“It looks like the President is at it again,” up early and tweeting egregious “covfefe” that, by virtue of emanating from the mind of a man who is clearly suffering from the early stages of dementia, makes little (if any) sense.
Earlier this week, just three days after the Treasury declined to label China a currency manipulator, Trump accused Beijing and Moscow of “playing the devaluation game“, a conspiracy the President called “not acceptable.”
That was wholly bizarre. And not just because it’s ridiculous that the President of the United States would be up before dawn accusing other countries of manipulating their currencies on social media. But rather because, as noted above, less than 72 hours previous, the Treasury chose not to accuse China of “playing the devaluation game”. And that was hardly the only reason Trump’s currency tweet was ridiculous. It was also “not acceptable” because the Chinese yuan has appreciated against the dollar for five consecutive quarters and also because the reason the ruble was under so much pressure last week was because of Trump’s sanctions on Russia. Oh, and if anyone is “playing the devaluation game”, it’s the U.S., because the greenback has been a one-way ticket lower for a solid year.
Well that brings us to Friday and Trump’s latest attempt to weigh in on markets. This time he wants to talk about OPEC and crude. Apparently, he’s been reading this morning’s OPEC headlines or maybe Fox is running a segment on oil tankers, but whatever the case, he thinks oil prices have gotten too high:
Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!
— Donald J. Trump (@realDonaldTrump) April 20, 2018
To be sure, the Saudis are reportedly angling for $80/bbl and yes, OPEC+ has been implementing production cuts for years in an effort to stabilize the market, but this is hardly news.
Also, Trump seemingly doesn’t understand that one of the reasons prices are so high is that he’s bombing Syria.
Do recall that it was just last November when Trump was aggressively lobbying MbS to let Aramco list in the U.S. Recall this:
Well the higher oil prices are, the better for Aramco and I’m not sure jawboning prices lower or otherwise suggesting that higher prices are “unacceptable” is going to do much to foster good will with the Crown Prince. Of course maybe that’s the point – maybe Trump is pissed that Aramco is waffling on an international listing.
Oh, and it seems lost on Trump that if oil prices were to collapse at a time when the Fed is raising rates it could potentially be catastrophic for U.S. energy companies that rely on either higher prices or wide open capital markets to stay solvent. Recall this chart from BofAML which shows you what happened when prices plummeted just as the flow of Fed QE dove to zero:
Here’s what the bank had to say about that:
The growth of US high yield energy debt had been tremendous between 2012 and 2014 – with the market almost doubling in size – as the shale phenomenon took off. Overlending in the sector thus became problematic. And while other risk-off factors materialized in 2015 to pressure US energy defaults – such as China weakness and a falling oil price – we find it nonetheless revealing that when the Fed stopped QE, leveraged capital structures in the US credit market began to suffer. “Misallocation of capital” had come home to roost…
If you get plunging crude prices and the market suddenly slams shut on uneconomic producers thanks to tighter financial conditions, well it’s lights out for some of those companies.
And on, and on, and on. In other words: what the fuck is Trump thinking with that tweet? Who knows. Least of all Trump.