Blain’s Morning Porridge Jan 16th 2025: Strong Dollar? Sustainable Treasury Market? What’s not to like?
“To use the majesty of law for revenging any petty act of private spite is to make a public confession of weakness, cowardice and an ignoble spirit.”
As the clock ticks down to the US Coronation, markets are aligning for Donald Trump: a sustainable Treasury market, a strong dollar and Trump’s Treasury pick, Scott Bessent set to demonstrate competency at his senate hearing. What could possibly go wrong?
Soon to be former President Biden’s final comments to the US electorate will be remembered till at least breakfast time in LA. He warned against the dangers of overly rich tech lords, misinformation and disinformation, the dangerous concentration of wealth in a limited number of hands, and how that may lead to unchecked abuses of power. Power corrupts and absolute power corrupts absolutely. Yawn. You know he is right… but why risk saying it?
Success in the new America will no longer be measured by the number of digits on one’s bank balance, but how close your seat is to the Podium at Monday’s inauguration coronation. I would suggest investing in tech on the basis of who sits where on the Capitol Steps. Why not? Makes as much sense as tying to figure if Tesla will be worth $2 or $3 trillion.
These are curious times. How to profit from them?
I have a thought for NetFlix or Apple TV. It’s time for a remake of my favourite books – I Claudius and Claudius The God. It is 48 years since the BBC superbly adapted Robert Grave’s tales of the early days of Rome hit our small screens.
The books are parables about political rot: how Augustus – the ambitious schemer who contrived to be the last man standing after the assassination of Julius Ceaser and the civil wars that followed – establishes himself as first citizen to restore stability. Advised by his manipulative wife, Livia, he understands to stay the same Rome must change. It can never return to the romantically remembered but deeply flawed Republican ideals.
Read how well that works out; Augustus (don’t eat the figs), is followed by the cruel Tiberius (pillow), the mad Caligula (beware the Tiger), the timid Claudius (mushrooms), and finally Nero who famously fiddled as Rome burns (dies declaring himself a great artist). What is even more interesting is the fate of the secondary characters – like moths to the flame they are caught up in the convolutions of the story… and all die horribly. Stars rise and fall at astounding speed.
Imperial Rome staggered on for a couple of centuries of plots, decay and corruption that inevitably led to the Decline and Fall my generation read in history books, rather than the dubious tales of films like Gladiator 1 & 2. They do say democracy is the worst form of government – except for any of the alternatives, but enough reminiscing about recent elections… let’s look at today….
The scale of yesterday’s relief rally on the back of OK inflation data and strong US Bank earnings from investment banking was… interesting. First is shows how reactive this market is – ready to jump points higher on any hopes, especially when the analysts dig through the chicken-guts of the number and announce they portend lowered inflationary pressures. Really? To my jaundiced eye the numbers look to confirm long-term sticky inflation will remain around 2.5-3% (absent any shocks) thus real rates will remain 4.5%-5% ish.
Nothing has changed.
And as for banks? Tush and Nonsense. When I was a young banker – yes, there was still a legion encamped in Londinium back then – it was hammered into us that trading and investment banking fees were low quality earnings because they fluctuate so much. Today, they remain volatile, and represent just how much Goldmans, JP Morgan et al were able to fleece out of the markets and their clients over the previous quarter. They are no more an indication of how much they will make in the next three-month than any other guess!
Yet yesterday’s US numbers are described as “encouraging”…. Whatever…
Here in the UK it was “rejoice” as inflation shifted a gnat’s crotchet lower yday, and it will be panic today because GDP rose slightly less than the distance between two nuetrons. (Which is very, very small.) Basically the UK is flatlining economically while inflation remains sticky – which means in real terms we are all getting poorer. No Sh*t Sherlock aware given to myself for that statement of the downright bleeding obvious.
The big one to watch today will be Scott Bessent’s hearing with the US Senate Finance Committee. He’s helpfully already told us what his priority will be; “And critically, we must ensure that the US dollar remains the World’s Reserve Currency.”
And in that simple phrase is contained all the reasons your investment strategy should remain heavily US weighted for the coming year. Forget the details and the noise around investment policy, supply-chain security, inflation, rates, geopolitics and whatever happens in Ukraine and whether the ceasefire in Gaza holds up – the key is the US currency.
Ahead of Monday all three critical components of the USA’s Virtuous Sovereign Trinity currently look to be in place.
- Bessent’s stated aim is to maintain the strength of the US dollar. There is not any credible competitor.
- At current levels, an increasing number of global investment firms are on record declaring US treasuries look attractive at these levels. There is no reason to fear a Treasury buyer strike.
- While there are plenty of reasons to be concerned about Donald Trump’s transactional approach to politics, there are “adults in the room” (like Bessent as Treasury Secretary), thus no real reason to doubt the USA’s political competency.
Events, events dear boy, may cause these positive factors to weaken… but at present, the US looks the best decent bet… Explain me what else looks better?
Out of time, and back to the day job…
Bill Blain
Author of the Morning Porridge
2 Comments
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Unrelated to your present article, but you frequently write on the need for the British government to do more to encourage growth. I’m curious what you think of the FT’s Jan 16 article, “Britain should stop pretending it wants more economic growth”? They essentially make it sound like a political impossibility.
https://www.ft.com/content/8178b984-cf92-4313-8381-d8e2f6fc7fa0
Good spot… I enjoyed that:
“Tories want growth, but not if it means building things, aligning with Europe, or much exposure to China. Labour wants growth, but not if it incommodes the unions, or “leaves people behind” or some such NGO press release inanity. What growth policy is left over, then? A finance minister asking her colleagues to suggest some red tape to trim.”
What we need is an economy that enables/facilitates/encourages/nurtures growth..