Monday. I would like to define this week as a week of uncertainty.
Where do variables come from? They come from emotions, from the collective behavior of the market, and from the self-righteous nonsense of some irrational leaders.
Over the weekend, Trump publicly stated: "We ask these countries to commit to not creating a new BRICS icon currency, nor to supporting any other currency to replace the powerful dollar, otherwise they will face a 100% tariff."
I am a little curious, has Trump received any definite information before he made such hysterical threats against the BRICS countries?
1. Many people may be confused by Trump's obsession with tariffs; the reason is quite simple. It stems from Trump's deliberate imitation of Andrew Jackson (1829-1837), a highly controversial president in American history.
★ For example:
On January 8, 1835, President Andrew Jackson successfully repaid the U.S. national debt in full through massive spending cuts and increased taxes, marking the only time in American history when the national debt was 'zero'. Furthermore, he vehemently opposed the central bank at the time—the Second Bank of the United States—believing that this privately-held bank threatened national security. He refused to renew the charter of the Second Bank and ultimately forced its closure in 1836, for which he even faced assassination attempts. However, a famous financial panic broke out in 1837.
★ Again, for example:
Jackson supported high tariffs and, to suppress opposition from Southern agricultural states against high tariffs, pushed Congress in 1833 to pass the Force Bill, authorizing the federal government to use military force to enforce high tariff laws. However, this also became one of the triggers for the future Civil War.
★ President Jackson was also a staunch advocate of the Monroe Doctrine.
Trump once said in a speech: 'He (Jackson) initiated a thorough campaign to eliminate government corruption... He fought against centralized financial power, which gained influence at the expense of our citizens' interests... He imposed tariffs on foreigners to protect American workers... This sounds very familiar... Andrew Jackson has been called many names and accused of many things, but by fighting for change, he earned many enemies. Today, the portrait of this man who rose from orphan to president proudly hangs in the Oval Office... It is I who brought Andrew Jackson's portrait there... right behind my left shoulder, just there.'
This is the source of Trump's ideological beliefs and the model for his governance philosophy.
2. Is Trump's 100% tariff threat meaningful? Yes. If he actually implements it, it will lead to two results:
★ The United States will never be able to achieve any manufacturing return or the end of the dollar's reserve status since 1971.
The return of U.S. manufacturing depends on global supply chains, and imposing high tariffs on BRICS countries will disrupt supply chain efficiency. Moreover, high tariffs will lead to excessively high domestic production costs, resulting in a loss of global competitiveness, especially since the U.S. lacks a complete supply chain system.
Imposing high tariffs on BRICS countries and excluding them from the U.S. market will inevitably lead to a significant reduction in their demand for the dollar, accelerating the process of dedollarization.
Just like President Jackson, all actions that seem 'correct' ultimately lead to 'incorrect results'.
3. Will Trump's sudden, neurotic policy direction affect the market? Of course, it will, especially for a 'sensitive and fragile' global economy, the impact is even greater.
The yield on the 10-year U.S. Treasury note fell to 4.18% at the end of last week, and I calculated and analyzed the 10-Year Breakeven Inflation Rate (the formula is: 10-year Treasury Yield - 10-year TIPS Yield). The difference in the breakeven inflation rate can be seen as the market's expectation of the average inflation level over the next 10 years.
Currently, this difference has decreased from nearly 2.8% at its peak in 2022 to 2.26%. However, this data shows a significant divergence from the recent upward trends in core CPI, PCE, and PPI data.
Additionally, one piece of data indicates that the global central bank liquidity index is about to break below the long-term trend line since 2019, and there is a trend toward further decline.
How to understand this? I believe the market is anticipating that the Fed may pause interest rate cuts or continue to reduce its balance sheet, maintaining a tight stance to suppress a rebound in inflation.
If this analysis holds, then Trump's statements are 'adding fuel to the fire,' as they would further heat up inflation expectations, making it more difficult for the Federal Reserve to continue releasing liquidity (interest rate cuts would further stimulate inflation), thus the market will pay close attention to Powell's speech on Wednesday to judge the trend of the Fed's monetary policy.
If we entertain a conspiracy theory, given that the only way to resolve debt currently is through inflation, Trump's statements aim to continue to elevate inflation to alleviate debt pressure. It’s important to note that interest rate cuts merely lower debt costs, while inflation actually dissipates the debt itself. Moreover, inflation aids in maintaining asset bubbles.
Additionally, there are reports that Zelensky is willing to accept the status quo in exchange for joining NATO, which would not be very favorable for precious metals.
When there is significant uncertainty in liquidity, risks are difficult to control and require extra caution.
