February 25, 2025 • 28 mins
The so-called “Mar-a-Lago Accord” has suddenly become a hot topic on Wall Street, with some investors and analysts starting to take the idea more seriously, holding meetings with clients and publishing research notes about the rumored plan. A riff on the 1985 Plaza Accord — named for the hotel where it was devised — the idea is that the Trump administration could achieve its economic aims through a reordering of the financial system that would include a conscious effort to devalue the dollar. The basic components of the plan were laid out by Stephen Miran, President Donald Trump’s nominee to lead the White House Council of Economic Advisers, and drew on the work of Zoltan Pozsar. So how exactly could this all work? And what problems are the Trump administration trying to solve exactly? On this episode, we speak with Jim Bianco, president and founder of Bianco Research, who has been briefing his clients about the possibilities.
Read more:
Three Names You Need to Know to Understand the Future of the International Monetary Order
‘Mar-a-Lago Accord’ Chatter Is Getting Wall Street’s Attention
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Ad Thoughts podcast.
I'm Tracy Alloway.
Speaker 1 (00:22):
And I'm Joe Wisenthal.
Speaker 2 (00:24):
Joe, when you hear mar A Lago, what do you
think of?
Speaker 1 (00:28):
You know what's funny? I don't know Marno Lago is
Actually I've been meaning to look it up. Is it
a house?
Speaker 2 (00:34):
I thought you were going to say, I've been meaning
to go there.
Speaker 1 (00:36):
I'd like to go there too, But is it a house?
Is it a country club? Is it a place where
someone can just book a room? Like I actually don't
have a great conception of it, except I'm sure it's
very eighties.
Speaker 2 (00:49):
Is then here's what I know. There's Trump, Yes, there's golf,
heard of it, and that's about it.
Speaker 1 (00:56):
Yeah.
Speaker 2 (00:56):
I think the last thing anyone thinks of when you
hear the words mar A Lago is the potential for
another international monetary accord. Like, no one really thinks that, right.
Speaker 1 (01:06):
Did she shouldn't ping go to mar A Lago during
the first Trump administration? I think he did.
Speaker 2 (01:10):
He might, right, Okay, but there was no new monetary agreement.
Speaker 1 (01:14):
Right, nothing like really that big came of it. We
know Trump loves it is a Trump aesthetics and I'm
sure he'd loved to like host world leaders at his club,
at his house, at his golf course.
Speaker 2 (01:24):
Well, you know, the funny thing is, if there was
going to be a mar A Lago Accord, like say
it actually happened, then I think it would be the
second major monetary agreement that happened in a hotel or
a building owned by Trump, because the first one was
the nineteen eighty five Plaza Accords.
Speaker 1 (01:43):
And did he own it at the time.
Speaker 2 (01:44):
I think so.
Speaker 1 (01:45):
Yeah, Well it's got to happen then.
Speaker 2 (01:47):
Yeah, Okay, for those who don't know what we're talking about,
Wall Street analysts investors are all a buzz over the
potential for a Mara a Lago accord, the idea being
that the US kind of sets out this new monetary
system in a similar way to the nineteen eighty five
Plaza Accord or the original Bretton Woods agreement. And I
(02:11):
got to say, this is just interesting from a theoretical perspective. Yeah,
and I think it also points to a lot of
important stuff about the way the Trump administration is thinking
about not just the economy, but the financial system and
I guess the global order itself, so we should talk
about it.
Speaker 1 (02:28):
No, it really does speak to it. We should absolutely
talk about it because there are core tensions within trump
Ism that this gets to, and one of the big
ones is I would say there's two specifically, One is
the sort of desire to turn the US into a
manufacturing powerhouse, and theoretically one aid for that would be
a weaker US dollar. And so this idea of the
(02:50):
dollars too expensive and maybe you know, maybe there's some
agreement to weaken it could help US manufacturing. And then
there's question of how inflame lential globally does the US
want to be period across anything, whether it's military, whether
it's finance, whether it's currency, et cetera. And you know,
one of the ideas of like pulling inward tariffs, et cetera,
(03:13):
changing some questions about the international security relationship. Is this
idea of like an inward turn and maybe the US
doesn't want to be as prominent globally on the stage.
It's all kind of wrapped up in the same question.
Speaker 2 (03:26):
Yeah, absolutely, So again we should talk about it. And
I'm very pleased to say we have the perfect guest.
I can't believe he hasn't been on the show I
know before, But we're going to be speaking with Jim Bianco.
He is, of course, the president and founder of Bianco Research.
He recently held a presentation for his clients all about
the mar A Lago accord, the potential mar Alago, the.
Speaker 1 (03:47):
Mar A Lago accord that doesn't exist, that.
Speaker 2 (03:48):
Doesn't exist yet, the hypothetical that we should nevertheless talk about. So, Jim,
thank you so much for coming on.
Speaker 3 (03:55):
All thoughts, Ah, thanks for having me and Tracy to
correct you. Trump bought in nineteen eighty eight and five.
Speaker 2 (04:03):
Gosh darn it. Okay, well, Jim.
Speaker 1 (04:05):
Two hotels that he theoretically at some point was connected to.
Speaker 2 (04:10):
Jim, why don't we start with the client meeting? What
sort of inspired you to have something specifically dedicated to,
you know, a hypothetical that hasn't happened yet.
Speaker 3 (04:20):
So Trump becomes president and we've been talking about a
fire hose of executive orders and new ideas, and we're
all straining to keep up with everything. And my clients,
you know, started asking me a lot about what he
was doing, but they were doing it in isolation. Oh,
what does tariffs mean? Over here, and what do you
(04:42):
think they're going to do with the Sovereign Wealth Fund
over there? And they were tended taking the attitude that
we're just kind of pruning and nipping around the edges,
and I said, no, I think there's a bigger plan
in place here. And it was laid out by Stephn
Miran when he was with Hudson Bay Capital and now
(05:05):
he's the Council of Economic Advisor's chairman for President Trump.
