Odd Lots - Jim Bianco on What a 'Mar-a-Lago Accord' Could Mean for the Economy

Episode Date: February 25, 2025

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 AttentionOnly Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots See omnystudio.com/listener for privacy information.

Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the All Thoughts podcast. I'm Tracy Alloway. And I'm Joe Wisenthal. Joe, when you hear Mar-a-Lago, what do you think of? You know, it's funny. I don't know what Mar-a-Lago is, actually.

I've been meaning to look at up. Is it a house? I thought you're going to say I've been meaning to go there. 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 80s, aesthetic.

Here's when I know there's Trump. Yes. There's golf. Heard of it. And that's about it. Yeah. I think the last thing anyone thinks of when you hear the word Mar-a-Lago is the potential for another international monetary accord.

Like, no one really thinks that, right? Did Xi Jinping go to Mar-Lago during the first Trump administration? I think he did. Right, okay, but there was no new monetary agreement. Right. No, nothing like really that big came of it. But we know Trump loves it. It's Trump aesthetics and I'm sure he'd love to like host world leaders at his club, at his house, at his golf course.

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 1985 Plaza Accords. And did he own it at the time? I think so, yeah. Well, it's got to happen then. 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 Mar-a-Lago accord. The idea being that the U.S. kind of sets out this new monetary system in a similar way to the 1985 Plaza Accord or the original Breton Woods agreed. And I got to say, this is just interesting from a theoretical perspective. 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. No, it really does speak to it. We should absolutely talk about it because there are core tensions within Trumpism 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 U.S. into a manufacturing powerhouse. And theoretically, one aid for that would be a weaker U.S. dollar. And so this idea of the dollar is too expensive and maybe, you know, maybe there's some agreement to weaken it could help U.S. manufacturing. And then there's question of how influential globally does the U.S. want to be, period, across anything, whether it's military, whether it's finance, whether it's currency, et cetera. And, you know, why. One of the ideas of like pulling inward tariffs, et cetera, changing some questions about the international security relationship is this idea of like an inward turn. And maybe the U.S. doesn't want to be as prominent globally on the stage. It's all kind of wrapped up in the same question. Yeah, absolutely. So again, we should talk about it. And I am very pleased to say we have the perfect guest. I can't believe he hasn't been on the show before.

I know. 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 Mara Lago Accord, the potential Mara Lago Accord that doesn't exist. That doesn't exist yet. The hypothetical that we should nevertheless talk about. So, Jim, thank you so much for coming on all thoughts. Oh, thanks for having me. And Tracy, to correct you, Trump bought Plaza 1988 and the Chicago was 1985. Gosh darn it. Okay, well, Jim. Two hotels that he theoretically at some point was

connected to. 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? 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 think they're going to do with the sovereign wealth fund over there? And they were tend to 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 Stephen Mirren when he was with Hudson Bay Capital. And now he's the Council of Economic Advisors Chairman for President Trump. And in Trump 1.0, he worked under Steve Mnuchin at the Treasury Secretary. In a report, he put out right after the election about reordering the monetary system. And I said, I think that they're really starting to think bigger picture. And within that report was this concept of a Mar-a-Lago accord. And what I tried to emphasize was, this is not a roadmap per se that we're going to do ABC, D&E, 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 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. I guess I have a sort of two-part question. is one is, is the Marolago accord an event that you see happening or potentially happening where a bunch of people come to Mara Lago? Or is it like a metonym for a sort of destination, a new position for the world in the U.S. after some number of years? And if it's the latter, like, we no one can really know the ABC, D, and E. 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 U.S. in that destination? Yeah, I think it's the latter. It's more of a destination. By the way, the name Maralago Accord, as you pointed out, you know, there's been two big, you know, monetary realignments, currency agreements in the last 50 years, Bretton Woods and the Plaza, which we talked about a second ago. Brenton Woods is a resort in New Hampshire. And Plaza 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 Mar-a-Lago Accord is just kind of fitting with that genre. Now, where are we going? The goal here is to make the U.S. more competitive. And the U.S. to be more competitive, I think, needs a couple of things. 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 40 years,

it's up 218 percent. So the dollar's been extraordinarily strong. Now, you and I might be more comfortable looking at the DXY dollar index. That's down 5 percent over the last 40 years. Now, what's the difference between the two? The trade weighted dollar is 26 currencies weighted by the amount of trade that we do with these countries. The big two dominant players, are Canada and Mexico. The dollar index is six currencies, weighted by more financial flows, 57% of that is the euro. So when we talk about that the dollar has been holding back manufacturing in the U.S., trade in the U.S., it's been this trade weighted dollar that has 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 U.S. 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 you to bring down the dollar. Now, how do you bring down the dollar by reorienting the 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 deficit, dealing with the amount of debt in the United States. They're all interrelated.

