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Members of D.A. Davidson & Co.

White House staff turnover, dollar as world reserve currency, and the JCPOA

In this edition of Reading the World, we will examine White House staff turnover, U.S. dollar as the world reserve currency, and the Joint Comprehensive Plan of Action (JCPOA) regarding Iran.  The following assessments are from Bill O’Grady & Thomas Wash of  Confluence Investment Management, and from their Daily Comment dated March 14, 2018; "One of the evolving features we continue to watch closely is what we call “Trump 2.0.” In the president’s first year, especially after the appointment of John Kelly as Chief of Staff, the White House became much more orderly. Populist voices, such as Stephen Bannon, were banished. The flow of information and persons to the Oval Office was monitored and restricted. Gary Cohn and the establishment steadily gained control and the key issue the GOP establishment wanted, the tax act, was passed. That order is now being unwound. SOS Tillerson’s firing was announced yesterday and Mike Pompeo was nominated as his replacement (conditional on Senate approval). Cohn has moved on. As the president becomes more comfortable with the office, he is taking control of the job and the “controllers” are steadily losing power. ... We would expect more turnover until the president shapes his staff to his liking. ... In reality, most presidents make this shift, although perhaps not as quickly as this one. Early in the first term of a new president, especially when the party has been out of power, there are a group of political operatives ready and willing to accept appointments. These are usually “stars” of the party with strong personalities and their own agendas. As presidents become more familiar with the job, they tire of all the “advice” and replace the stars with people who will execute the vision of the president.


... Our read on President Trump is that he is an economic and geopolitical nationalist. The U.S. is going to become increasingly stingy with providing global public goods, including acting as importer of last resort. ...the majority of Americans feel that all they get from the superpower role is cheap foreign goods that reduce their employment opportunities. This doesn’t necessarily mean the U.S. becomes autarkic, but open trade and providing the reserve currency to the world will now come with strings attached. The big issue to watch is if the world decides that it will reduce using the dollar as a reserve currency. For now, we don’t really see an alternative; neither Europe nor China is willing to run persistent trade deficits, the requirement to be the primary reserve currency. But, if foreigners stop using the dollar for reserve purposes, then fiscal deficits suddenly matter…a lot.


...Iran will likely become a more serious issue. President Obama wanted to pivot to Asia and, to do so, he needed to reduce America’s interests in the Middle East. He decided he was willing to allow Iran to become the regional hegemon and provide order as the U.S. shifted its focus to Asia. The nuclear deal was a step toward normalization; we suspect Obama assumed Clinton would win in 2016 and finish the normalization process with Iran. Needless to say, this was a very controversial decision. Although some regional experts had suggested this outcome as the most rational policy, Iran is a long-time adversary for the U.S. and it is politically unpopular to support any sort of normalization with the Mullahs. This president wants to “rip up the script” of the Iranian nuclear deal by May of this year. If the Iranians disagree, we expect the latter to move quickly to acquire a nuclear weapon. Rising regional tensions increase the odds of an oil supply disruption. Keep in mind that the Iran issue will be occurring at nearly the same time as when the president is expected to meet with Kim Jong-un, so the White House will be