And in Trump one point zero, he worked under Steve
Mnuchin at the Treasury Secretary in a report he put
out right after the election about re ordering the monetary system,
and I said, I think that they're really starting to
think bigger picture. And within that report was the concept
(05:28):
of a mar A Lago accord. And what I try
to emphasize was this is not a roadmap per se
that we're going to do ABC DNE, but look at
this as there's bigger things going on here and we
need to understand what their objectives are, how much of
it has been implemented, and I would argue to a
(05:52):
lot has been implemented of it so far, and where
we're going to go with it. So that was the
catalyst for why I thought it was important enough for
its own presentation.
Speaker 1 (06:04):
I guess I have a sort of two part question.
Is one is is the Marol Lago Accord an event
that you see happening or potentially happening where a bunch
of people come to mar A Lago or is it
like a metonym for a sort of destination, a new
position for the world in the US if there's some
number of years and if it's the latter, like we
no one can really know the ABC, D and E.
(06:27):
But what does that sort of you know, we're here
now we get to this destination. What is this sort
of new role for the US and that destination?
Speaker 3 (06:35):
Yeah, I think it's the latter. It's more of a destination.
By the way, the name mar A Lago Accord. As
you pointed out, you know, there's been two big you know,
monetary realignments, currency agreements in the last fifty years, Bretton
Woods and the Plaza, which we talked about a second ago.
Bretton Woods is a resort in New Hampshire, and Plaza
(06:56):
is obviously a hotel in New York. So these things
tend to get named after the places that they're constructed,
So that was the concept behind the name. Marlago Accord
is just kind of fitting with that genre. Now, where
are we going. The goal here is to make the
US more competitive. In the US, to be more competitive,
(07:18):
I think needs a couple of things that one needs
to see the dollar go lower, but a specific kind
of dollar to go lower. Let's call it the trade
weighted dollar. And the reason I say that is the
Federal Reserve has this thing called the trade weighted dollar,
and if you look at it over the last forty years,
it's up two hundred and eighteen percent. So the dollar
(07:40):
has been extraordinarily strong. Now you and I might be
more comfortable looking at the DXY Dollar Index that's down
five percent over the last forty years. Now, what's the
difference between the two. The trade weighted dollar is twenty
six currencies weighted by the amount of trade that we
do with these countries. The big two dominant players are
(08:01):
Canada and Mexico. The dollar index to six currencies weighted
by more financial flows. Fifty seven percent of that is
the Euro. So when we talk about that, the dollar
has been holding back manufacturing in the US. Trade in
the US, it's been this trade weighted dollar that has
(08:21):
just been getting stronger and stronger and stronger, and we
keep looking at the Euro going no, it's not, no,
it's not. But we don't trade with the Eurozone as
much as we trade with Canada and Mexico, and then
if you want to even throw in their China as well.
So that's where I think to bring down the dollar. Now,
how do you bring down the dollar by reorienting the
(08:43):
financial system. You have to deal with the debt situation,
the deficit interest rates in the United States. And that's
really what the crux of the problem is. Or let
me put it to you this way. If you want
to talk about bringing the dollar down, dealing with the deficie,
dealing with the amount of debt in the United States,
they're all interrelated. If you fix one, you fix the others.
(09:06):
If you can't fix one, you can't fix the others.
And so they all are all part of a larger hole.
And that's what I think the idea of the Marlago
Accord is now at its base. It's basically the idea
behind it is we have thirty six trillion dollars of debt.
(09:26):
Where did most of that debt come from? It came
from the military and security arrangements for the post World
War two era, and during the post World War II era,
the countries that we protected on our side didn't really
pay for it. In particular, if you look at the
European countries, they've paid up until Trump one point zho
(09:50):
less than one percent of their GDP in defense, where
in the eighties and nineties the US was paying eight
or nine percent of its GDP in defense, and it's
still paying five or six percent of its GDP in defense,
and so they have had quote unquote a free ride
for decades on this is the back of American security.
(10:11):
Trump one point zero came in and said, this is unfair.
You have to pay more. They agreed to up that
to two percent. Trump two point zero January twenty third,
he came and gave a presentation to Davos, the World
Economic Forum, virtually and he said he's going to demand
(10:32):
that they pay five percent of their GDP in terms
of defense. And you've seen since then the European leaders
have been coming around to this idea that maybe we
need to pay more for defense, maybe we need to
suspend the Master's Agreement, which is part of the Euro
agreement that says that they can't run a deficit more
than two percent, So they could spend three trillion dollars
(10:55):
over the next decade on defense, and that's got the
the years on defense docks going vertical, and this whole
argument that is coming that maybe they need to do it,
and that is, you know, maybe coming back to the
US and the idea, well, if they're going to spend trillions,
then we could spend a lot less on defense, and
(11:18):
that that helps our financial position, hopefully relieving us of
the debt, bringing the deficit down, lowering interest rates, and
lowering the dollar. That is basically what we're trying to
come at was that we've got a lot of debt,
we've got a big deficit. Who should pay for it?
And the typical answers you've always gotten was while we
(11:40):
got to raise taxes, we got to cut spending, and
Trump under his America First policy saying how about those
guys over there in the NATO countries that haven't paid anything,
maybe they should start paying more. So the reason I
thought the mar Alago cord was important to talk about
now is it's kind of happening in some forms or
we should start getting our head around it. And part
(12:02):
of that which I have brought up is tariffs. Tariffs
are part of this bigger hole. We could talk about
that as we.
Speaker 1 (12:09):
Hold two things Tracy real quickly. One is I am
embarrassed to say I did not realize that the long
(12:30):
term trajectory of the dollar index and the trade weighted
dollar looks so different. You know, they move pretty similar
to day to day. But look, it is a really
striking forty year chart. And also to this point, we're
recording this on Monday the twenty fourth. Yesterday Germany held
their elections and it looks like Friedrich Murtz is going
to be the new und chancellorndes counselate. You can correct me,
(12:53):
but he talked about it. He's talked about this directly,
that there's going to have to be some relationship. And
you can look at stock of a German defense company
like Rhine Mettal.
Speaker 2 (13:03):
And that's a very good role.
