A lot going on beyond US rates and taxes

Janet Yellen, attribution  Federal Reserve

Janet Yellen, attribution Federal Reserve

As we start the week, it is worth pointing out a couple of potentially seismic factors at work in the background.

First, and as mentioned in our recent NextPerspective, Trump wants US corporations to bring back US$trillions in corporate cash (aka profits so far untaxed in the US) currently residing overseas. If this was to occur, and it is far too early to tell, it is totally unclear how much of that money net-tax would be used to build factories and jobs - I suspect the money will be used to repay debt and for capital management purposes.

However, it is the 'capital flow' effect that is potentially gargantuan. The liquidity drain on the USD if holdings are converted/brought back to the US would likely send the USD into orbit. The implications (in the US and abroad) as a result of the liquidity drain and resetting of relative currency exchanges would be epic. I am not holding my breath given the Administration's inability to roll back Obama Care, plus we don't yet know whether there will be a tax amnesty or a mandatory formula. But, I am not writing it off just yet.

The second key aspect starting to get more oxygen is Trump's desire to roll back Dodd-Frank. In light of Janet Yellen's opposing view and her upcoming term expiry along with Stanley Fischer's recent retirement, it is worth reading this article to refresh on what might be at stake.

If Trump was to get his way on both counts? Major Reset.