Safe Harbours Amid Cyclone Trump

Right on cue after our article yesterday on the looming debt ceiling, overnight shares fell and gold and bonds rose as the market became increasingly concerned about Trump getting this passed.

At a rally in Phoenix yesterday Trump threatened closing down the Government to get Congress to pass funding for his beloved wall, declaring “If we have to close down our government, we’re building that wall,” ..and… “One way or the other, we’re going to get that wall.”  

Reports via the New York Times that the relationship between Trump and Senate Majority Leader Mitch McConnell is becoming toxic added to fears and even prompted  Fitch Ratings to warn the country risks a review of its sovereign rating if it fails to raise the limit next month.  The NYT said the latest twist regarding the wall “dramatically raises the spectre of a shutdown in October”.

Whilst the market focus is on the debt ceiling, this is intertwined with the other big hurdles before Trump in passing the budget and the long awaited tax reform that was so pivotal in the Trump share rally.  Indeed a recent Morgan Stanley client update called this the “three-headed policy monster”.

These are also independent issues too in that we could well see the debt ceiling raised but still have a Government shutdown in October on the back of a ‘wall’ standoff.  Any one of the ‘three heads’ can and might bite and this Trump administration has not had a great track record so far of getting anything through itself let alone Congress.

The other big Trump bogey-man is his trade agreement reforms and the impact this will have on global trade markets, not just the US.  This came to the fore as well yesterday with Trump reiterating his intentions to end NAFTA.

It was all a lot for the market to digest and there was another shift to ‘safety’ which saw both gold/silver and bonds up.  What we find just a tad ironic is that bonds are up amid talks of the US potentially defaulting on the very same instrument.  US Treasuries are the ‘go to’ paper safe haven as they are backed by the mighty US Government.  Gold is the other safe haven backed by 5000 years of history, intrinsic value, and not a piece of IOU paper in sight…. Which would you trust?