The Lisa Cook Gold Trade

The Lisa Cook Gold Trade

The mainstream is picking up on something we’ve been telling you since Tuesday.

Donald Trump’s efforts to fire Federal Reserve Governor Lisa Cook are “potentially undermining confidence in the U.S. dollar and Treasury bonds — and boosting the appeal of gold and other assets perceived as safe havens,” writes Myra Saefong at MarketWatch.

Ms. Saefong interviews James St. Aubin, chief investment officer at Ocean Park Asset Management: “If the market believes the Fed is making policy in reaction to direct political influence, U.S. assets will become less attractive.”

But she also interviews Stefan Gleason from the precious metals dealer Money Metals Exchange — who shares your editor’s assessment that Fed “independence” is a myth.

As Gleason sees it, the Fed is “an inherently political institution, not only because the Board of Governors is appointed by the president with Senate confirmation, but our entire monetary system is now political in nature. We no longer have sound money backed by gold, but political money, where policymakers centrally plan the economy via changes to monetary policy.”

Still, perceptions matter more than reality. If conventional wisdom believes in Fed independence... and if it further believes Trump is undermining that independence… there will be consequences in the markets.

“The U.S. Federal Reserve must henceforth be considered the personal political agency of Donald Trump. America’s monetary credibility has been utterly trashed,” writes Ambrose Evans-Pritchard, the world economics editor for the London Telegraph.

“AEP,” as he’s known, is no effete European liberal; as the paper’s Washington editor in the 1990s he broke story after story about the Clinton scandals that American outlets wouldn’t touch. More recently he advocated for “Brexit” — the U.K.’s departure from the European Union.

His point now? “Trump can bulldoze his way through resistance within the U.S. — and he can strong-arm foreign allies into concessions, until they cease to be allies — but there is one great immovable power that is beyond his reach.

“He cannot force the global bond market to buy U.S. Treasuries and fund his debt.”

That means Treasury notes and bonds are a long-term loser — a case we were making last week even before the Lisa Cook story burst wide open.

But on the flip side, if the perception takes hold that the Fed has lost its independence, “gold would be the safe haven of choice.”

That’s the assessment of Chris Gannatti, global head of research at the WisdomTree family of ETFs.

“Gold has no counterparty risk, no reliance on government credibility and a track record spanning thousands of years as the ultimate store of value,” he tells MarketWatch. “In times of political or monetary uncertainty, it is the asset investors trust most to preserve purchasing power.”

That’s even with the gold price in striking distance of its recent record highs. As we mentioned earlier this summer, central bank purchases of gold are keeping a floor under the gold price — while retail investors are only starting to rediscover the Midas metal.

Even mainstream forecasters won’t rule out the possibility of gold climbing from current levels under $3,500 to over $4,000 as early as year-end.

So if you still haven’t followed the guidance of our Jim Rickards — physical gold as 10% of your investable assets — there’s still time.

“Sticky” Inflation

There’s nothing to like in the latest government inflation reading. At all.

This morning the Commerce Department issued its “core PCE” figure — the Federal Reserve’s preferred measure of inflation. It came in as expected — a 2.9% increase from a year ago.

When Fed officials refer to their 2% inflation target, it’s the core PCE figure they have in mind. Not only is core PCE nowhere near 2%, it’s been stuck in a channel between 2.6% on the low side and 3% on the high side for the last 18 months. Talk about “sticky” inflation.

And yet as we write this morning, futures traders assess an 87% probability the Fed will lower short-term interest rates at its next meeting on Sept. 17 because…

…because the job numbers are looking punk? (We’ll have a more current read on that a week from today.)

… because the president demands lower interest rates, inflation be damned? (Where’s this sub-$2 gasoline he keeps talking about? Nowhere my wife and I have been traveling this month.)

Neither of those rationales bodes well for the dollar or U.S. Treasury debt — which, as noted above, are already under pressure amid the president’s attempts to fire Fed Governor Lisa Cook.

After an “unusually quiet” August, “we’ll be dealing with a potentially volatile September after we all say goodbye to summer this Labor Day weekend,” Paradigm’s Greg Guenthner tells his Trading Desk readers.

“I suspect the Fed drama will continue into next week. The Lisa Cook story isn’t going anywhere, and everyone is getting ready for a rate cut later next month. Something is bound to spook investors. But so far, that something has yet to materialize. Not even NVDA earnings could stir the pot. The king of the chips danced around yesterday, but closed lower by less than 1%.”

Heck, the S&P 500 just barely hit another all-time high. But that was yesterday and this is today: The index is down 0.8% to 6,450.

The new inflation reading has propelled gold $20 higher to $3,436. And silver is on track for its first weekly close over $39 since 2011.

Crude is off nearly 1%, hanging onto the $64 level by a thread. Crypto can’t get any traction, Bitcoin a little over $108,000 and Ethereum under $4,300.

Sign of the Times

One word: Yikes…

In our voluminous archives is something I wrote in 2012 while covering a conference in Vancouver. Flipping on the TV in my hotel room, I was struck by the commercials pushing 84-month auto financing — at the time, nearly unheard of in the States.

“Must be an awful lot of Canadians rolling an existing car loan into a new one when they trade in,” I mused. Now it’s becoming de rigueur here in the States…

Comic Relief

If memory serves, this is the first time a “Drakeposting” meme has made an appearance in these virtual pages…

And here’s a bonus chuckle going into the holiday weekend…

Mailbag: Lisa Cook

“Hell no, she won’t go,” reads the subject line of a reader’s email.

“Why should Lisa Cook leave? You may trust she has semi-competent legal advice. That would be: Say nothing!

“The mortgage fraud case may be past the statute of limitations or have other defects. However, a denial creates the fresh offense of misleading a federal investigation. Could have more serious penalties.”

“In classic style, Mr. Trump ought to request Ms. Bondi seek an indictment. Once under

indictment, statutes are triggered. No rush — when is the next vote?”

Dave responds: The Fed’s Open Market Committee meets next on Sept. 16–17.

Presumably by then there will have been a tentative court ruling of one sort or another — perhaps allowing Cook to remain in her post pending the case’s final disposition. As we write, a federal judge in Washington is reviewing Cook’s request for a temporary restraining order to prevent her removal.

Cook has Washington super-lawyer Abbe Lowell in her corner. As noted here Wednesday, Lowell’s recent clients run the gamut from Hunter Biden to Ivanka Trump. But he goes way, way back, representing scandal-scarred clients of yesteryear like House Speaker Jim Wright and banker Charles Keating — both caught up in the savings-and-loan mess of the late 1980s.

Don’t underestimate Lowell’s effectiveness: Wright resigned under pressure, but he never faced criminal charges. And while Keating went to prison, his convictions were ultimately overturned on appeal.

The Cook case will, if nothing else, make for an entertaining autumn.

Have a good weekend,

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets