MacroVoices #455 Daniel Lacalle: Is The Trump Trade Over?

Tressis Chief Economist Daniel Lacalle examines the post-election market dynamics and Trump trades, arguing that while some trades may have run too fast, the U.S. dollar likely has more room to rise due to increasing global demand and weakness in the euro area and Japan. He expresses serious concern about President Biden's weekend decision to authorize Ukraine to use U.S. missiles against targets deep inside Russia, viewing it as dangerous escalation during a transition period that could sabotage incoming President Trump's negotiation efforts. Lacalle sees this as potentially reflecting Biden's attempt to cement a historical legacy rather than deliberate sabotage, but warns it creates a window for rapid escalation by both sides. On energy markets, he notes Europe has strong storage levels and mild weather conditions that should prevent supply disruptions, but warns the economic impact will persist as European consumers continue paying elevated energy prices that erode competitiveness. Regarding trade wars, Lacalle expects tariffs against China to be implemented regardless of negotiations, as confidence between the countries has deteriorated, while tariffs with other partners may be used as negotiation tools. He argues Trump must combine deregulation, budget cuts, and stronger dollar demand to address inflation without implementing austerity, emphasizing the need to strengthen the private sector rather than GDP bloated by government spending. Lacalle expresses optimism about the Elon Musk and Vivek Ramaswamy efficiency department, noting they can likely cut many of the 40,000+ monthly government jobs added over four years, though their advisory role limits direct power. He sees potential for significant budget cuts by eliminating programs like the Inflation Reduction Act and Build Back Better while maintaining essential services. On Treasury Secretary candidates, Lacalle finds it fascinating that cryptocurrency advocates like Howard Lutnick are being considered, viewing a potential Bitcoin reserve as strengthening both the dollar's reserve currency status and Bitcoin while weakening other fiat currencies. He argues this approach would defend the dollar's purchasing power rather than managing its erosion, representing a fundamental shift from previous Treasury Secretaries. Lacalle warns that if the Fed disconnects its monetary policy from the ECB by embracing Bitcoin and defending dollar purchasing power, European institutions lack the ability to counteract effectively, potentially ending the current policy mirroring between central banks.