Speaker 1 (13:06):
And it is straight up anyway too.
Speaker 2 (13:08):
Yeah, Okay, So we touched on the dollar and the
desire to weaken the dollar in order to I guess
fulfill the Trump mandate to reshot manufacturing. We talked about
the security element. One thing I do want to talk
about is interest rates, because when you think about the
US's role in the global economy, I mean, the US's
(13:31):
main export is basically debt, right, it's US treasuries, and
there's been this discussion for a very long time about
whether that is net net a good thing for the
US or a bad thing for the US. Jim, can
you talk about that side of things for a bit.
Speaker 3 (13:47):
Yeah, you're right that. You know, the conveyor belt has
always been that we import a lot of things, so
we and we pay for them with dollars. So we
export all of these dollars to China, to Canada, to Mexico,
you know, wherever else, you know, to the Petro to
the petro dollar states or the Gulf states that produce oil.
(14:10):
And what do they do with all those dollars once
they get them? They reinvest them back into the United
States in the treasuries. So when people look at the
idea that something like half of all treasuries are owned
outside of the United States, well that's going to be
the case. When you're running a gigantically large merchandise trade deficit.
(14:32):
You're paying for that stuff with your currency and dollars
are not very good in Beijing or in Riad. You
have to do something with them, and you just reinvest
them back into dollar based assets like US treasuries. And
so we've had that whole conveyor belt going. But the
problem with that conveyor belt is is that it keeps
the cycle going where that trade weighted dollar keeps going
(14:55):
up and up and up, and it makes us, being
an export country mainly manufacturing, more and more uncompetitive. So
the idea behind the trying to reverse that is by
maybe ending this relationship with so much debt, bring that down,
(15:15):
bring down the deficit as well, and hopefully bring down
interest rates that would lower the value of the dollar
and make us more competitive. Like I said, you can't
think of these things as three separate things like the
level of debt, the deficit, and the level of the
tradewaight to dollar. They're all somewhat related to each other,
if not directly related to each other. Dealing with one
(15:37):
is dealing with the other two.
Speaker 1 (15:39):
You know, a question that I find that I have
asked in the past is, in the modern economy in
twenty twenty five, do you still have confidence that currency
weakness or currency strength are important dimensions of export or
manufactured competitiveness because I can imagine you know, when you're
(15:59):
making commodity or something simple, right, your your base is cheaper, Okay,
you sell more. But now we have these incredibly advanced
supply chains, there's good reason to believe that in many
areas that are important to the US, that the US
is no longer at the leading edge of technology, particularly
when it comes to automobiles and certain other high tech
(16:21):
things like that. To a degree in twenty twenty five,
do you believe that the value of your currency is
an important dial for your export competitiveness.
Speaker 3 (16:31):
Well, that's a good question, and it depends on what
you're trying to export. So what the US currently exports
is more services, and services do tie into a lot
of intellectual property. And you're right, if we're going to
be exporting you know, legal services or technology, those services
(16:52):
are somewhat unique to the US. There are some are
the US companies that export thos and the level of
the dollar doesn't really matter. But if you're talking about
returning a manufacturing base to the US, now you're getting
more towards a commodity type product. Anybody could produce it
you know, other countries could produce a manufactured product, whether
(17:12):
it's steel or even cars, and they could be relatively
the same as ours, So you compete on price. And
when you compete on price, then the level of the dollar,
the level of exchange rates, especially trade weighted exchange rates,
does matter for the success of those products, and it
matters quite a bit. So if you're trying to return
(17:34):
a manufacturing base to the US, the level of the
trade weighted dollar does matter.
Speaker 2 (17:39):
I wanted to go back to the sovereign wealth fund
idea as well, because I think when most people here
you know SWF, they kind of think of commodity exporting countries,
you know, countries in the Middle East perhaps that export
things like oil and gas, maybe Norway, And obviously the
US has become a net exporter of oil in recent years.
(18:01):
But the one thing we don't have that a lot
of countries with sovereign wealth funds actually do is a
current account surplus. Right, So how would a sovereign wealth
fund actually work in the US given that at the
moment we don't really have a pool of money to invest.
Speaker 3 (18:19):
Are you sure about that? I thought most people think
s w F men single white female.
Speaker 1 (18:23):
I was gonna make that joke, not on but yes.
Speaker 3 (18:29):
But as far as the sovereign wealth fund, you're you're right.
There's lots of sovereign wealth funds around the world and
they all have one thing in common. They're creditor countries, right,
they have something that generates cash for them. In fact,
there's actually one sovereign wealth fund in the United States.
It's the Alaska Permanent Fund, and that's the royalties that
it gets. Yeah, that's because of the royalties that it
(18:51):
gets off of oil. So sovereign wealth funds in that respect,
whether it's Norway, Alaska, the Golf States, that makes sense
because they're generating money. They have to do something with
the money, and they invest it. But we're detonation, as
you said, there's no cash flow that's sitting around, going
what are we going to do with this money? Because
(19:13):
we're a detonation. So at first it was kind of
a confusing idea, how are we going to create a
sovereign wealth fund when we're not generating any money? And
then that was February third, when Trump signed the executive
order and then Treasury Secretary Besson said we're going to
monetize the assets of the United States balance sheet and
(19:34):
put them to work. Okay, what does that mean? No
one knows for sure, And to be particular, the Treasury said,
we'll get back to later this year with a paper
on how this is going to work. But we initially surmised, oh,
they're going to take some assets that we own, maybe
realize them at market value, and then put those into
(19:56):
the Sovereign Wealth Fund. And the two that kind of
jumped out at first was gold. There's eighty one hundred
tons of gold that the US owns, subject to Elon Muskin,
President Trump visiting Fort Knox to make sure that it's
still there. But assuming that it is, it's valued and
has been valued at its book value forty two dollars
(20:16):
and twenty two cents since nineteen seventy three. The market
values twenty nine hundred dollars. So if you just said, okay,
we're going to take that eighty one hundred dollars of
gold and we're going to revalue it to twenty nine
hundred dollars, there's eight or nine hundred billion dollars right there.
