What follows is an excerpt from the 17 page weekend edition of Turning Points:

The markets are putting a knife to the throat of the Trump administration as we are steaming towards inauguration day on the 20th.

What has occurred since the December FOMC meeting is essentially a blowout of the macro complex that underpins the stability of the financial system. This blowout has been led by extreme moves in both rates and USD, choking off liquidity in a sudden and unexpected fashion.

Naturally, this is what occurs when a Fed Chairman goes from kicking off a rate cutting campaign with a 50 basis point cut just a few months ago, followed shortly thereafter by slamming on the brakes, giving investors whiplash, as they have little idea where things stand, other than relying on economic reports to give a foggy view of what lies ahead.

Judging by the modus operandi of the Trump administration a couple of things are apparent.

First, they won't take too kindly to being held hostage by both the Fed and the markets, as the USD, rates and key indices are all at key levels as I will get to shortly.

Secondly, Trump understands the ramifications of too strong a USD. During his last term as President, as soon as he entered office he started jawboning the USD lower, which led to the weakness in the USD I shared in the last note.

Expect much of the same to occur past January 20th, with some key differences, mainly in terms of more experience and what is definitely a much more formidable selection of Trump's cabinet/advisors, understanding the necessity for higher asset prices to drive economic growth, especially as inflation remains above the target rate.

While fiscal stimulus measures will certainly be a focus, it will be interesting to watch the unorthodox angles the incoming administration takes towards monetary policy. The Treasury, led by Scott Bessent, can take steps independent of the Fed to provide liquidity, creating headwinds for rates and the USD.

It is not unreasonable to expect this to occur almost immediately, as these are all “market guys” who understand key psychological price levels in the financial markets.