palladium bullion in a portfolio is simply the price you pay for added security.

Download This Research On SSRN Here: Reassessing the Role of Precious Metals As Safe Havens – What Colour Is Your Haven and Why?

 

Gold and Silver Bullion – News and Commentary

Gold rises as Trump policy fuels safe haven demand (Reuter.com)

S&P 500 Futures Drop, Gold Gains on Trump Concern (Bloomberg.com)

Gold marks first gain in 5 sessions as Dow sinks below 20,000 (MarketWatch.com)

Wall St. drops on jitters over Trump’s travel curbs (Reuters.com)

Gold prices inch up as Trump travel ban sparks uncertainty (Investing.com)

Why Trump’s policies are good for gold – Investor with £250 million worth (WhatInvestment.co.uk)

FED Holds Gold Because They Don’t Trust Currencies – Holmes (YouTube.com)

729% increase in Comex gold deliveries in January – Goodman (AveryBGoodMan)

Sunken British warship with £1 billion in gold to be raised from the ocean 250 years after battle (Mirror.co.uk)

Gold Prices (LBMA AM)

31 Jan: USD 1,198.80, GBP 964.91 & EUR 1,119.20 per ounce
30 Jan: USD 1,189.85, GBP 949.38 & EUR 1,112.63 per ounce
27 Jan: USD 1,184.20, GBP 943.81 & EUR 1,108.77 per ounce
26 Jan: USD 1,191.55, GBP 945.14 & EUR 1,111.95 per ounce
25 Jan: USD 1,203.50, GBP 956.90 & EUR 1,119.62 per ounce
24 Jan: USD 1,213.30, GBP 972.22 & EUR 1,130.07 per ounce
23 Jan: USD 1,213.75, GBP 974.03 & EUR 1,130.12 per ounce
20 Jan: USD 1,199.10, GBP 974.87 & EUR 1,127.03 per ounce

Silver Prices (LBMA)

31 Jan: USD 17.29, GBP 13.86 & EUR 16.07 per ounce
30 Jan: USD 17.10, GBP 13.65 & EUR 16.03 per ounce
27 Jan: USD 16.70, GBP 13.32 & EUR 15.61 per ounce
26 Jan: USD 16.86, GBP 13.39 & EUR 15.71 per ounce
25 Jan: USD 16.93, GBP 13.46 & EUR 15.74 per ounce
24 Jan: USD 17.10, GBP 13.73 & EUR 15.92 per ounce
23 Jan: USD 17.14, GBP 13.78 & EUR 15.97 per ounce
20 Jan: USD 16.89, GBP 13.73 & EUR 15.87 per ounce

Recent Market Updates

– Why 2017 Could See the Collapse of the Euro
– Dow 20K … US Debt $20 Trillion … Trump and $15,000 Gold
– Switzerland’s Gold Exports To China Surge To 158 Tons In December
– Blockchain – Central Banks Banking On It
– Sharia Standard May See Gold Surge
– Gold Price To 2 Month High As Fiery Trump Declares New American Order
– Gold’s Gains 15% In Inauguration Years Since 1974
– Turkey, ‘Axis of Gold’ and the End of US Dollar Hegemony
– Gold Up 5.5% YTD – Hard Brexit Cometh and Weaker Dollar Under Trump
– Bitcoin and Gold – Outlook and Safe Haven?
– Physical Gold Will ‘Trump’ Paper Gold
– Gold Lower Before Trump Presidency – Strong Gains Akin To After Obama Inauguration
– Gold Rallies To $1,207 After Trump Press Conference Shambles

