How Does Trump Manipulate The Markets?Independent Trader
Donald Trump's victory in the presidential election of 2016 was a huge surprise for the establishment. Since 1990s, or at least that's how I remember, one of two candidates serving the same groups of interest (financial and military sectors) has been elected as the president of the United States.
Financial industry benefited from deregulation of Clinton and Rubin, as the result of which banks could combine lending and investment activities. The effects of this will be deplorable, and we will feel it the most during the next economic downturn. During Bush's presidency, after dotcom bubble burst, the sector received help from the government, which was nothing in comparison to TARP (800 billion dollars bail out) in Obama's time.
Similarly, it was with the second largest beneficiary, i.e. military sector. It does not matter, that it hasn't gained the most on maintenance of over 800 military bases in 70 countries, but on the active wars in former Yugoslavia (attack on Serbia) during Clinton times, Afghanistan and Iraq during Bush's presidency in Libya and Syria or in Yemen during Obama's office. Trump, fortunately, is the first president who hasn't initiated a new conflict, but also hasn't ended operations carried out under the guise of fighting terrorism. It has not helped the financial sector so far. Among other things, this is why it was attempted to get rid of him one and a half years ago via impeachment (removal from office), which was stopped only after he recognized Jerusalem as the capital of Israel. Yes, Israel's influence is huge not only in Poland but also in the U.S..
General difference between Trump and the previous three presidents is that he made gigantic wealth by himself and it is hard to buy him over. Bush Senior as head of the CIA made a huge fortune in “black operations”. Clinton, in turn has been chosen by backstage principals, just like Obama. I omit Junior Bush because US has never had such the stupid president in the whole history. The only, but important asset he had, was his last name.
In comparison to previous Presidents, Trump seems to pursue a relatively independent policy for the time being (as for the opportunities available to him). However, my attention was focused on a tool that can win or buy powerful allies. It's about manipulating the prices of all kinds of assets either with live statements or Twitter entries. There are a lot of examples. Below I will discuss only a few of them. I'm not absolutely asking for any stigma of Trump. Effective policy implementation at this level requires much more brutal action than market manipulation. U.S. presidents initiated wars by violating UN principles. Secret Services under Putin blown up several blocks in Moscow to justify the second war in Chechnya. The Chinese are doing probably much worse things in their yard. This is how the power policy has always looked like. Returning, however, to manipulation – since they have such a strong impact on the market, it is worth observing them, because in some cases they lead to extreme distortions. And this can have an appearance of the investment opportunity.
Manipulation of the dollar
Trump took office as the president during the cycle of interest rate hikes which strengthened the dollar. At the beginning of January 2017, dollar reached maximum level of 104 measured by the dollar index, and then began to slowly decline. At some point, specifically April 12, 2017, Trump said in an interview, “I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting—that will hurt ultimately.” Investors read it as a sign of weakening the dollar and as a result over the next 4 days dollar has become cheaper by 1.3%.
Someone will ask: what is 1.3%? This 3 days move, however, for the most important currency in the world it is a very strong change. What's more, a change of 1.3% can easily be transfered to 2.6% of profit if we short dollar ETN (ticker:UUP) or tens of percents of profit if just before the speech we buy a put option (option gains when given asset weakens) with a week maturity.
In the above chart I also pointed out the speech of Treasury Secretary Steven Mnuchin, who temporarily stopped declines. It is worth adding here that Mnuchin occupies a very important position in the Trump's administration overseeing the activities of the United States Department of the Treasury in carrying out its major law enforcement responsibilities.
Trade war with China
While I think that the introduction of tariffs on goods imported from China is in line with U.S. interests, which Trump ultimately represents, the way in which they communicate is puzzling. On the 5th of May this year, a few days before the next round of negotiations, Trump tweeted that the U.S. would drastically raise tariffs.
During the next day index of technology companies in China dropped by almost 8%, while the Shanghai Composite Index, covering all companies, fell over 5.5%.
If change in the dollar index by 1.2% with the use of appropriate options translates into profit of several dozen percents, think about a scale of such a decline that occurred after Trump's tweets.
At this point, I must immediately point out that what I described above is consistent with Trump's negotiation strategy. Report to all that you will be tough in negotiations. Put your opponent in a very difficult situation publicly. Then agree to make big concessions from what you originally announced, and you'll get a better result than you can negotiate when starting in an equal position. Remember, Trump, above all, is a clever businessman and a very good negotiator.
Stopping panic on stock markets
During last two months of 2018, we had real panic on the U.S. stock markets. In just a few weeks, the S&P 500 index went down by 20%. Index of small companies Russell 2000 or technology Nasdaq dropped even more. At the end of the year, there was a meeting between Trump's administration representatives and representatives of the Plunge Protection Team (a team to counter panic on the markets). A moment later, exactly on the 26th of December, Trump publicly stated that after last declines, investors have awaited a great buying opportunity. On the same day, stock price increases began, and still continue.
It is true that such a strong turn around in the markets was caused by a complete change of the FED monetary policy, as well as by “behind-the-scenes” activities to prevent from panic escalation, but this event was supposed to build the image of Trump as a person able to hugely influence financial markets.
The situation on Uranium
The United States currently imports 93% of uranium used for energy production. A decade ago it was 85%. Recently, the Department of Commerce has assessed that such a strong dependence on uranium import threatens energy security, which is why it should be supported by domestic uranium producers. Talks were conducted for several months and it was recognized that U.S. companies would receive from the government some form of protection or assistance.
On Friday, July 12, Trump announced that the import volume and pricing policy of foreign uranium suppliers should be more closely looked at. Within 90 days, the United States Nuclear Fuel Working Party will begin its work, which will examine U.S. demand for uranium and possible solutions to protect domestic suppliers of this commodity. In short, Trump has ruled out the introduction of restrictions on uranium import, while support for native producers is still in play.
After Trump's decision, uranium mining companies in the U.S. got cheaper by more than 30% in a few days. I own two of them in my portfolio. In my opinion, this is a play, like a few aforementioned, for calling specific traffic on the markets. It seems to me that Trump gives “coworkers” the opportunity to take position at a bargained price. In turn, when they will be covered by any form of government support, and there is a very good chance of that, prices should return to pre-decision levels, and maybe even higher.
Perhaps some of you feel disgust for such a policy or manipulation. But it has always been part of ruling power or access to information to which ordinary people do not and will never have access. This is life and you have to get used to it.
I decided to describe this topic not only to show you how dirty politics looks like. Remember that all of Trump's activities make the market go crazy for a while, and asset prices are in high divergence to their real values. Experienced investor is able to pick it up, and maybe also exploit it.
Of course, the easiest way is for those who have the right source of information. While the average investor struggles to earn 12%, a well-informed person can count on completely different profits. For example is the history of the put option on Facebook shares from last year. Let me remind you that the price of the put option grows when the given asset (e.g., Facebook shares) loses value.
Almost exactly one year ago, on the 25th of July, Facebook announced very poor results, and company shares fell by 20%. The put option prices have increased. Strongest jump concerned 2-day options, which grew by 7400%.
This example, although extreme, shows that people who are in power or who rub shoulders with appropriate company can sometimes count on gigantic profits with zero risk.
Article by Independent Trader