To The Moon

Higher Inflation if Trump Wins Presidential Election.

What to expect in the financial market?

The market might plunge initially follow by rallies. 

$Tesla Motors(TSLA)$ 

$Gold - main 2412(GCmain)$ $iShares Silver Trust(SLV)$ $United States 3x Oil Fund(USOU)$  

This article is written by Shernice, if you like my article please hit the like button. 

Part 2

As discussions about de-dollarization grow, particularly among BRICS nations following their recent summit in Russia, there's a noticeable push to reduce reliance on the U.S. dollar. These countries are exploring various strategies, such as investing in gold and facilitating trade in their local currencies.

Traditionally, when Country A sells goods to Country B, the transaction often requires converting their currencies through the U.S. dollar. This means both countries have to interact with the U.S. financial system, which can be cumbersome. By establishing a system that allows for direct currency exchange between countries, they aim to bypass the dollar altogether.

If successful, this move could lead to a depreciation of the dollar. It's important to understand that a stronger dollar does not necessarily correlate with higher U.S. interest rates. Although we may see these trends appear together at times, the dollar index primarily reflects its value against other major currencies, such as the euro and the yen. Thus, a rise in the dollar could simply indicate a decline in the value of these other currencies rather than a direct connection to inflation or U.S. economic performance.

If de-dollarization proceeds, the dollar could weaken significantly. It's essential to understand that a stronger dollar does not necessarily mean higher U.S. interest rates. Although we've seen these trends align recently, the dollar index mainly reflects its value against other currencies like the euro and the yen. Thus, a rise in the dollar often indicates a decline in these other currencies rather than a direct link to inflation.

Looking ahead, if inflation does materialize, the dollar might still depreciate, particularly if there's a significant increase in money supply and ongoing efforts to move away from the dollar. As the dollar weakens, commodity prices—like oil and gold—are likely to surge. Since commodities are priced in dollars, if there’s a lot of new dollars printed, the prices of these goods could skyrocket.

This explains the recent highs in gold prices. Given this logic, if we consider the possibility of Trump being re-elected, alongside rising inflation, there could be substantial opportunities in commodity-related investments. The likelihood of these investments performing well seems quite high in this scenario.

The potential for inflation to rise significantly if Trump is re-elected raises questions about the impact on various asset classes, especially commodities and major tech stocks. While inflation may increase, it doesn't guarantee that the dollar will appreciate in value. In fact, if inflation spikes, the dollar could weaken, particularly if there are significant moves towards de-dollarization.

Regarding oil prices, they have recently shown some weakness, which brings up the question of how much upward potential remains. Conversely, gold prices are reaching new highs daily, which suggests strong demand. It would be worthwhile to discuss the overall outlook for commodities and whether a bullish stance is justified.

If we assume Trump wins and inflation rises, we can analyze how this scenario affects various asset classes, including commodities and stocks. Starting with big tech, there’s a lot of anticipation around earnings reports, particularly regarding how AI might influence their revenues. Nvidia's CEO has expressed optimism, which adds to the excitement, but it's essential to see concrete results.

Tesla has performed well recently, likely due to its strong alignment with Trump's policies. However, other tech stocks may not have the same momentum. Trump’s potential deregulation in the financial sector and infrastructure investments could benefit banks and construction companies. The anticipated tax cuts could also stimulate consumer spending, positively impacting a broader range of stocks beyond the tech giants.

For markets like Japan,South Korea and Taiwan, there are concerns about how tariffs might change if leadership shifts. Current trade dynamics favor these countries due to their relationship with the U.S., especially in the context of shifting orders away from China. If new tariffs are implemented, it could have a negative impact on their economies and stock markets.

While there are opportunities in commodities (Gold, Silver, Oil) and certain sectors if inflation rises, investors should remain cautious about the broader implications of political changes and their effects on the markets.

Let’s break this down. The situation is showing signs of a bearish trend in certain stocks, especially in the context of potential tariffs under a Trump administration. A 60% tariff on China and Hong Kong stocks could lead to significant declines. However, China may counteract this with aggressive stimulus measures aimed at boosting its markets.

Even without Trump's influence, China has been under pressure from the current administration. The tariffs that were implemented during Trump's presidency are still in effect, and new restrictions on technology exports are adding to the strain. Therefore, China has been somewhat conditioned to endure these pressures—like the saying goes, "a dead pig isn't afraid of boiling water." Many industries impacted by tariffs have already relocated to Southeast Asia, reducing the potential fallout.

Regarding Taiwan, the situation is slightly different. While tariffs would affect trade dynamics, the ongoing tensions and the pre-existing poor relations mean that the market has somewhat prepared for these challenges.

Looking ahead, a significant meeting of China's National People’s Congress is scheduled for November 4-8, which coincides with the U.S. presidential election. The timing is strategic; after the election results are known, China may announce substantial fiscal stimulus measures. This could lead to more definitive policies that might provide support for their economy. They may be upside in the China and Hongkong stock markets.

