Carlson Capital on Trump Tax and echoes of the 1930s

Carlson Capital’s Black Diamond Thematic fund added 9.27% net of fees during the fourth quarter taking full year returns to 18.95% according to the fund’s fourth-quarter and full-year letter a copy of which has been reviewed by ValueWalk.

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The full-year letter, penned by portfolio managers Richard Maraviglia & Matt Barkoff provides a detailed rundown of the world’s political and economic risks of which are making life difficult for hedge fund managers around the world. And the whole letter (arguably the entire hedge fund industry) can be summed up with the following sentence:

“Politics and history feature heavily in our thinking as we begin the year. We see a variety of factors that could cause macro deceleration just at the moment when investors have been dragged kicking and screaming into cyclical positioning, a place in which they are not truly comfortable.”

Carlson Capital: Trump Tax Will Start Global Depression

The bulk of the full-year letter focuses on the potential impact of a declining US trade deficit. The US dollar has been the world’s reserve currency since World War II and even more so since 1971 when the world moved to pure fiat money (sovereign accounts will no longer zero-sum). This transition helped drive credit expansion, wealth creation, inflation and bubbles and crashes. If Trump wants to put an end to the US trade deficit via the reduction of corporate taxes and incentivizing manufacturing, this will likely set off a trade war. A border tax or tariff would cause the US current account deficit to shrink, forced the dollar to appreciate and put pressure on emerging markets to raise interest rates aggressively to defend their currencies.


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