www.GoldCore.com

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• Trump Fires Acting Attorney General, Deepening U.S. Immigration Conflict (BBG)
• Trump set to name U.S. high court pick as Democrats plan fight (Reuters)
• Bonds Slump as Stocks Gain Favor (BBG)
• Euro-Area Inflation Surges to 1.8%, Intensifying ECB Debate (BBG)
• Trump Must Choose Between Farmers and ‘Big Meat’ (BBG)
• As Trump shifts immigration and foreign policies, State Department is silent (Reuters)
• Deutsche Bank’s Bill for Russia Trades Reaches $629 Million (BBG)
• U.S. funds recommend cutting equity allocations in January (Reuters)
• DeVos Set to Take Over System Where Test Scores Have Stalled (WSJ)
• Pressure on Mitch McConnell to Get Nominee on Court (WSJ)
• Teva Plunges After U.S. Judge Invalidates Four Copaxone Patents (BBG)
• How Howard Schultz Earned More Than Half a Billion in Nine Years (BBG)
• Under Armour Tumbles After Fourth-Quarter Sales Miss Estimates (BBG)
• Adelson Pulls Out of Las Vegas Stadium Plan (WSJ)
• Netanyahu to Discuss Renewed Sanctions on Iran With Trump (BBG)
• Google Employees Rally in Thousands Against Trump Immigration Ban (BBG)
• That ECB Taper Might Just Sneak Up on Us (BBG)
• College Endowments Lose 1.9% in Worst Showing Since 2009 (BBG)

 

Overnight Media Digest

WSJ

– The White House on Monday fired acting Attorney General Sally Yates for telling government lawyers not to defend an executive order signed by President Donald Trump suspending immigration from seven countries out of concerns that terrorists from those countries might enter the United States. http://on.wsj.com/2joU867

– President Donald Trump will amend a recent executive action so he can add Central Intelligence Agency director Mike Pompeo into a role on the National Security Council, White House spokesman Sean Spicer said Monday. http://on.wsj.com/2joZBdb

– President Donald Trump has selected a nominee for the U.S. Supreme Court and will introduce him to a national television audience Tuesday evening, a crucial early moment for his administration that could shape American law for decades. http://on.wsj.com/2jp2wlT

– Facebook Inc’s chances of getting back into China appeared to take a rare turn for the better when an employee noticed an official posting online: Beijing authorities had granted it a license to open a representative office in two office-tower suites in the capital. http://on.wsj.com/2kb2awz

– Just months after completing the breakup of aluminum giant Alcoa Inc, Klaus Kleinfeld is facing calls for his ouster. Several of the largest shareholders of Arconic Inc, the aerospace and automotive parts maker Kleinfeld now leads after its November split from Alcoa, are pressing the company to find a new chief executive. http://on.wsj.com/2kb46VO

– Walgreens Boots Alliance Inc and Rite Aid Corp agreed to reduce the amount Walgreens would pay for its rival by at least $2 billion, after the two companies struggled to get antitrust enforcers to bless the big drugstore deal. http://on.wsj.com/2kb4sf6

– Sony Corp said on Monday it would write down nearly $1 billion on its film and TV studio after a dismal year at the box office. http://on.wsj.com/2kaRZId

 

FT

* British foreign minister Boris Johnson on Monday defended the decision to invite U.S. President Donald Trump to London for a state visit, amid criticism prompted by Trump’s immigration policies.

* Twitter Inc announced a partnership with Sky Sports on Monday to livestream the UK football transfer deadline day.

* The chief executive of German rail operator Deutsche Bahn has unexpectedly stepped down, leaving the state-owned group after eight years in charge, Deutsche Bahn said in a statement on Monday.