If you fix one, you fix the others. If you can't fix one, you can't fix the others. And so they all are all part of a larger whole. And that's what I think the idea of the Mar-a-Lago accord is. Now, at its base, it's basically the idea behind it is we have $36 trillion of debt. Where did most of that debt come from? It came from the military and security arrangements for the post-World War II 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 1.0, less than 1% of their GDP in defense. where in the 80s and 90s, the U.S. was paying 8 or 9% of its GDP in defense, and it's still paying 5% or 6% of its GDP in defense. And so they have had, quote, unquote, a free ride for decades on the back of American security. Trump 1.0 came in and said, this is unfair. You have to pay more. They agreed to up that to 2%. Trump 2.0, January 20, 20%. 23rd, he came and gave a presentation to Davos, the World Economic Forum, virtually, and he said he's going to demand that they pay 5% 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 Maastricht Agreement, which is part of the Euro agreement that says that they can't run a deficit more than 2%, so they could spend $3 trillion over the next decade on defense. And that's got the Eurozone defense stocks going vertical. And this whole argument that is coming that maybe they need to do it. And that is maybe coming back to the U.S. And the idea, well, if they're going to spend trillions,

then we could spend a lot less on defense. And 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, well, we've got to raise taxes, we got to cut spending. And Trump's 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-a-Lago Accord was important to talk about now is it's kind of happening in some forms or another, and we should start getting our head around it. And part of that, which I haven't brought up, is tariffs. Tariffs are part of this bigger whole. We can talk about that as we unfold. Two things, Tracy, real quickly. One is, I am embarrassed to say, I did not realize that the long-term trajectory of the dollar index and the trade-weighted dollar look so different. You know, they move pretty similar day to day, but look, it is a really striking 40-year chart. Oh, yeah.

And also, to this point, we're recording this on Monday the 24th. Yesterday, Germany held their elections, and it looks like Friedrich Mertz is going to be the new Bundes Chancellor. Bundes Chancellor. You can correct me. But he talked about this directly, that there's going to have to be some relationship. And you can look at a stock of a German defense company like Rheinmetal. And that's a very good rolling of the art. And it is straight up.

Anyway, too. 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 reshore manufacturing. We talked about the security element. One thing I do want to talk about is interest rates. Because when you think about the U.S.'s role in the global economy, I mean, the U.S.'s

main export is basically debt, right? It's U.S. Treasuries. And there's been this discussion for a very long time about whether that is net net a good thing for the U.S. or a bad thing for the U.S. Jim, can you talk about that side of things for a bit? 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 petrod, to the state or the Gulf states that produce oil. And what do they do with all those dollars once they get them? They reinvest them back into the United States into 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, you're paying for that stuff with your currency. And dollars are not very good in Beijing or in Riyadh. You have to do something with them. And you just reinvest them back into dollar-based assets like U.S. treasuries. And so we've had that whole conveyor belt going.

But the problem with that conveyor belt is that it keeps the cycle going where that trade-weighted dollar keeps going 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, 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. If 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 trade weighted dollar.

They're all somewhat related to each other, if not directly related to each other. Dealing with one is dealing with the other two. You know, a question that I find that I have asked in the past is in the modern economy in 2025, 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 making a commodity or something simple, right, your base is cheaper. Okay, you sell more.

