Alternative Access - April 2020


4. Trump hints at a resolution. 5. There are conspicuous conversations and calls with Chinese heads of state. 6. The Dow Jones continues to climb, despite a few bumps from coronavirus panic. Regardless of what The Economist or any economist says, this is how Trump is applying pressure — by masterfully using a series of micro-commitments to push China into achieving some sort of congruence with the United States. The more conspicuous the better, so Trump can show the world that he is winning, and therefore so are Americans. He’s masterfully paced this dialogue — right onto the street. Perhaps it was something Tyson taught him to do. The difference between how this was done in the past versus today is that world leaders have the benefit (or burden) of Twitter to consistently reframe their agenda in real time. The media just spins it, packages it, and labels it for intended use and then sells it to you. In effect, “the Trump doctrine” has essentially turned politics from something once considered boring and only watched in assisted living facilities on C-SPAN into perhaps the world’s most awkward reality show that has so much consistent tension you can’t look away.

Last July, I wrote in my 2019 Letter to Private Equity and Venture Capital LPs that rates would go much lower before they would go higher. Here’s my rationale: This is a politically driven Federal Reserve going into a very contentious election cycle. The Trump administration has successfully browbeaten Jay Powell to lower rates to keep the Dow Jones Industrial Average as high as possible. This is what I called the “Trump economic slingshot.” This slingshot is the cumulative effect of President Trump and Treasury Secretary Steven Mnuchin browbeating the Federal Reserve to lower interest rates, but they were tightly wound by tariffs. Once rates are lowered, and the elastic is stretched back as far as it possibly can be, Trump will then remove the tariffs and the economy will soar — perhaps to levels we’ll never see again in our lifetimes.

The Dow is the Trump administration’s barometer for things being good or bad. Not long ago at Bayside in Newport Beach, California, I met up with my good friend Max Gokhman who is the head of asset allocation for Pacific Life’s trillion- dollar platform. Max reaffirmed this position: “Anyone who called me crazy for saying the U.S. will see negative rates during the next downturn should put Ben Bernanke in my cell at the asylum. At a December Brookings lecture, he said that ‘ruling out negative rates for the Fed is unwise.’” Lo and behold, look what happened. Rates have been slashed, and if you have marginal to good credit, you’ll notice that the credit card companies are now not offering you a lower interest rate, but more leverage. So here we are with unconventional diplomacy. You’re seeing this play out now in real time, and it looks like this without the filth or filters: 1. There’s no action from China on trade. 2. Trump tweets threatening tariffs and taxes and other toughness.

3. Equity markets (and anything liquid in sympathy) are selling off.

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