 

NYT

– The reaction from major American companies to President Trump’s order on Friday restricting entry to the United States by citizens of seven predominantly Muslim nations and all refugees has ranged from silence to outrage. http://nyti.ms/2jxmBBM

– Amazon and Expedia stepped up their opposition to the immigration order with filings that were part of a lawsuit in federal court against the Trump administration, arguing that the order will hurt their businesses. http://nyti.ms/2jxnWbW

– In its latest controversy, Deutsche bank agreed to pay $425 million on charges it helped investors launder money through Moscow, New York and London. http://nyti.ms/2jxu041

– A lawsuit filed Monday accused three makers of insulin – Sanofi SA, Novo Nordisk and Eli Lilly & Co , of conspiring to drive up the prices of their lifesaving drugs, harming patients who were being asked to pay for a growing share of their drug bills. http://nyti.ms/2jxqWF6

– Concerns about regulatory approval have weighed on Walgreens Boots Alliance’s bid to buy a top drugstore rival, Rite Aid, as the two cut the price of the deal while pushing back the expected closing date by six months. http://nyti.ms/2jxsFdI

– Eike Batista, the fugitive oil-and-mining tycoon wanted in connection with Brazil’s far-reaching corruption investigation, flew home from New York on Monday and surrendered to the police, who placed him temporarily in a notoriously overcrowded prison. http://nyti.ms/2jxpsL6

 

Canada

THE GLOBE AND MAIL

** A young Quebec man stands accused of murder after a brazen assault on a Quebec City mosque that took the lives of six Muslim worshipers – a violent shooting condemned as “a terrorist attack” by Prime Minister Justin Trudeau that has rattled the country. tgam.ca/2jydqRw

** Canada’s campaign to save the International Criminal Court was given a boost on Monday when the African Union refused to give a key leadership post to a strong opponent of the controversial court. tgam.ca/2jpWcL5

NATIONAL POST

** As backlash continues over a Trump administration immigration ban on citizens of seven Muslim-majority countries, some Conservative Party leadership candidates are suggesting the policy creates a new backdrop to their federal leadership race. bit.ly/2kaVpKU

** On Monday, an open letter was published, signed by 150 people from Canada’s leading tech companies and accelerators, denouncing President Trump’s executive order barring travellers from Muslim-majority countries and calling on Ottawa to offer visas to anyone displaced by it. bit.ly/2jQbt48

 

Britain

The Times

– Deutsche Bahn AG Chief Executive Officer Rudiger Grube quit with immediate effect after failing to be offered a three-year extension of his contract, which paid 900,000 euros ($963,000) per year. With bonuses his pay came to 1.4 million euros ($1.50 million) in 2015. http://bit.ly/2jOXFqA

– Vodafone Group Plc said that it was “in discussions” about an all-share merger with Idea Cellular Ltd . Folding the two companies together would create a market-leading network with more than 370 million users in India. http://bit.ly/2jPhfCR

The Guardian

– Weetabix has warned that it may become the latest consumer brand to raise prices this year as a result of the pound’s slump since the Brexit vote. The breakfast cereal manufacturer said if prices were to go up, the increases would probably be in the “low single digits”. http://bit.ly/2jPh3DH

– A group of six financiers including a former senior HBOS banker face jail after being convicted on Monday for their roles in a scam involving 245 million pounds ($306.10 million) worth of fraudulent loans. http://bit.ly/2jPr6IP

The Telegraph

– HgCapital Trust Plc has sold Leeds-based vehicle hire business Zenith to private equity peer Bridgepoint for 750 million pounds ($938 million). Zenith, which leases cars and provides services such as breakdown cover to various blue-chip companies, is the largest independent vehicle leasing business in the United Kingdom. http://bit.ly/2jPayRr

– Britons remained upbeat about their career prospects amid an increase in real incomes and a still buoyant jobs market, as consumers shrugged off the Brexit vote. Five of Deloitte’s six measures of consumer optimism rose in its latest quarterly survey, even as its overall confidence barometer edged down in the final quarter of 2016 compared with the previous three months. http://bit.ly/2jPkni5

Sky News

– Campaigners have failed in a legal bid to block the prospect of a third runway at Heathrow Airport. An alliance of councils and Greenpeace UK was seeking clearance for a judicial review of the Government’s support for the expansion. http://bit.ly/2jPc4mF

