BOOMERANG TRUMP

It seems that Trump will make us talk about him and his choices for a long time.

Let’s start with the latest fact: the killing of Quassem Soleimani on the 3th of January.

The question everyone has asked himself is: WHY?

Behind the murder of Iran’s Maj. Gen., there’s a lack of US’s strategy that justifies such a major undertaken and how this provocative act fits into America’s overall interests. After the General’s funeral, there has been the Iranian response: they fired 15 missiles to US military base in Iraq, but no victims. This action was aimed to a double objective: the consensus and approval of citizens and a sign of strength towards other countries.

What’s next? We’ll see. Meanwhile, the US Secretary of State, Mike Pompeo, announced new tariffs against Iran on metals.

Due to that, the market reacted fastly.

First of all, GOLD: from the graph below we can see that from the Soleimani’s death (3/01) to the 7th of January, the price bounced from 1524,5$ (on 2/01) to 1571,8$.

Why did this happen? Gold could be seen as TIPS (ten year yield inflation-indexed American Treasury Bonds) because it is an asset with neither default nor inflation risk, but the difference is that gold never yields any interests! Nowadays, TIPS pays next to zero, so it’s pretty clear the preference for gold by investors. In other words, the price of Gold went up for investor preferences of safe assets when there are shocks in the markets that cause uncertainties. Therefore, gold can be intended as a safe asset (even if is not always like that, historically).

The crude oil’s price soars as well: it exceed the roof of 60$ per barrels ‘til the 7/01. Yet, after Trump’s press conference, which has seemed to calm down the markets, it decreased.

Trump ordered the killing of Soleimani without asking anything to the Congress and, to justify his action, he said that the Iranian General was planning attacks to US. In this scenario there is who thinks that Trump was right, and who believes that Trump’s action was only an intention to shift the attention of people from the Impeachment, and to affirm his political figure for the next US presidential election of 2020. Linked to this, there’s also the economic trend. Looking back in the past re-election of an incumbent US president, we see that the incumbent would be re-elected if in the past two years there were not a recession in the economy: it’s curious to know that this happened also with the last presidents Bush and Obama. Only Coolidge broke this “rule” in 1924, he was re-elected despite a recession.

What should we expect now? Keep watching the markets, maybe we’re gonna have another bull year!

Source: Data provided by FactSet