It is looking increasingly likely that the next Fed governor is about to return on a super accommodative monetary policy.
Call it QE5.
The impact on your trading account or retirement account could be parabolic.
The issue becomes all the more urgent in the wake of Donald Trump and Steven Mnuchin meeting with potential Fed Chairman candidate Kevin Warsh.
He could be the next chairman to unleash the economic flood gates, creating economic growth through accomodative easy money.
Then there is still the lingering issue of Janet Yellen.
She lauded the regulatory regime put into place by Dodd-Frank, which has made American banks the world’s strongest.
How many major banks have gone under since the act became law? Exactly zero.
The statement is, in effect, Yellen’s letter of resignation even though she is still technically being considered for another term.
It flies in the face of the president’s well-known deregulation and anti Dodd-Frank sentiments.
In fact, Yellen came close to quitting in the wake of the president’s post Charlottesville pro-white supremacist comments.
So what will the policies of the next Governor of the Federal Reserve look like?
We all know that presidential economic advisor Gary Cohn, formerly of Goldman Sachs, is doing all he can do to bring Wall Street back into the fray after being lambasted by the Obama administration.
We also know the president’s criteria – an iron clad loyalty oath and broad agreement on his goals.
We also know one more thing. The new Fed policies will be different.
The major consistent theme of presidential policies since January has been to reverse the polices of the previous president, not because it was a good idea, but because that is what Obama did.
In the Fed world that means abandoning the present policy of raising rates 25 basis points a quarter, as it has done for the last three quarters.
So will rates go higher or lower?
You might be tempted to pick higher, as Republicans actively campaigned on this theme in the last election.
In the 2016 election, the Federal Reserve was regularly attacked as a willing co-conspirator of the Obama administration, part of the “deep state,” and a facilitator of highly inflationary, artificially low interest rates.
Never mind that historic deflation continues unabated, while the stock market tripled, and home equity quintupled.
I vote for the opposite, either a halting of the current rate rise policy, or a reversal, leading to lower, or even negative rates.
Such a policy makes so much sense on so many fronts.
Donald Trump is now essentially a lame duck president.
His ability to shepherd any substantial new legislation through Congress is nil, even with all Republican majorities, and the new tax bill in the works looks dead on arrival.
The prospects of tax reform, major deregulation, and an infrastructure budget are all stillborn.
So what is the sole remaining policy tool left to the administration?
By keeping interest rates ultra low, the Fed would superheat the economy, bringing the 4% growth rates promised by the president on the campaign trail.
Inflation would make a much earlier return as well, as the economy would be getting shock therapy right when a serious labor shortage is developing.
Headline unemployment is now at a decade low of 4.3%, and good luck hiring anyone related to online commerce. Hiring a tech developer here in Silicon Valley will cost you an arm and a leg.
Don’t think this is impossible.
Janet Yellen’s Fed openly discussed the prospect of superheating the economy as a way of dealing with pernicious deflation.
However, it was considered too risky of a strategy in the face of a full employment economy. Once inflation starts to increase, it rapidly becomes unstoppable.
It all sets up nicely for a 2020 presidential campaign.
Such a policy would inevitably lead to a ferocious interest rate spike down the road, a stock market crash, and another recession.
Anticipating long-term consequences don’t seem to be a hallmark of this administration.
The bottom line for your personal portfolio: A higher high now, to be followed by a much lower low later.
You may think that all of this are the ravings of a mad man.
I take pains to point out that every financial market in every assets class already agrees with me.
This analysis explains many of the unprecedented, nonsensical moves that are going on in markets lately.
In the past, we have seen stock bubbles (SPY) (QQQ) and we have seen bond bubbles.
We have never seen both stock bubbles and bond bubbles at the same time, as we are experiencing now.
Stocks are going up because near zero interest rates are paving the way for a continued earnings surge, more stock buy backs, and accelerated mergers and acquisitions.
Indeed, in Q1 and Q2 we have just seen the first two back-to-back, double-digit corporate earnings growth rates in six years.
Bonds are going up because the Fed is about to stabilize, or LOWER interest rates, not raise them.
As I write this, the ten year Treasury bond (TLT) recently hit 2%. The 30-year fixed rate conventional mortgage just hit a new 2017 low of 3.87%.
Gold (GLD), silver (SLV), and the miners (GDX), (ABX), (NEM), (SIL) do very well in this scenario, as their relative yield disadvantage disappears to zero.
So do platinum (PPLT), palladium (PALL) and the base metals (COPX) with the fierce tailwind of a global synchronized economic recovery.
And the US dollar?
Falling rates are sucking the yield advantage out of the greenback relative to other currencies.
The buck has been the worst-performing major currency of this year.
Fortunately, I saw all this coming a month ago and piled followers into what would soon become the best-performing stocks and asset classes out there.
Since I’m in a radical, out-of-consensus, get it off my chest mood, let me get one more unbelievable, earth shaking forecast out there.
Donald Trump is setting up for a third party presidential run in 2020.
Yup, you heard it here first.
After Charlottesville, about two thirds of the country oppose the president because of his white nationalist sympathies, while one third support him.
That makes a Republican nomination for a second Trump term unlikely.
Few Republicans will support a supposed white nationalist leader of a country that is now 40% composed of minorities, quickly headed for 50%.
Trump would then break off from the Republican Party and run as an “America First Party” candidate.
Trump threatened just such a strategy in 2016, before he locked up the nomination in Cleveland.
That explains why Trump has recently begun a nonstop attack against the Republican leadership.
He already is campaigning for the 2020 election. Not against the Democrats, but against his own party.
Trump has made absolutely no effort to reach out to the middle, as has traditionally been the case with second term runs.
This is why almost every public appearance now has the appearance of a campaign rally for his base exclusively, because it is.
And we are all paying for it.
Of course, he’ll lose, splitting the Republican Party in half and assuring a Democratic win.
This has been the outcome of all third-party runs for the past century, including Teddy Roosevelt’s Bull Moose Party in 1912 and billionaire Ross Perot’s Independent Party in 1992.
Perot landed an impressive 18.91% of the vote, enough to put Bill Clinton in the lead with 43.01%
Commit these names to memory. You’ll be hearing about them a lot in coming years.
But what this strategy will do is increase the value of the Trump brands and make the president and his family more money.
It’s always about the money with Trump.
It always was and always will be.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.