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As we try to fathom the direction of Donald Trump’s master plan, Toby Hayes, Portfolio Manager, Trium Alternative Growth, suspects Trump is quietly cursing his true nemesis, Mr Bond Market. In his latest blog, Toby suggests if we frame Trump’s tariff plans in the light of an imminent funding crisis, some semblance of rationality to the Trade War does emerge.
The fictional gold smuggler, Auric Goldfinger, famously retorted in the 1964 classic film – “No Mr Bond, I expect you to die”. For it was the cool and collected Mr Bond who thwarted Goldfinger’s gold manipulation plans and thus saved the world from economic chaos. What a guy. Fast forward to the reality of 2025, the erstwhile Trump has taken a shine to gold as he battles his tariff enemies. And as we try and fathom the direction of his master plan, I suspect that Trump is quietly cursing his true nemesis, Mr Bond market. For the US has a cashflow problem, and a ‘bigly’ one at that. And Mr Bond market is threatening to derail Trump’s plans just as Mr Bond did Goldfinger’s.
Trying to make sense of Trump’s tariff plans is somewhat of a fool’s errand, but if we frame the story in the light of an imminent funding crisis, some semblance of rationality to the Trade War does emerge:
However, one must first give credit where credit is due. The cashflow crisis, while it is the culmination of decades of profligate spending and monetary madness, the dial was turned to eleven in the last year of the Biden regime. Biden’s incontinent deficit pumping of the economy was gleefully financed by Yellen deliberately issuing debt at the very short end. She did this to entice the last remaining Covid QE money, stashed away unused in the Fed’s RRP account, into US T-bills. Over three trillion poured into capital markets and funded the Democrats last fiscal hoorah, while sending equities to a blow-off top. And this mess was their gift to Trump.
The problem for Trump, as the democrats were no doubt well aware, is that the RRP money has run dry. With this year’s deficit coming in at 9% of GDP and the last few years’ deficit now coming up for refinancing, Trump needs to find an astonishing 6 trillion over the next few months.
Trump’s options are severely limited. Trying to raise that kind of cash through bond issuance would cause serious indigestion for a bond market that already has a bit of a funny tummy. Trump has so far refrained from tapping the bond market in any serious size and instead has turned to the government’s emergency kitty, the Treasury General account. This account has taken the strain so far and has drained by 0.5 trillion in two months. There’s only 300bn left, which, at its current run rate, should be gone by the end of the month, and when that’s gone, well, that’s it.
So, by hook or by crook, Trump needs to find alternative ways of raising the cash and/or reducing the bill.
And this is where tariffs and the trade war enter the story.
Tariffs, love them or hate them, raise cash, perhaps not as much as Trump would hope, and perhaps not paid by the people that Trump would want, but they do represent an alternative revenue stream.
Every little helps.
Tariffs are also a demand shock: Trump will also be very aware from his Covid presidency that jamming a stick into the spokes of global trade is a very effective way of starting a global recession, and a recession, of course, can bring the Fed back into play: every 25bps rate cut shaves off 50bn in interest expense which is certainly not to be sniffed at. Likewise, recessions are usually a great way of enticing investors into the ‘safety’ of government bonds, which is handy if you need to go on an issuance spree. Throw in an equity market wobble and a little banking crisis, and the omnipotent money printer can be summoned to absolve all cashflow sins. Happy days.
Well, if that’s the plan (Occam’s razor would suggest it is), there is now some coherence to Trump’s machinations. But how is the plan working out? After all, if you knock several trillion in value off the equities markets, start a global recession, and destroy all international relations, I think you would be entitled to expect a little light interest rate relief from the bond markets.
Yet the bond market is not playing ball: Whether it’s a basis trade blowout, a bankrupting Japanese bank, Chinese dumping, or just a general loss of faith in US assets, yields have been spiking upwards. Not the best outcome in a government funding crisis. And then we see that the rollback of most of the world’s tariffs so soon after Liberation Day could just be the next round in the ratcheting tariff on/off cycle, or, as it appears to me, it could actually be the first Trump blink. But is there a plan B?
And this is where gold enters the story.
An astonishing 4,000 tonnes of gold has been delivered to US Comex warehouses over the last few months. As Comex is a 99% cash-settled futures market, there is only one buyer with the clout to force delivery on this much gold: the US administration and its banking proxies. Without sparing a thought for the ensuing bank run on the London Gold market, Trump then adorns the Oval Office with as much glitter as he can muster, sending a not-so-subtle signal to his followers to join the gold stampede.
But here’s the rub: The Bitcoin Act (detailing the US government’s purchase of Bitcoin) is currently wending its way (no doubt unread) through Congress. The act will soon be rubber-stamped by this fine and upstanding institution, performing its core function as a check and balance of the US executive. Trump’s executive has snuck in a little clause outlining how the US gold reserves shall be revalued to market rate (currently valued at 42 dollars per ounce), and that the various federal reserve banks shall deposit the cash difference back into the Treasury General Account.
This is the art of printing without printing and will net the government a nice >1 trillion cash windfall. And they were even kind enough to stipulate a timing (no less than 180 days from the passing of the Bitcoin act) for the payday of this epic accounting gimmick. As far as plan B’s go for averting a funding crisis, this one has a certain Bond villain charm about it. Goldfinger would be proud.
Asked about the apparent chaos of the tariff negotiations so far, I think Bessent said the quiet part out loud. “It’s called strategic uncertainty… Nobody’s better at creating this leverage than President Trump”. Maybe Trump believes that his ‘strategic uncertainty’ will make America rich while eliminating income taxes and onshore lost manufacturing all at the same time. Or maybe his unique brand of chaos is just the most politically palatable excuse to switch the money printing back on – either via a panicky Fed or a stratospheric gold run.
Only time will tell, but my money is on the printing.
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