The other one is bitcoin. The Justice Department, through criminal
and fraud investigations, has acquired two hundred and seven thousand
(20:37):
bitcoin that they have not been able to figure out
who the owners are. It's about eleven billion dollars or so,
and it's literally sitting on a thumb drive at the
Justice Department. Maybe we can move that into the Sovereign
Wealth Fund too, and then those are some of the
assets it has. Now other assets you could argue could
be the federal government is the largest real estate owner
(20:58):
in the United States. It owns parks, it owns other
types of assets. That it could manage those assets within
the South of Wealth Fund, and then it could start
off with trillions of dollars of these assets and borrow
against that to then buy other assets like TikTok, which
President Trump has been floating the idea that the US
(21:19):
should own TikTok. Now, why would they do this. I
think they would do this for one or two reasons.
Reason one, if you're thinking like a private sector person, right,
I got a bunch of debt here, but you want
to compare it to your total assets or your equity.
But we're not fully valuing our total assets in equity.
Let's kind of show that we have a lot more
(21:41):
assets and equity than we think, so that that level
of debt doesn't look as onerous as it was. And
the second one is you could borrow against those assets.
Because one of the things, you know, within the crypto community,
they're talking about the Sovereign Wealth Fund is going to
buy bitcoin, which I don't think is a very good idea,
but nevertheless, one of the big competiments to buying it
(22:04):
would be the idea that we're going to borrow even
more money, potentially crowd out interest rates and drive them
even higher. Because the American public is going to say,
I'm happy paying a higher mortgage rate so that we
could speculate on the price of bitcoin and maybe the
federal government will turn a profit on it. That's a
non starter. But if the idea is, well, we're going
(22:25):
to borrow against some of these gold holdings or some
of these other holdings and it's not really going to
affect your level of your mortgage rate, that might be
a more palatable way to do it. So that's how
I think the Sovereign Wealth Fund is going to work.
That's what everybody's surmised. Under the idea that we don't
know what monetized the assets of the United States means
(22:47):
we're waiting on the report and we're trying to color
in the lines until we get that.
Speaker 2 (22:52):
I keep thinking about the twelve billion dollar bitcoin yeahing
drive and hoping no one loses it. Jim, thank you
so much for that explanation of you know, it is
still a hypothetical, a theoretical situation, but you walked us
through it very very well. So thanks for coming on
odd Box.
Speaker 1 (23:09):
Thank you, Thanks so much, Jim.
Speaker 2 (23:11):
That was great, Joe. There's so much in there, and
I guess the big question is obviously the feasibility, because
the whole mar A Lago accord idea, you're trying to
(23:33):
resolve these tensions, right, so the idea that you want
to reshot manufacturing, but you also want a weaker dollar,
and these things are sort of at odds with each
other sometimes, all these different moving parts. But I wonder,
I guess I wonder with the mar A Lago accord,
a potential one if you're introducing another big tension, which
(23:54):
is you're sort of moving into a very transactional relationship.
Speaker 3 (23:58):
Yeah.
Speaker 2 (23:58):
Yeah, So the idea that the US wants to be
compensated for all of the different roles it fulfills in
not just the global financial system, but in things like
international security. And at the same time as you move
into a transactional relationship, it feels like there's less trust
in these relationships, right Like would countries in Europe NATO countries,
(24:23):
for instance, want to exchange money for US security when
what they've been grappling with for the past two months,
I guess is the idea of the US suddenly changing
its mind or asking for new things when it comes
to security agreements.
Speaker 1 (24:40):
So a few things, like Jim said, you know, a
lot of this is like, you know, it is all
like hypothetical. We don't know exactly where it's going. But
just to start, the idea that Europe is sort of
quote waking up and realizing that it has to take
care of much more of its defense seems absolutely real
and not theoretical. Now will be translated into spending, especially
(25:02):
given you know, the famous German debt break, et cetera.
We don't know, but that feels like it's going to
be a real dial mover. By the way, I think,
seriously all listeners should pull up a chart of Ryan
Mattel the tickers RHM on the German stock market, and
just look at this stock and you can see it
jumped after the Russian invasion of Ukraine and then it's
(25:22):
just been going absolutely bananas since then. I also recommend
there's a really good article from November by our friend
Karthik Sanker, and he really talks about how Bessen has
been on board with this idea as well, that there
really should be, in his view, this very transactional relationship
where if a country wants to be under the US
security umbrella and wants liberalized trade relations, then it has
(25:46):
to commit to buying long term treasuries and that that
should be a trade and so this sort of transactional
approach look or to the deal like it sort of
makes sense that this is the direction to look at
from on many different venues.
Speaker 2 (25:58):
Speaking of transactional, can I recommend one.
Speaker 1 (26:01):
Of my own articles please?
Speaker 3 (26:02):
All Right?
Speaker 2 (26:03):
So last week in the Odd Lots newsletter which everyone
should subscribe to, I talked about the sort of Chinese
nesting doll of ideas embedded in the mar A Lago accord.
So you just mentioned Scott Besson, the new Treasury secretary,
and then I guess the layer under that is Stephn
Mirran who we spoke about in that big paper, restructuring
(26:23):
the global trading system. And then below that is Sultan Posar.
Oh yeah, and if you read Mirn's paper, you'll see
a lot of references to Posar's thinking and the New
Breton Woods concept and the idea of maybe the global
financial order starting to change.
Speaker 1 (26:41):
And then then below Posar is the Odd Lots Podcast.
It's sort of like that meme right at the very
bottom where it's really us that's holding up the entire
that's right, restructuring the entire system.
Speaker 2 (26:52):
And on that note, everyone should check out some of
the old episodes we did with Posar on the New
Breton Woods because because a lot of this is stemming
from so in the meantime, shall we leave it there.
Speaker 1 (27:03):
Let's leave it there.
Speaker 2 (27:04):
This has been another episode of the Oudlots Podcast. I'm
Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 1 (27:09):
I'm joll Wisenthal. You can follow me at the Stalwart.