On the U.S. Treasury front, while there’s an expectation of interest rate cuts in November, this doesn’t guarantee that bond prices will rise. The market's outlook on rates could shift dramatically based on inflation expectations. If Trump were to be re-elected, rates could remain higher than anticipated, affecting bond valuations.

Both U.S. and Chinese markets are in a precarious position, and various economic policies will play a crucial role in determining future performance. Investors should remain cautious about the potential volatility and market reactions in the coming months.

Let's discuss the outlook for precious metals, particularly gold. Currently, gold is in a favorable position due to several factors.

First, there's a strong synergy of timing, market conditions, and public sentiment benefiting gold. With the trend toward de-dollarization, gold's appeal increases.

Economically, gold's value is influenced by its fixed supply, similar to Bitcoin. The supply of gold doesn't increase significantly over time, so if the dollar depreciates, the price of gold, measured in dollars, can rise even if the physical amount of gold remains unchanged.

You might argue that the dollar index is currently strong. However, this strength is largely due to the weakness of other currencies like the euro and the yen, not because the dollar itself is robust against inflation. Thus, gold remains a hedge against currency depreciation.

Moreover, as major governments engage in quantitative easing—printing more money—gold's value typically rises because its supply doesn't increase in the same way. This scenario is compounded by declining real interest rates.

Real interest rates are calculated by subtracting inflation from nominal interest rates. If nominal rates rise but inflation rises even more, real interest rates can fall, making gold more attractive. Since gold doesn’t yield interest, when real interest rates decline, investors are more likely to turn to gold.

If inflation does rise and nominal rates increase, it’s crucial to see how they affect real rates. For instance, if rates rise to 5.5% but inflation is at 6%, the real rate would still be negative, which would support gold prices.

The outlook for gold remains bullish due to a combination of currency devaluation, expansive monetary policy, and the dynamics of real interest rates. These factors suggest that gold could continue to rise as it serves as a safe haven in times of economic uncertainty.

Let’s talk about precious metals, particularly gold, which is currently in a very favorable position. Many factors are aligning to support its price, creating an environment ripe for growth.

First, gold, like Bitcoin, has the advantage of a fixed supply. Its quantity does not increase unexpectedly, meaning that if the dollar depreciates, the price of gold will likely rise even if the physical amount remains unchanged. For example, if gold is priced at $1,000 and the dollar weakens, it could easily rise to $1,200 or even $1,500 without any change in supply.

While the dollar index has recently strengthened, this is mainly due to the weakness of other currencies like the euro and the yen, not because of inherent strength in the dollar itself. The euro's weakness is largely a result of recent unexpected rate cuts and political instability in Japan. Therefore, we should consider that gold is measured against all currencies, not just the dollar.

The key point is that as major governments continue to print money—what we refer to as "quantitative easing"—the relative scarcity of gold becomes more pronounced. This increased money supply dilutes the value of currency, leading to a rise in gold prices.

Another critical factor is the decline in real interest rates. Real interest rates are calculated by subtracting inflation from nominal interest rates. Since gold does not yield interest, if real interest rates decline, it becomes more attractive compared to other investments.

If nominal rates rise while inflation also rises, it’s the real rate that matters. For instance, if the nominal rate increases to 5.5% while inflation is at 6%, the real interest rate would still be negative, which supports gold's appeal.

Gold is likely to experience upward pressure due to currency devaluation, expansive monetary policy, and the dynamics of real interest rates. These elements make gold a compelling investment in the current economic landscape.

Gold's price is influenced by several factors, particularly in relation to interest rates and inflation. When considering nominal interest rates, if we assume the current inflation rate is 2.5% and it rises to 4.5% or even 5.5%, the real interest rate can effectively become zero or negative.

For instance, if the nominal interest rate is 5.5% and inflation is also 5.5%, the real return is zero (5.5% - 5.5% = 0). In such a scenario, why wouldn't you choose to buy gold? It’s important to understand that rising nominal interest rates can still be beneficial for gold if they are driven by increasing inflation.

If the Federal Reserve raises interest rates due to rising inflation, this might lead to a situation where gold becomes more attractive. Even if nominal rates rise, if inflation outpaces them, real interest rates can decline, favoring gold as an investment.

This logic indicates that if inflation heats up, even if interest rates are increasing, gold could still benefit as real rates fall. It’s crucial to understand the underlying reasons behind these movements rather than simply reacting to rate changes.

Now, when we look at silver, it typically acts as a substitute for gold. As gold prices rise, silver tends to follow suit, often reflecting similar trends due to their historical relationship.

Turning to commodities like crude oil, geopolitics plays a significant role. With the upcoming U.S. elections and ongoing tensions in places like Israel, the situation remains unpredictable. Although there are claims that geopolitical tensions could ease with a particular administration, any escalation in conflicts could still impact oil prices dramatically.

Both gold and silver are influenced by economic factors such as interest rates and inflation, while geopolitical developments significantly affect crude oil prices. Investors should remain cautious given the uncertainties ahead.

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