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dollar economy FX larry kudlow Markets Trump

Let’s Play Dollar Bingo With Larry Kudlow – Who Had ‘Cherished’?

None of this makes any sense. Not a bit of it. It's a self-referential nightmare.

Sadly, we’ve now reached a point where everything that emanates from Trump administration officials is pure, unadulterated propaganda – full stop.

To be clear, Trump’s campaign was built on populist propaganda, but as one particularly astute political and economic blogger who also writes pseudonymously put it last year, the President “is like a cognitive black hole; there is something terminal about coming too close to him [and] whoever comes within his event horizon becomes afflicted with the same cognitive incapacity as Trump himself.”

Literally everyone who has played a part in this administration has at one time or another found themselves on television or in the press telling demonstrable lies. And I don’t mean “white lies” or “half-truths” or “spin” – I mean outright, full-on lies.

Some officials are more adept at navigating these decidedly choppy waters than others. Sarah Huckabee Sanders, for instance, has seemingly mastered the dark art of relegating her conscience to the backburner on the way to deceiving the American people and blaming the press for drawing attention to the fact that each and every time she takes the podium, she says something that isn’t true. At the other end of the spectrum is Rudy Giuliani who, either due to the mental deterioration that naturally accompanies old age or else due to sheer haplessness, can’t even get through a 10-minute CNN interview without contradicting himself.

Somewhere in the middle of that spectrum is Larry Kudlow, who Donald Trump installed in Gary Cohn’s vacant spot when Gary simply couldn’t take it anymore. What everyone (including CNBC, by the way) knows is that Larry is a standing joke. Nobody took him seriously before and he would have been far better off simply allowing the sun to set on a career that’s whatever the opposite of illustrious is, but in a last ditch effort to reclaim whatever relevance he once had, Kudlow decided it would be a good idea to advise Trump on economics. Of course Kudlow shouldn’t be advising anyone on anything, and especially not economics, but the fact is, Trump didn’t have many options after Cohn bowed out, so he had to resort to hiring a TV personality (like himself).

To call Larry’s stint with Trump a “fall from grace” is to mischaracterize the situation because again, exactly nobody cared what Larry Kudlow said in the first place, but there is something sad about watching him morph into a raving sycophant for Trump. Not to put too fine a point on it, but Trump has made an absolute fool of Kudlow at every possible turn. As soon as he came aboard, Kudlow went out of his way to tell everyone who would listen how the Trump he knows is a “free trader at heart”. But the reality of this situation is that since Kudlow came joined up on March 14, Trump has done nothing but escalate trade tensions. Every week since Kudlow joined up there’s been something new on the protectionist front – every, single week.

Let’s face it: to the extent Larry was supposed to act as a moderating influence when it comes to trade, he has utterly failed and the reason for that failure likely has nothing to do with Larry not being a good guy and everything to do with Trump understanding what the rest of the world understands, which is that nobody cares what Larry Kudlow thinks.

Even if you can get past Kudlow being completely ineffective at curtailing Trump’s worst protectionist urges, Larry’s comments on the economy and the things he’s said about corporate management teams are inexcusable.

On June 29, Larry told Fox News the following about the deficit:

The deficit is coming down and it’s coming down rapidly.

That’s not true. As in, it is a demonstrable lie. “Now that one is simply off the charts on the ‘Pinocchio meter’”, Jeff Gundlach said of Kudlow’s deficit comment.

Last month, amid a backlash from corporate America against Trump’s tariffs, Kudlow  accused corporate management teams of misleading investors by blaming tariffs for poor execution, a contention that, if true, would be something the SEC should look into. Of course it’s not true. Larry is just lying because he’s morphed into a Trump sycophant.

Then, on August 3, Kudlow lashed out at China in a wild rant that found him calling the country’s currency and stock market “lousy” on Bloomberg Television.

Well fast forward to Thursday and Larry was at it again, this time in an interview on CNBC with a visibly skeptical Joe Kernen. Just listen to this:

 

There are so many lies in there that I’m almost inclined to be impressed with the sheer amount of misinformation Larry was able to somewhat coherently cram into three minutes.

For one thing, his comments about the dollar are demonstrably out of step with Trump’s comments from last month. Trump, in an interview with the same Joe Kernen, criticized the Fed for hiking rates and driving up the dollar. But there, in the clip above, is Larry Kudlow contending that the stronger dollar is the result of “confidence” in the U.S. That’s kinda, sorta true, but the bottom line is this from BofAML’s Ethan Harris:

[It’s an] oversimplification is to ignore how exchange rates respond to policy changes. The US is running a trifecta of dollar-positive macro policies.