Follow our guest Jim Bianco, He's at Bianco Research. Follow
our producers Carmen and Rodriguez at Carman armand dash Ol
Bennett at Dashbop and Kilbrooks at Kelbrooks more odd lootscontent
go to Bloomberg dot com slash odd lots, where we
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(27:31):
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(27:55):
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Thanks for listening.
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Ad Thoughts podcast.
I'm Tracy Alloway.
Speaker 1 (00:22):
And I'm Joe Wisenthal.
Speaker 2 (00:24):
Joe, when you hear mar A Lago, what do you
think of?
Speaker 1 (00:28):
You know what's funny? I don't know Marno Lago is
Actually I've been meaning to look it up. Is it
a house?
Speaker 2 (00:34):
I thought you were going to say, I've been meaning
to go there.
Speaker 1 (00:36):
I'd like to go there too, But is it a house?
Is it a country club? Is it a place where
someone can just book a room? Like I actually don't
have a great conception of it, except I'm sure it's
very eighties.
Speaker 2 (00:49):
Is then here's what I know. There's Trump, Yes, there's golf,
heard of it, and that's about it.
Speaker 1 (00:56):
Yeah.
Speaker 2 (00:56):
I think the last thing anyone thinks of when you
hear the words mar A Lago is the potential for
another international monetary accord. Like, no one really thinks that, right.
Speaker 1 (01:06):
Did she shouldn't ping go to mar A Lago during
the first Trump administration? I think he did.
Speaker 2 (01:10):
He might, right, Okay, but there was no new monetary agreement.
Speaker 1 (01:14):
Right, nothing like really that big came of it. We
know Trump loves it is a Trump aesthetics and I'm
sure he'd loved to like host world leaders at his club,
at his house, at his golf course.
Speaker 2 (01:24):
Well, you know, the funny thing is, if there was
going to be a mar A Lago Accord, like say
it actually happened, then I think it would be the
second major monetary agreement that happened in a hotel or
a building owned by Trump, because the first one was
the nineteen eighty five Plaza Accords.
Speaker 1 (01:43):
And did he own it at the time.
Speaker 2 (01:44):
I think so.
Speaker 1 (01:45):
Yeah, Well it's got to happen then.
Speaker 2 (01:47):
Yeah, Okay, for those who don't know what we're talking about,
Wall Street analysts investors are all a buzz over the
potential for a Mara a Lago accord, the idea being
that the US kind of sets out this new monetary
system in a similar way to the nineteen eighty five
Plaza Accord or the original Bretton Woods agreement. And I
(02:11):
got to say, this is just interesting from a theoretical perspective. Yeah,
and I think it also points to a lot of
important stuff about the way the Trump administration is thinking
about not just the economy, but the financial system and
I guess the global order itself, so we should talk
about it.
Speaker 1 (02:28):
No, it really does speak to it. We should absolutely
talk about it because there are core tensions within trump
Ism that this gets to, and one of the big
ones is I would say there's two specifically, One is
the sort of desire to turn the US into a
manufacturing powerhouse, and theoretically one aid for that would be
a weaker US dollar. And so this idea of the
(02:50):
dollars too expensive and maybe you know, maybe there's some
agreement to weaken it could help US manufacturing. And then
there's question of how inflame lential globally does the US
want to be period across anything, whether it's military, whether
it's finance, whether it's currency, et cetera. And you know,
one of the ideas of like pulling inward tariffs, et cetera,
(03:13):
changing some questions about the international security relationship. Is this
idea of like an inward turn and maybe the US
doesn't want to be as prominent globally on the stage.
It's all kind of wrapped up in the same question.
Speaker 2 (03:26):
Yeah, absolutely, So again we should talk about it. And
I'm very pleased to say we have the perfect guest.
I can't believe he hasn't been on the show I
know before, But we're going to be speaking with Jim Bianco.
He is, of course, the president and founder of Bianco Research.
He recently held a presentation for his clients all about
the mar A Lago accord, the potential mar Alago, the.
Speaker 1 (03:47):
Mar A Lago accord that doesn't exist, that.
Speaker 2 (03:48):
Doesn't exist yet, the hypothetical that we should nevertheless talk about. So, Jim,
thank you so much for coming on.
Speaker 3 (03:55):
All thoughts, Ah, thanks for having me and Tracy to
correct you. Trump bought in nineteen eighty eight and five.
Speaker 2 (04:03):
Gosh darn it. Okay, well, Jim.
Speaker 1 (04:05):
Two hotels that he theoretically at some point was connected to.
Speaker 2 (04:10):
Jim, why don't we start with the client meeting? What
sort of inspired you to have something specifically dedicated to,
you know, a hypothetical that hasn't happened yet.
Speaker 3 (04:20):
So Trump becomes president and we've been talking about a
fire hose of executive orders and new ideas, and we're
all straining to keep up with everything. And my clients,
you know, started asking me a lot about what he
was doing, but they were doing it in isolation. Oh,
what does tariffs mean? Over here, and what do you
(04:42):
think they're going to do with the Sovereign Wealth Fund
over there? And they were tended taking the attitude that
we're just kind of pruning and nipping around the edges,
and I said, no, I think there's a bigger plan
in place here. And it was laid out by Stephn
Miran when he was with Hudson Bay Capital and now
(05:05):
he's the Council of Economic Advisor's chairman for President Trump.
And in Trump one point zero, he worked under Steve
Mnuchin at the Treasury Secretary in a report he put
out right after the election about re ordering the monetary system,
and I said, I think that they're really starting to
think bigger picture. And within that report was the concept
(05:28):
of a mar A Lago accord. And what I try
to emphasize was this is not a roadmap per se
that we're going to do ABC DNE, but look at
this as there's bigger things going on here and we
need to understand what their objectives are, how much of
it has been implemented, and I would argue to a
(05:52):
lot has been implemented of it so far, and where
we're going to go with it. So that was the
catalyst for why I thought it was important enough for
its own presentation.
Speaker 1 (06:04):
I guess I have a sort of two part question.
Is one is is the Marol Lago Accord an event
that you see happening or potentially happening where a bunch
of people come to mar A Lago or is it
like a metonym for a sort of destination, a new
position for the world in the US if there's some
number of years and if it's the latter, like we
no one can really know the ABC, D and E.