But now we have these incredibly advanced supply chains. There's a good reason to believe that in many areas that are important to the U.S., that the U.S. is no longer at the leading edge of technology, particularly when it comes to automobiles and certain other high-tech things like that. To what degree in 2025 do you believe that the value of your currency is an important dial for your export competitiveness? Well, that's a good question, and it depends on what you're trying to export. So what the U.S. 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,

are somewhat unique to the U.S. There are some or the U.S. companies that export those. And the level of the dollar doesn't really matter. But if you're talking about returning a manufacturing base to the U.S., now you're getting more towards a commodity-type product. Anybody could produce it. You know, other countries could produce a manufactured product, whether 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 a manufacturing base to the U.S., the level of the trade weighted dollar does matter. I wanted to go back to the sovereign wealth fund idea as well, because I think when most people hear 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 U.S. has become a net exporter of oil in recent years, 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 U.S.? given that at the moment, we don't really have a pool of money to invest?

Are you sure about that? I thought most people would think SWF meant single white female. I was going to make that joke. Not on odd laws. Yes. But as far as the sovereign wealth fund, 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. Oh, yeah. And that's because of the royalties that it gets.

Yeah, that's because of the royalties that it gets off of oil. So sovereign wealth funds in that respect, whether it's Norway, Alaska, the Gulf states, that makes sense because they're generating money. They have to do something with the money and they invest it. But we're a debtor nation, as you said. There's no cash flow that's sitting around going, what are we going to do with this money because we're a debtor nation. 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 3rd 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 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 and 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 the sovereign wealth fund. And the two that kind of jumped out at first was gold. There's 8,100 tons of gold that the U.S. owns, subject to Elon Musk and 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 of $42. 22 cents since 1973. The market value is $2,900. So if you just said, okay, we're going to take that $8,100 of gold and we're going to revalue it to $2,900, there's $8 or $900 billion right there. The other one is Bitcoin. The Justice Department through criminal and fraud investigations has acquired $207,000 Bitcoin that they have not been able to figure out who the owners are. It's about $11 billion 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 in the United States. It owns parks. It owns other types of assets that it could manage those assets within the Southern 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 U.S. 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 and equity. Let's kind of show that we have a lot more assets in 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 competitors in buying it 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's 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 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 surmised under the idea that we don't know what monetized the assets of the United States means. We're waiting on the report and we're trying to color in the lines until we get that. I keep thinking about the $12 billion Bitcoin 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. Thanks for coming on all blogs.

Thank you. Thanks so much, Jim. 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 resolve these tensions, right? So the idea that you want to reshore 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 is you're sort of moving into a very transactional relationship. So the idea that the U.S. 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 those relationships, right? Like, would countries in Europe, NATO countries, for instance, want to exchange money for U.S. security when what they've been grappling with for the past

two months, I guess, is the idea of the U.S. suddenly changing its mind or asking for new things when it comes to security agreements? 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 good. 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, how that will be translated into spending, especially 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 ticker is 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 just been going absolutely bananas since then. I also recommend there's a really good article from November by our friend Karthik Sankeren. And he really talks about how Besant 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 U.S. security umbrella and wants liberalized trade relations, then it has to commit to buying long-term treasuries and that should be a trade. And so this sort of transactional approach, look, heard of the deal. Like it sort of makes sense that this is the direction to look at on many different avenues. Speaking of transactional, can I recommend one of my own articles? Please. All right. So last week in the Oddlots newsletter, which everyone should subscribe to, I talked about the sort of Chinese nesting doll of ideas embedded in the Mar-a-Lago Accords.

So you just mentioned Scott Bessent, the new Treasury Secretary. And then I guess the layer under that is Stephen Miron, we spoke about in that big paper restructuring the global trading system. And then below that is Zoltan Pozar. Oh, yeah. And if you read Mirren's paper, you'll see a lot of references to Pozar's thinking and the new Bretton Woods concept and the idea of maybe the global financial order starting to change. And then below Pozart, 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 and restructuring the entire system. And on that note, everyone should

check out some of the old episodes we did with Pozar on the new Breton Woods because a lot of this is stemming from those. So in the meantime, shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Allaway. You can follow me at Tracy Alloway. And I'm Joe Wisenthall. You can follow me at the stalwart. Follow our guest, Jim Bianco, he's at Bianco Research. Follow our producers, Carmen and Rodriguez at Carmen Armin, Dashel Bennett at Dashpot and Kel Brooks at Kel Brooks. More Oddlots content, go to Bloomberg.com slash oddlots, where we have transcripts, blog,

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