  1. Easy fiscal policy pushes up the dollar by boosting interest rates and stimulating imports. The new tax laws also create incentives to repatriate cash to the US and if these monies are not already in dollar assets, this could strength the dollar as well.
  2. Fed tightening also pushes up interest rates, boosting the dollar.
  3. And actual and threatened US tariffs strengthen the dollar as well. Tariffs tend to weaken imports, reducing US demand for foreign currency, and threatened tariffs add to global uncertainty, pushing up safe-haven currencies like the dollar.

All of these effects can be illustrated with a standard Mundell-Fleming model with flexible exchange rates and partial capital mobility. Little wonder our FX team is so bullish on the dollar.

That’s the reality. Larry, on the other hand, is trying to congeal reality into some kind of horrible piece of canned MAGA SPAM that can be force fed to the base. Something like this: “The dollar is strong because America is strong and America is strong because Trump is strong.”

Beyond that, Trump has explicitly called for a weaker dollar. And by “explicitly”, I mean this:

Explain that, Larry. Cut the obfuscation, stop it with the doublespeak, and just explain how it is that what you’re saying on national television is consistent with those tweets.

But there is no explaining it. And the fact that Kudlow can’t explain the discrepancy is due at least in part to the fact that Trump seemingly doesn’t know what he wants when it comes to the dollar either. For instance, here’s what Trump said on Thursday morning:

What does all of that even mean? What does “money is pouring into our cherished DOLLAR like rarely before” mean? Is he talking about people buying Treasurys? Is he talking about the FX market which he verbally intervened in last month to drive the dollar lower? And what does “like rarely before” mean? Who knows!

Certainly not Larry Kudlow, because if you watch the clip above and then transcribe it, it sounds a lot less coherent in written form than it does in spoken form. For instance, what does this mean?

Look, it’s been in a range. The king dollar. The strong dollar. It’s a steady dollar.

What kind of dollar is it Larry?! Is it a “range-bound” dollar? Is it a “king” dollar? Is it a “strong” dollar”? Is it, as Trump said on Thursday morning, a “cherished” dollar?

This is like dollar bingo.

Also, note how he says a stronger dollar helps put a lid on commodities prices. Do you know what else helps put a lid on commodities prices? The threat of a global trade war which raises the specter of across-the-board demand destruction and a global recession, that’s what.

Additionally, note how he’s trying to say that Trump has made the dollar stronger which is helping to keep prices down at the pump. A couple of things there. First of all, Trump’s hardline stance on Iran is likely to drive prices up at the pump, something the President surely knows, which is why he’s actively considering tapping the Strategic Petroleum Reserve and also why he spent July 4 shouting in all-caps at OPEC on Twitter.

More to the point (for the purposes of this discussion anyway), it would be great if Kudlow could explain how this game of three-dimensional chess works. Because on July 20, Trump was on Twitter literally tweet-shrieking about how the Fed should stop hiking rates because the dollar is too strong. But Larry implicitly said Thursday that Trump’s strong economy is driving the dollar higher which is helping to keep gas prices lower. So again, which is it, Larry?

Finally, for the thousandth time, the stronger the dollar gets, the less “winning” Trump is going to do on trade because if the greenback continues to climb, it will effectively offset the effects of the tariffs on America’s trade partners. That’s just math and it’s all part and parcel of what we’ve variously described as the President’s “dollar insanity loop” wherein the combination of late-cycle fiscal stimulus and tariffs point to higher inflation outcomes (at least in the short term) and thereby beget a more hawkish Fed. A hawkish Fed is USD+, and the stronger the dollar, the less effective the tariffs.

Trump’s “solution”, thus far, has been more protectionist cowbell (despite Larry Kudlow’s contention that Trump is a “free trader”). To the extent protectionism is inflationary in the early stages, Trump is running up the down escalator. The next round of tariffs on China (targeting an additional $200 billion in Chinese imports) is likely to hit consumer goods, thereby raising the chances of an inflation overshoot.

As noted above, Trump reached wit’s end with this last month, taking to CNBC to openly call for lower rates before accusing the Fed of “hurting all that we have done” the very next day. The paradox is that to the extent “all that we’ve done” means supercharging the economy with fiscal stimulus, Trump should look in the mirror when it comes to figuring out who to blame for hawkish Fed policy.

Do you see what I’m saying? None of this makes any sense. Not a bit of it. It’s all a self-referential nightmare. Which is why Kudlow ends up talking himself in circles when pressed.

It’s all insane, and it looks to me like even Joe Kernen is having a hard time dealing with it these days…

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