Introduction John Ing, President and CEO of Maison Placements Canada Inc. is our guest author this week and shares his thoughts on the new Trump administration, its fiscal and monetary policies and the impact on the price of gold. Investors, take a yoga deep breath! The increased rich/poor gap enabled President Trump’s election; now his posturing tweets from the ‘bully pulpit’ are redefining reality on his terms. Under the New Year’s low interest rates and a veneer of Trump optimism lie the volatile politics of rage, Brexit, a divided nation, global concerns over multilateral trade wars with Europe, the Middle East and China, all accompanied by bigger deficits, government intervention and protectionism. The Trump bump will turn into a Trump dump as tax cuts and business-friendly policies fuel inflation, along with higher debt. As the Fed tacks toward rate hikes, the bond market has yet to reflect increased risks, such as a no-win China currency war. This points to a strong US dollar that exacerbates problems with Europe and Mexico. Brexit festers. No solutions come from old, familiar places. EU regulators recently overlooked the illegal Italian bailout of the world’s oldest bank. Half of Wall Street’s $2 trillion EU exposure is off balance sheet. The European Central Bank is closing in on its legal ceiling for bond purchases. OPEC has abandoned its two-year pump and dump experiment as non-OPEC producers replaced the Saudis as swing producers, leading to a 25% increase in the price of crude. The only certainty is uncertainty. Hence investors should anticipate unwelcome elevated risk and uncertainty. Mr. Trump’s complaint about America is structural, arising from eight years of deficit spending, printing money and over-regulation that failed to revive the economy. America’s cost structures make exports uncompetitive – moving it toward a service economy, less capable of productivity gains. Mr. Trump has contributed to the divide in the country he inherits, rooted in his predecessor’s hope and rhetoric; debt is stuck in a subpar recovery. Mr. Obama’s war has lasted longer than any predecessor’s and race relations have worsened, leading to the Democratic loss of the presidency, the House and the Senate. Mr. Trump’s status quo shakeup threatens the post-war network of alliances based on trade, trust and pocketbook alignments that advantaged the United States. Dispute settlements based on the mutuality of interest and common ground are moving toward chaos and a protectionist trade agenda may undermine America’s geopolitical influence, compounded by a weakening economy based on a balance sheet shambles. Trump’s threats are as important as money. Bullying allies or trading partners is much more difficult than terrorizing Washington mandarins or auto companies. Trump’s ambitious fiscal plans will grow the deficit, require financing that will compound the debt – and unnerve the market. Trump’s team might be forced to seek longer-term securities, or gold-backed debt or exotic securities. Too much regulation disables economies of scale. Trump’s wrecking ball will undo Obama’s legacy from ObamaCare to the Iran nuclear deal and the Paris climate change accord. Yet, America has run deficits for years, flooding the world with cheap dollars. The Fed has failed to unwind its swollen crisis-era balance sheet of bonds and mortgage-backed securities. Subprime mortgages have morphed into subprime auto debt today. US treasury debt issuance has doubled since 2009. From January to September 2016 foreigners purchased $3 billion of American debt daily, but this dependence on foreign largesse for half its $20 trillion debt is America’s Achilles heel. Paying bills with currency it prints allows it to consume more than it produces, but this rests on the fraying confidence of creditors. Recently, Trump’s musings and weakening economic fundamentals have shaken the dollar from 14-year highs. A ‘beggar thy neighbour’ approach, which led to the Great Depression in the Dirty Thirties, could lead to a broader trade war that would harm all countries, particularly America. The Saudi fiscal deficit is 10% of GDP, forcing the country to sell reserves and dump US treasuries. China has already sold $150 billion of its $3 trillion stockpile of US treasuries and bought euros to finance acquisitions and to support the renminbi. Although reserves are down by $1 trillion since mid-2014, they are still twice its foreign debt. A lower renminbi will widen the China/US trade deficit and hurt its neighbours, risking escalating Trump’s rhetoric. The IMF reports that the dollar’s share of currency reserves slipped to 63% in 2016. Many countries peg their currencies to the dollar. Its strength hurts their economies, leading to protectionist talk. America’s balance sheet – 100% of GDP – is in shambles. And soon higher interest rates to attract foreign funds will remove another prop under the overvalued stock market. Already oil exporters are taking euros, renminbi and yen. China has become less dollar dependent. Central banks are adding to stockpiles of gold. China could back the renminbi with gold (as its currency was once backed by silver). China’s 1,833 tons of gold reserves – sixth-largest in the world – constitutes only 2% of its reserves – compared with 10% for most western central banks. Reportedly Chinese banks hold some 2,000 tons; last year 1,200 tons were withdrawn from the Shanghai Gold Exchange. China is the world’s largest producer and consumer of gold. We believe that China’s massive hoard of foreign exchange is slowly being invested in gold. Although this is denominated in US dollars, it lacks the purchasing power risk of US treasuries. Russia has 1,542 tons, ranking seventh in the world. Together, they have more gold than the United States. It would be worth Trump’s while to remember this fact. Many countries have declared a war on private savings. China has recently introduced restrictions on forex outflows to slow the renminbi’s depreciation. India has recently demonetized its high-value bank notes, making 86% of cash in circulation worthless overnight – this in a country where 80% of consumer activity is in cash. As a result, gold ownership increased. In many economies gold is protection from the war on savings. Doubts that Trump can ‘make America great again’ and global economic worries are causing money to chase gold. Although Trump appears unworried by debt, America is borrowing $150 billion daily. America’s debt load is unsustainable. The world has too many dollars. What if foreign investors with too many dollars ‘went on strike’? Without confidence in the dollar, the world has no valid reserve currency and America has no Plan B. Gold is a barometer of currency fears. For investors lacking confidence in the dollar, or other currencies, gold is a natural haven. Once it breaks above $1,250/oz., gold’s new bull run will reach $2,200/oz.