President + Powell = prison?

President Trump just brought a nuclear bomb to a knife fight with Fed Chair Jerome Powell.

On Sunday, the Federal Reserve released a video announcing the central bank had received grand jury subpoenas from the Justice Department over the $2.5 billion renovation of the bank’s headquarters. What that really means is that Powell himself is being criminally investigated—a steep escalation in the ongoing feud between the president and the Fed. But Powell didn’t take the attack lying down.

“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead monetary policy will be directed by political pressure or intimidation,” Powell said in the video.

Sell America 2.0

The market, at least initially, freaked out. Stocks fell in overnight trading as investors revamped the “sell America” trade, fearing that a central bank without independence would wreak havoc on the economy. But despite the initial drop, equities bounced back by the end of Monday.

The greenback plummeted to its lowest level in three weeks in overnight trading, though it, too, recovered by the end of the day Monday. Gold reached a record high today, given the safe haven asset is where investors park their money when sh*t hits the fan. Bitcoin rose 0.92%, silver jumped 7.37%, and the ten-year treasury yield rose for much the same reason.

Why do things seem so…normal?

Considering how unprecedented this news is, perhaps the real story is that we aren’t seeing an even bigger reaction from investors today.

“I’m surprised the market isn’t more concerned,” said former Fed Chair Janet Yellen today, according to CNBC. “It is the road to a banana republic,” she added of Trump’s investigation.

Last time the “sell America” trade made headlines in the spring, the phenomenon turned out to be more of a fad than a long-term re-alignment of capital. But according to the experts, there’s some logic behind hedging your bets on America, given the events of the last week.

“We maintain a favorable view on international diversification, and this event reinforces that stance,” explained Global Head of Client Portfolio Management & Portfolio Manager at Janus Henderson Seth Meyer. “Near-term volatility will hinge on whether Congress or the Treasury Department can orchestrate another simmering down of the administration’s rhetoric.”

Considering how global stocks crushed US equities last year, maybe increasing your international exposure isn't the worst idea.—LB