Making America Confused Again

President Donald Trump is making America confused again. Within one week, Trump has spun complete 180s on policies that were central to his campaign. CNN dubbed it “extraordinary political shape-shifting.” It appears America may be entering an unprecedented era of regime uncertainty. That doesn’t bode well for the economy, but it could be a boon for gold and other safe-haven assets.

First, Trump launched cruise missiles at Syrian government targets and hinted at a policy of regime change. Just days earlier, Secretary of State Rex Tillerson said Assad’s fate “will be decided by the Syrian people.” But in the wake of a chemical attack allegedly launched by the Syrian government, Tillerson said “steps are under way” to organize an international coalition with the goal of ousting the Syrian leader.

The flip-flopping continued in earnest yesterday.

After calling NATO obsolete on the campaign trail, the president has now decided “it’s no longer obsolete.” Then there’s the Fed and monetary policy. During the campaign, he accused Janet Yellen of holding interest rates too low and creating a “false market” to benefit Pres. Obama. Now Trump likes Yellen. He said he may reappoint her. He also said, “I do like a low interest rate policy, I must be honest with you.”

And by the way, China is no longer a currency manipulator. The president also mentioned that the dollar was “too strong,” sending it into a tailspin.  During the campaign, Trump said the Asian giant was guilty of “rape” against the US economy.

“Circumstances change,” White House press secretary Sean Spicer told CNN’s Jim Acosta.

Wednesday seemed to confirm what we said after the attack in Syria – the only certainty is uncertainty.

In fact, it appears likely uncertainty is going to be the new normal in the Trump era. The president seems to lack any philosophical anchors. He’s as unpredictable as a summer thunderstorm. Today’s policy can become yesterday’s foolishness in the blink of an eye.

It looks likely the next four years will bring an unprecedented level of regime uncertainty. This is a term coined by economist Robert Higgs. It describes a pervasive lack of confidence among investors in their ability to foresee the extent to which future government actions will alter their private-property rights. Higgs uses this concept to explain the seriousness and prolonged duration of some economic crises, like the Great Depression

Regime uncertainty doesn’t bode well for the economy. In periods of intense uncertainty, investors tend to pull back, companies become cautious, and executives go into protection mode. Everybody becomes reluctant to make major decisions because they have no idea how future moves by the regime will impact them.

So what do people do in the face of regime uncertainty? They generally seek safe havens like gold and silver. In fact, we saw a flurry of safe-haven buying in the last week, first after the Syria attack and then again after flip-flop Wednesday. MarketWatch reported on the bump in precious metal prices after Trump’s comments.

“Gold, silver, and prices for other metals leapt Thursday, bolstered as the US dollar was shoved lower after US President Donald Trump said the currency has been trading at “too strong” of a level. June gold GCM7, +0.91%  advanced $12.10, or 0.9%, to $1,287.40 an ounce, and silver for May delivery SIK7, +1.50%  climbed 30 cents, or 1.6%, to $18.60 an ounce.”

But it’s not just about a single event or even a series of events that cause markets to react. It’s about the underlying environment of uncertainty. It seems certain that won’t change anytime soon.

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