Can President Trump fire the Chairman of the Federal Reserve?
This is the question that we’ve been forced to ponder this weekend as news that Mr. Trump has been asking his advisors about it has been widely reported. The spin machine went into overdrive, putting Treasury Secretary Mnuchin out on Twitter to deny it and then newly installed White House Chief of Staff Mick Mulvaney was talking down the threat on the Sunday shows this morning.
As always, the more these people deny something, the more you absolutely can take it to the bank that it’s definitely true.
I was thinking about the dollar in the context of a mad President who has no idea (or interest) about the limitations of his power, nor even a cursory understanding of the importance of faith and confidence in our markets.
This past week, the US dollar made a three-month low against the Yen, which as you can see below, has happened during every stock market sell-off throughout 2018 (Jan-Feb, October, December). When investors around the globe get nervous, they reach for the Yen, the world’s preeminent risk-off currency…
Speaking of, if there’s one correlation you’ve been able to set your watch to this year, it’s the dollar vs emerging market stocks. They’re almost perfectly negatively correlated – a strong dollar makes it harder for EM countries that owe interest on US denominated debt to make payments (the oversimplified version is good enough).
Below, I’ve inverted the US dollar index (blue) and then compared it with the MSCI Emerging Markets Free Index (green)