(06:27):
But what does that sort of you know, we're here
now we get to this destination. What is this sort
of new role for the US and that destination?
Speaker 3 (06:35):
Yeah, I think it's the latter. It's more of a destination.
By the way, the name mar A Lago Accord. As
you pointed out, you know, there's been two big you know,
monetary realignments, currency agreements in the last fifty years, Bretton
Woods and the Plaza, which we talked about a second ago.
Bretton Woods is a resort in New Hampshire, and Plaza
(06:56):
is obviously a hotel in New York. So these things
tend to get named after the places that they're constructed,
So that was the concept behind the name. Marlago Accord
is just kind of fitting with that genre. Now, where
are we going. The goal here is to make the
US more competitive. In the US, to be more competitive,
(07:18):
I think needs a couple of things that one needs
to see the dollar go lower, but a specific kind
of dollar to go lower. Let's call it the trade
weighted dollar. And the reason I say that is the
Federal Reserve has this thing called the trade weighted dollar,
and if you look at it over the last forty years,
it's up two hundred and eighteen percent. So the dollar
(07:40):
has been extraordinarily strong. Now you and I might be
more comfortable looking at the DXY Dollar Index that's down
five percent over the last forty years. Now, what's the
difference between the two. The trade weighted dollar is twenty
six currencies weighted by the amount of trade that we
do with these countries. The big two dominant players are
(08:01):
Canada and Mexico. The dollar index to six currencies weighted
by more financial flows. Fifty seven percent of that is
the Euro. So when we talk about that, the dollar
has been holding back manufacturing in the US. Trade in
the US, it's been this trade weighted dollar that has
(08:21):
just been getting stronger and stronger and stronger, and we
keep looking at the Euro going no, it's not, no,
it's not. But we don't trade with the Eurozone as
much as we trade with Canada and Mexico, and then
if you want to even throw in their China as well.
So that's where I think to bring down the dollar. Now,
how do you bring down the dollar by reorienting the
(08:43):
financial system. You have to deal with the debt situation,
the deficit interest rates in the United States. And that's
really what the crux of the problem is. Or let
me put it to you this way. If you want
to talk about bringing the dollar down, dealing with the deficie,
dealing with the amount of debt in the United States,
they're all interrelated. If you fix one, you fix the others.
(09:06):
If you can't fix one, you can't fix the others.
And so they all are all part of a larger hole.
And that's what I think the idea of the Marlago
Accord is now at its base. It's basically the idea
behind it is we have thirty six trillion dollars of debt.
(09:26):
Where did most of that debt come from? It came
from the military and security arrangements for the post World
War two era, and during the post World War II era,
the countries that we protected on our side didn't really
pay for it. In particular, if you look at the
European countries, they've paid up until Trump one point zho
(09:50):
less than one percent of their GDP in defense, where
in the eighties and nineties the US was paying eight
or nine percent of its GDP in defense, and it's
still paying five or six percent of its GDP in defense,
and so they have had quote unquote a free ride
for decades on this is the back of American security.
(10:11):
Trump one point zero came in and said, this is unfair.
You have to pay more. They agreed to up that
to two percent. Trump two point zero January twenty third,
he came and gave a presentation to Davos, the World
Economic Forum, virtually and he said he's going to demand
(10:32):
that they pay five percent of their GDP in terms
of defense. And you've seen since then the European leaders
have been coming around to this idea that maybe we
need to pay more for defense, maybe we need to
suspend the Master's Agreement, which is part of the Euro
agreement that says that they can't run a deficit more
than two percent, So they could spend three trillion dollars
(10:55):
over the next decade on defense, and that's got the
the years on defense docks going vertical, and this whole
argument that is coming that maybe they need to do it,
and that is, you know, maybe coming back to the
US and the idea, well, if they're going to spend trillions,
then we could spend a lot less on defense, and
(11:18):
that that helps our financial position, hopefully relieving us of
the debt, bringing the deficit down, lowering interest rates, and
lowering the dollar. That is basically what we're trying to
come at was that we've got a lot of debt,
we've got a big deficit. Who should pay for it?
And the typical answers you've always gotten was while we
(11:40):
got to raise taxes, we got to cut spending, and
Trump under his America First policy saying how about those
guys over there in the NATO countries that haven't paid anything,
maybe they should start paying more. So the reason I
thought the mar Alago cord was important to talk about
now is it's kind of happening in some forms or
we should start getting our head around it. And part
(12:02):
of that which I have brought up is tariffs. Tariffs
are part of this bigger hole. We could talk about
that as we.
Speaker 1 (12:09):
Hold two things Tracy real quickly. One is I am
embarrassed to say I did not realize that the long
(12:30):
term trajectory of the dollar index and the trade weighted
dollar looks so different. You know, they move pretty similar
to day to day. But look, it is a really
striking forty year chart. And also to this point, we're
recording this on Monday the twenty fourth. Yesterday Germany held
their elections and it looks like Friedrich Murtz is going
to be the new und chancellorndes counselate. You can correct me,
(12:53):
but he talked about it. He's talked about this directly,
that there's going to have to be some relationship. And
you can look at stock of a German defense company
like Rhine Mettal.
Speaker 2 (13:03):
And that's a very good role.
Speaker 1 (13:06):
And it is straight up anyway too.
Speaker 2 (13:08):
Yeah, Okay, So we touched on the dollar and the
desire to weaken the dollar in order to I guess
fulfill the Trump mandate to reshot manufacturing. We talked about
the security element. One thing I do want to talk
about is interest rates, because when you think about the
US's role in the global economy, I mean, the US's
(13:31):
main export is basically debt, right, it's US treasuries, and
there's been this discussion for a very long time about
whether that is net net a good thing for the
US or a bad thing for the US. Jim, can
you talk about that side of things for a bit.
Speaker 3 (13:47):
Yeah, you're right that. You know, the conveyor belt has
always been that we import a lot of things, so
we and we pay for them with dollars. So we
export all of these dollars to China, to Canada, to Mexico,
you know, wherever else, you know, to the Petro to
the petro dollar states or the Gulf states that produce oil.