– British Columbia Investment Management Corporation will announce on Tuesday that it has agreed to buy a majority stake in Hayfin Capital Management in a deal worth about 215 million pounds. http://bit.ly/2jPg4Do

The Independent

– Standard Chartered Plc hired former boss of the Financial Conduct Authority, Tracey McDermott, to oversee regulation. McDermott has become the latest in a long line of senior public officials who have secured lucrative employment in the private sector. http://ind.pn/2jPk8n7

 

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Having backtracked on its proposal to ban green card holders from 7 mostly Muslim countries from entering the US, it now appears that the Trump admin has softened its stance regarding the admission of refugees, and according to Reuters, citing an internal DHS document, the U.S. government has granted waivers to let 872 refugees into the country this week, despite Trump’s executive order on Friday temporarily banning entry of refugees from any country.

It is unknown if there is a link between this waiver, and Trump’s announcement late last night to replace the acting director of the DHS’ Immigration and Customs Enforcement. 

According to a Homeland Security official, the waiver was granted after the refugees were considered “in transit” and had already been cleared for resettlement before the ban took effect. Refugees preparing for resettlement typically have severed personal ties and relinquished their possessions, leaving them particularly vulnerable if their plans to depart are suddenly canceled.

The waivers, granted by the State Department and the Department of Homeland Security (DHS), came amid international protests against Trump’s rushed executive order. Critics said the order in some cases was not clearly communicated to the agencies responsible for implementing it. It was not known if additional waivers would be granted, the official said. The document did not give the nationalities of the refugees who will be admitted into the United States.

 

Over the weekend, non-refugee visitors from seven majority-Muslim countries also targeted in Trump’s executive order were detained, deported and in some cases blocked from boarding flights to the United States. The countries covered by the traveler ban were Iran, Iraq, Syria, Sudan, Somalia, Libya and Yemen.

As Reuters adds, the internal DHS document said that between late Friday and early Monday 348 visa holders were prevented from boarding U.S.-bound flights. In addition, more than 200 people landed in the United States but were denied entry, the document showed. More than 735 people were pulled aside for questioning by U.S. Customs and Border Protection officers in airports, including 394 legal permanent U.S. residents holding green cards, over the same time period.

Trump said the executive order he signed on Friday was designed to protect the United States “from foreign terrorist entry.” The order stopped all refugee admissions for 120 days while government officials determine how to ensure that any refugees admitted do not pose a threat.

The 872 refugees to be admitted this week, under the waivers, were screened using Obama administration procedures, which typically take two years and include several interviews and a background check. The DHS said on Sunday night that green card holders would be allowed to board U.S.-bound flights, but would be subjected to additional scrutiny upon arrival.

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Confirming that the US role in the Syrian conflict is likely to expand in the coming months, Reuters reported that the U.S.-led coalition against Islamic State has supplied its Syrian allies with armored vehicles for the first time, expanding support since U.S. President Donald Trump came to office.

The armored vehicles and troop carriers had arrived four or five days ago, said Talal Silo, spokesman for the Syrian Democratic Forces (SDF) alliance, which includes the Kurdish YPG militia.

PHOTO: IAG Guardian armored vehicles given to the #SDF by US – @BarzanSadiq http://pic.twitter.com/TenYrBG0ip

— Conflict News (@Conflicts) January 31, 2017

Though the number was small, he said, “this is evidence that there are signs of new support”. “Previously we didn’t get support in this form, we would get light weapons and ammunition,” he said.

“There are signs of full support from the new American leadership – more than before – for our forces,” he said.

As a reminder, yesterday the Syrian government lashed out at the Trump proposal for an implementation of “safe zones” in Syria. It remains to be seen how Assad, whose health has been put in question recently, will respond to this clearest indication yet that the Trump admin plans to maintain its involvement in the Syrian proxy war.

