Buy King Dollar? Do You Really Want to Take Investment Advice From This Guy?

President Trump’s new economic adviser did an interview on CNBC’s Closing Bell Wednesday and offered a little investment advice.

I would buy King Dollar and I would sell gold.”

So, should you follow Larry Kudlow’s guidance?

Of course, that’s up to you. But Kudlow doesn’t have the best track record when it comes to predicting the future. On the cusp of the 2008 financial crisis, he was among the mainstream pundits saying the whole subprime mortgage thing was “no big deal.”

Trump picked Kudlow to chair the National Economic Council earlier this week. The CNBC talking head is known as a “supply-sider” and a big fan of tax cuts. That aligns well with Trump policies. But he’s also known as something of a free-trade guy and there is some speculation he might clash with the president on tariffs. Kudlow downplayed that during the interview, generally acknowledging the need for Trump protectionism.

While downplaying the impact of tariffs,  Kudlow was definitely working hard to talk up the dollar.

A great country needs a strong currency. I have no reason to believe [President Trump] doesn’t favor a sound and strong and steady dollar.”

“I’m not saying the dollar has to go up 30 percent, I’m just saying let the rest of the world know that we are going to keep the world’s international reserve currency steady,” Kudlow added. “That creates confidence at home.”

Later in the interview, he drove the point home with his “buy King Dollar, sell gold” advice.

Like I said, you have to decide for yourself if you want to follow the investment advice of a government advisor. But you might want to consider the guy’s track record. On the cusp of the financial crisis in 2007, Kudlow was emphatically saying everything was fine.

This is an excerpt from an article Kudlow penned on Nov. 22, 2007, headlined “Three More Years of Goldilocks?” You can read the whole thing here.

That said, I think the election-year economy will be stronger than the Fed’s estimate — closer to 3 percent. Too much is being made of both the sub-prime credit problem and the housing downturn. A recent Bank of England study shows that residential mortgage-backed securities in the U.S. total $5.8 trillion. Of that, only $700 billion, or 12 percent, are sub-prime. Even when you add in $600 billion of so-called Alt-A mortgage paper, most of which will not default, the total of these home loans is still less than 20 percent of all mortgage-backed paper.

“What’s more, the entire market in sub-prime debt is just 1.4 percent of the global equity markets. On any given day, a 1.4 percent drop in world stocks would erase the same amount of value as the collective markdown of all sub-prime-backed bonds to $0. It’s just not that big a deal.

“And with all these problems, economic growth in 2007 will probably come in around 2.8 percent, a pretty good year. Plus, the Fed has already eased 75 basis points, which will stimulate next year’s economy. On top of all that, after-tax, after-inflation income is booming at a 4 percent rate over the past twelve months. Exports are strong, off-setting the housing slump. Both consumer spending and business capital investment are advancing. Tax rates will remain low. So all this talk of recession seems greatly exaggerated.” [Empahsis added]

As the saying goes, past performance doesn’t guarantee future results, but if that is indicative of Kudlow’s analytical skills, maybe now is the time to get out of King Dollar and buy gold.

The trend over the last year also seems to indicate maybe we should take Kudlow’s advice with a grain of salt. As ZeroHedge put it, “So far that’s not been a great trade, Larry.”

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Photo by Gage Skidmore