(14:10):
And what do they do with all those dollars once
they get them? They reinvest them back into the United
States in the treasuries. So when people look at the
idea that something like half of all treasuries are owned
outside of the United States, well that's going to be
the case. When you're running a gigantically large merchandise trade deficit.
(14:32):
You're paying for that stuff with your currency and dollars
are not very good in Beijing or in Riad. You
have to do something with them, and you just reinvest
them back into dollar based assets like US treasuries. And
so we've had that whole conveyor belt going. But the
problem with that conveyor belt is is that it keeps
the cycle going where that trade weighted dollar keeps going
(14:55):
up and up and up, and it makes us, being
an export country mainly manufacturing, more and more uncompetitive. So
the idea behind the trying to reverse that is by
maybe ending this relationship with so much debt, bring that down,
(15:15):
bring down the deficit as well, and hopefully bring down
interest rates that would lower the value of the dollar
and make us more competitive. Like I said, you can't
think of these things as three separate things like the
level of debt, the deficit, and the level of the
tradewaight to dollar. They're all somewhat related to each other,
if not directly related to each other. Dealing with one
(15:37):
is dealing with the other two.
Speaker 1 (15:39):
You know, a question that I find that I have
asked in the past is, in the modern economy in
twenty twenty five, do you still have confidence that currency
weakness or currency strength are important dimensions of export or
manufactured competitiveness because I can imagine you know, when you're
(15:59):
making commodity or something simple, right, your your base is cheaper, Okay,
you sell more. But now we have these incredibly advanced
supply chains, there's good reason to believe that in many
areas that are important to the US, that the US
is no longer at the leading edge of technology, particularly
when it comes to automobiles and certain other high tech
(16:21):
things like that. To a degree in twenty twenty five,
do you believe that the value of your currency is
an important dial for your export competitiveness.
Speaker 3 (16:31):
Well, that's a good question, and it depends on what
you're trying to export. So what the US currently exports
is more services, and services do tie into a lot
of intellectual property. And you're right, if we're going to
be exporting you know, legal services or technology, those services
(16:52):
are somewhat unique to the US. There are some are
the US companies that export thos and the level of
the dollar doesn't really matter. But if you're talking about
returning a manufacturing base to the US, now you're getting
more towards a commodity type product. Anybody could produce it
you know, other countries could produce a manufactured product, whether
(17:12):
it's steel or even cars, and they could be relatively
the same as ours, So you compete on price. And
when you compete on price, then the level of the dollar,
the level of exchange rates, especially trade weighted exchange rates,
does matter for the success of those products, and it
matters quite a bit. So if you're trying to return
(17:34):
a manufacturing base to the US, the level of the
trade weighted dollar does matter.
Speaker 2 (17:39):
I wanted to go back to the sovereign wealth fund
idea as well, because I think when most people here
you know SWF, they kind of think of commodity exporting countries,
you know, countries in the Middle East perhaps that export
things like oil and gas, maybe Norway, And obviously the
US has become a net exporter of oil in recent years.
(18:01):
But the one thing we don't have that a lot
of countries with sovereign wealth funds actually do is a
current account surplus. Right, So how would a sovereign wealth
fund actually work in the US given that at the
moment we don't really have a pool of money to invest.
Speaker 3 (18:19):
Are you sure about that? I thought most people think
s w F men single white female.
Speaker 1 (18:23):
I was gonna make that joke, not on but yes.
Speaker 3 (18:29):
But as far as the sovereign wealth fund, you're you're right.
There's lots of sovereign wealth funds around the world and
they all have one thing in common. They're creditor countries, right,
they have something that generates cash for them. In fact,
there's actually one sovereign wealth fund in the United States.
It's the Alaska Permanent Fund, and that's the royalties that
it gets. Yeah, that's because of the royalties that it
(18:51):
gets off of oil. So sovereign wealth funds in that respect,
whether it's Norway, Alaska, the Golf States, that makes sense
because they're generating money. They have to do something with
the money, and they invest it. But we're detonation, as
you said, there's no cash flow that's sitting around, going
what are we going to do with this money? Because
(19:13):
we're a detonation. So at first it was kind of
a confusing idea, how are we going to create a
sovereign wealth fund when we're not generating any money? And
then that was February third, when Trump signed the executive
order and then Treasury Secretary Besson said we're going to
monetize the assets of the United States balance sheet and
(19:34):
put them to work. Okay, what does that mean? No
one knows for sure, And to be particular, the Treasury said,
we'll get back to later this year with a paper
on how this is going to work. But we initially surmised, oh,
they're going to take some assets that we own, maybe
realize them at market value, and then put those into
(19:56):
the Sovereign Wealth Fund. And the two that kind of
jumped out at first was gold. There's eighty one hundred
tons of gold that the US owns, subject to Elon Muskin,
President Trump visiting Fort Knox to make sure that it's
still there. But assuming that it is, it's valued and
has been valued at its book value forty two dollars
(20:16):
and twenty two cents since nineteen seventy three. The market
values twenty nine hundred dollars. So if you just said, okay,
we're going to take that eighty one hundred dollars of
gold and we're going to revalue it to twenty nine
hundred dollars, there's eight or nine hundred billion dollars right there.
The other one is bitcoin. The Justice Department, through criminal
and fraud investigations, has acquired two hundred and seven thousand
(20:37):
bitcoin that they have not been able to figure out
who the owners are. It's about eleven billion dollars or so,
and it's literally sitting on a thumb drive at the
Justice Department. Maybe we can move that into the Sovereign
Wealth Fund too, and then those are some of the
assets it has. Now other assets you could argue could
be the federal government is the largest real estate owner
(20:58):
in the United States. It owns parks, it owns other
types of assets. That it could manage those assets within
the South of Wealth Fund, and then it could start
off with trillions of dollars of these assets and borrow
against that to then buy other assets like TikTok, which
President Trump has been floating the idea that the US
(21:19):
should own TikTok. Now, why would they do this. I
think they would do this for one or two reasons.