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The Trump administration just fired the first shot in the US-European currency, and thus trade, wars when Trump’s top trade advisor Peter Navarro accused Germany of using a “grossly undervalued” euro to “exploit the US and its EU partners“, the FT reported noting the comments are “likely to trigger alarm in Europe’s largest economy.” News of the statement sent the EURUSD spiking in the moments after its release.

Navarro, the head of Mr Trump’s new National Trade Council, told the Financial Times the euro was like an “implicit Deutsche Mark” whose low valuation gave Germany an advantage over its main partners. While not necessarily novel – Germany has often been accused of being the biggest winner from a weak euro at the expense of peripherla Europe – his views suggest the new administration is focusing on currency as part of its hard-charging approach on trade ties, according to the FT. Furthermore, virtually assuring a deterioration in US-German relation, and in a departure from past US policy, Navarro also called Germany one of the main hurdles to a US trade deal with the EU and declared talks with the bloc over a Transatlantic Trade and Investment Partnership dead.

“A big obstacle to viewing TTIP as a bilateral deal is Germany, which continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued,” Mr Navarro said. “The German structural imbalance in trade with the rest of the EU and the US underscores the economic heterogeneity [diversity] within the EU — ergo, this is a multilateral deal in bilateral dress.”

 

The comments highlight a growing willingness by the Trump administration to antagonise EU leaders and particularly Angela Merkel, the German chancellor. Besides publicly supporting Mrs May’s government in its negotiations with the EU over the terms of its exit, Mr Trump called the EU a vehicle for Germany, and Nato an obsolete alliance. 

 

Mr Navarro’s intervention follows a visit to Washington last week by Theresa May, the British prime minister, in which she and Mr Trump discussed ways to launch negotiations for a US-UK trade deal.

“Brexit killed TTIP on both sides of the Atlantic even before the election of Donald Trump. I personally view TTIP as a multilateral deal with many countries under one ‘roof’,” Mr Navarro wrote in emailed responses to FT questions. Trump last week also withdrew from a 12-country Pacific Rim deal negotiated by Mr Obama.

In further bad news for globalists, Navarro said one of the administration’s trade priorities was “unwinding and repatriating the international supply chains on which many US multinational companies rely, taking aim at one of the pillars of the modern global economy.”

“It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” he said. “We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”

As the FT also notes, Navarro effectively endorsed an import tax plan pushed by Republican leaders in the House of Representatives that has split the US business community. The proposal would eliminate companies’ ability to deduct import costs from their taxable revenues while making any export revenues tax-free. It drew attention last week when the White House pointed to it as one way in which it could pay for a wall on the Mexican border. Navarro rejected the argument that US consumers would end up paying the cost of such a tax change. That was “an old and tired argument the globalist wing of the offshoring lobby has used for years to put Americans out of work and depress wages by shipping our jobs offshore”.

The proposal has seen mixed reactions among the US corporate community. Exporters such as General Electric have hailed the switch to a “border adjustable” system as putting them on an equal footing with international competitors that are able to claim value added tax refunds on their exports. Retailers such as Walmart and other import-dependent businesses, however, say that what would amount to 20 per cent tax on imports would raise consumer prices and hurt their businesses.

A bigger implication of a border tax, however, would be a potential surge in the dollar. As we reported on many occasions before, analysts argue that at least some of the impact on consumers would be absorbed by a one-time appreciation in the dollar which could push the USD as much as15%. That in turn could also impact on US export competitiveness and lead to a widening of the US trade deficit with the world, which the Trump administration has vowed to reduce. Navarro, however, said he was not concerned about the possibility of a stronger dollar and its impact on US exports. 

“I worry about the actual impact America’s trade deficit in goods is having on our rates of economic growth and income growth.”

It was not immedately clear how Navarro’s easy stance on a stronger dollar due to BAT would reconcile with his accusations that the EUR is being held artificially weak; if anything the Trump administration should be seeking policies that weaken the dollar. So far it has failed to reconcile this fundamental trade quandary.

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