Reason one, if you're thinking like a private sector person, right,
I got a bunch of debt here, but you want
to compare it to your total assets or your equity.
But we're not fully valuing our total assets in equity.
Let's kind of show that we have a lot more
(21:41):
assets and equity than we think, so that that level
of debt doesn't look as onerous as it was. And
the second one is you could borrow against those assets.
Because one of the things, you know, within the crypto community,
they're talking about the Sovereign Wealth Fund is going to
buy bitcoin, which I don't think is a very good idea,
but nevertheless, one of the big competiments to buying it
(22:04):
would be the idea that we're going to borrow even
more money, potentially crowd out interest rates and drive them
even higher. Because the American public is going to say,
I'm happy paying a higher mortgage rate so that we
could speculate on the price of bitcoin and maybe the
federal government will turn a profit on it. That's a
non starter. But if the idea is, well, we're going
(22:25):
to borrow against some of these gold holdings or some
of these other holdings and it's not really going to
affect your level of your mortgage rate, that might be
a more palatable way to do it. So that's how
I think the Sovereign Wealth Fund is going to work.
That's what everybody's surmised. Under the idea that we don't
know what monetized the assets of the United States means
(22:47):
we're waiting on the report and we're trying to color
in the lines until we get that.
Speaker 2 (22:52):
I keep thinking about the twelve billion dollar bitcoin yeahing
drive and hoping no one loses it. Jim, thank you
so much for that explanation of you know, it is
still a hypothetical, a theoretical situation, but you walked us
through it very very well. So thanks for coming on
odd Box.
Speaker 1 (23:09):
Thank you, Thanks so much, Jim.
Speaker 2 (23:11):
That was great, Joe. There's so much in there, and
I guess the big question is obviously the feasibility, because
the whole mar A Lago accord idea, you're trying to
(23:33):
resolve these tensions, right, so the idea that you want
to reshot manufacturing, but you also want a weaker dollar,
and these things are sort of at odds with each
other sometimes, all these different moving parts. But I wonder,
I guess I wonder with the mar A Lago accord,
a potential one if you're introducing another big tension, which
(23:54):
is you're sort of moving into a very transactional relationship.
Speaker 3 (23:58):
Yeah.
Speaker 2 (23:58):
Yeah, So the idea that the US wants to be
compensated for all of the different roles it fulfills in
not just the global financial system, but in things like
international security. And at the same time as you move
into a transactional relationship, it feels like there's less trust
in these relationships, right Like would countries in Europe NATO countries,
(24:23):
for instance, want to exchange money for US security when
what they've been grappling with for the past two months,
I guess is the idea of the US suddenly changing
its mind or asking for new things when it comes
to security agreements.
Speaker 1 (24:40):
So a few things, like Jim said, you know, a
lot of this is like, you know, it is all
like hypothetical. We don't know exactly where it's going. But
just to start, the idea that Europe is sort of
quote waking up and realizing that it has to take
care of much more of its defense seems absolutely real
and not theoretical. Now will be translated into spending, especially
(25:02):
given you know, the famous German debt break, et cetera.
We don't know, but that feels like it's going to
be a real dial mover. By the way, I think,
seriously all listeners should pull up a chart of Ryan
Mattel the tickers RHM on the German stock market, and
just look at this stock and you can see it
jumped after the Russian invasion of Ukraine and then it's
(25:22):
just been going absolutely bananas since then. I also recommend
there's a really good article from November by our friend
Karthik Sanker, and he really talks about how Bessen has
been on board with this idea as well, that there
really should be, in his view, this very transactional relationship
where if a country wants to be under the US
security umbrella and wants liberalized trade relations, then it has
(25:46):
to commit to buying long term treasuries and that that
should be a trade and so this sort of transactional
approach look or to the deal like it sort of
makes sense that this is the direction to look at
from on many different venues.
Speaker 2 (25:58):
Speaking of transactional, can I recommend one.
Speaker 1 (26:01):
Of my own articles please?
Speaker 3 (26:02):
All Right?
Speaker 2 (26:03):
So last week in the Odd Lots newsletter which everyone
should subscribe to, I talked about the sort of Chinese
nesting doll of ideas embedded in the mar A Lago accord.
So you just mentioned Scott Besson, the new Treasury secretary,
and then I guess the layer under that is Stephn
Mirran who we spoke about in that big paper, restructuring
(26:23):
the global trading system. And then below that is Sultan Posar.
Oh yeah, and if you read Mirn's paper, you'll see
a lot of references to Posar's thinking and the New
Breton Woods concept and the idea of maybe the global
financial order starting to change.
Speaker 1 (26:41):
And then then below Posar is the Odd Lots Podcast.
It's sort of like that meme right at the very
bottom where it's really us that's holding up the entire
that's right, restructuring the entire system.
Speaker 2 (26:52):
And on that note, everyone should check out some of
the old episodes we did with Posar on the New
Breton Woods because because a lot of this is stemming
from so in the meantime, shall we leave it there.
Speaker 1 (27:03):
Let's leave it there.
Speaker 2 (27:04):
This has been another episode of the Oudlots Podcast. I'm
Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 1 (27:09):
I'm joll Wisenthal. You can follow me at the Stalwart.
Follow our guest Jim Bianco, He's at Bianco Research. Follow
our producers Carmen and Rodriguez at Carman armand dash Ol
Bennett at Dashbop and Kilbrooks at Kelbrooks more odd lootscontent
go to Bloomberg dot com slash odd lots, where we
have transcripts, blog and a newsletter and you could chat
about all of these topics twenty four to seven in
(27:31):
our discord discord dot gg slash od loots.
Speaker 2 (27:35):
And if you enjoy odd lots, if you like it
when we talk about hypothetical changes to the international financial
monetary order, then please leave us a positive review on
your favorite podcast platform. And remember, if you are a
Bloomberg subscriber, you can listen to all of our episodes
absolutely ad free. All you need to do is find
(27:55):
the Bloomberg channel on Apple Podcasts and follow the instructions there.
Thanks for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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