From Treasuries to TikTok? The U.S. Sovereign Wealth Fund Gets Real

Trump 2.0 is breaking economic norms again. Could a U.S. Sovereign Wealth Fund be the next big financial experiment?

KEY TAKEAWAYS

• The administration is considering a U.S. Sovereign Wealth Fund (SWF)—something usually reserved for surplus-rich nations.
• The U.S. doesn’t have a surplus, so funding options include selling bonds, tapping Social Security, or selling government assets.
• The SWF could invest in anything, from U.S. companies to foreign assets, potentially including a buyout of ByteDance (TikTok’s parent).
• The real kicker? This could be a strategy to weaken the U.S. Dollar without outright devaluing it.
• By buying foreign assets, the U.S. would have to exchange Dollars for other currencies—helping drive the Dollar lower.

MY HOT TAKES

• The administration wants a weaker Dollar but keeps implementing policies that make it stronger.
• A Sovereign Wealth Fund is an unconventional but potentially effective way to achieve that goal.
• The problem? The U.S. has no budget surplus—so where’s the money coming from?
• If not managed properly, this could spiral into a credibility crisis for the U.S. economy.
• A stealthy way to shift economic policy… or just another layer of financial engineering?

Perception is reality. We are living in interesting times—in the world of finance and economics, that is. First, I want to say that, despite all the unknowns that have emerged under the Trump 2.0 White House, if we filter out all the rhetoric noise, one has to give the Administration credit for considering tactics that had never seen the light in the past. Now, I am not saying that I agree with them, however, in case you haven’t realized, the nation’s debt, driven by years of deficit spending, is rather large and complex. Changing that fiscal growth path is no easy task and the problem cannot be arrested using conventional methods. Folks, this is no different than your own bank account. If you want to lower your credit card bills, you must use them less, which means you MUST spend less. Spending less means, somebody in the family is going to have to give up something. I admit that the government is a bit different. It can choose to simply just ignore it and keep borrowing money without any regard. BUT the government can only keep doing that as long as people continue to extend it credit—buy Treasury bonds. In your case, unfortunately, the credit card companies will cut you off—and far sooner than bond buyers will stop buying Treasuries.

That all said, the administration has certainly demonstrated a penchant for floating and supporting some rather unconventional methods. That has kept folks like me on constant call since the election back in November. I can’t remember the last time I pulled out my trusty playbook for answers. No, some of the ideas that have emerged, least of which is the now quite-complicated mess of tariffs, compounded by some sort of potential VAT tax. Don’t worry, I am not going to go into tariffs or VATs today, I have treated you to enough of that recently. Today I want to talk to you about the US Dollar.

Let’s start with something that appears to have nothing to do with the dollar. Do you remember last week, or was it two weeks ago that Trump floated the idea of a Sovereign Wealth Fund (SWF)? An SWF is a state-owned investment fund used to create long-term growth and stability for a country. It is typically funded by budget surpluses, trade surpluses, or sales of natural resources. Notable SWFs exist in Norway, UAE, Singapore, Saudi Arabia, and China. Based on those examples you can probably guess how those SWFs are funded. So, how would the US fund an SWF? Clearly the US does not export on the level of those countries. The US runs both trade and budget deficits. In reality, that does not mean that the US cannot create an SWF. The government can simply sell bonds to fill its coffers. It can divert some of the Social Security Trust into a wealth fund. In fact, the government can sell government-owned land (privatizing assets) and put the proceeds into an SWF. Now, of course, all of those examples come with their own challenges, but the bottom line is that it can be done and most likely will, given that the President signed an executive order directing the Commerce Department and Treasury to set up an SWF.

Assuming the fund gets set up and funded, what would it do? Well, at a high level, it would allow the US to invest in ventures that could quite literally create wealth for the nation. That’s obvious. In fact, it has been speculated that the SWF would be used to buy a majority stake in ByteDance, the parent of TikTok. That would certainly solve a security problem and might even generate gains if sold at a profit at some point in the future. Remember that an SWF’s goal is not only to create wealth, but also to create stability. In this case the SWF can invest in… well just about anything for just about any reason. “Where are you going with this, Mark?”

Okay, I will get to the point. It is well known that the administration is keen on a weaker Dollar, and yet everything it has floated so far has only served to strengthen the Dollar. Remember a weaker Dollar makes US goods cheaper for foreign investors. A weaker Dollar could ease a trade deficit. A weaker Dollar makes the purchase of foreign goods more expensive to Americans. This, like tariffs, could cause Americans to consume less foreign goods, and substitute with domestic substitutes. A weak Dollar also makes US assets cheaper for foreign investors and could incentivize higher foreign direct investment. It is sometimes referred to as a “stealth tariff” in nerdy, economic circles like the ones I proudly inhabit. A weaker Dollar’s effects are similar to those of tariffs, but appear to be less draconian. However, that doesn’t mean that there would be no inflationary implications. Remember, in the examples I just gave, that increased consumption of goods and increased investment can drive goods and asset prices higher. Everything has one cost or another, doesn’t it. Well, needless to say, governments seeking weaker currencies is one of the oldest strategies in the playbook, and some countries, NOT THE US, have devalued their currencies to accomplish similar goals. Unfortunately, those aggressive methods cause a loss of faith in the currency, which is probably why the US would never do something like that, given that the US is the de facto currency for international commerce.

So, how could the administration weaken the currency in a more “natural” way? Well, the US can go on a foreign shopping spree. It could invest in foreign assets. For example, it could purchase foreign non-dollar denominated sovereign bonds. It could purchase foreign real assets outright. The government could actually purchase foreign companies! But in order to purchase those foreign companies and assets, the Dollars invested would have to be converted into local currencies at some point. That would serve to weaken the Dollar. Where would the US get the money to invest in those foreign assets? A Sovereign Wealth Fund, of course.

YESTERDAY’S MARKETS

Stocks sold off yesterday after weak guidance from US everything retailer Walmart, striking fear that the consumer may be relenting. Weekly jobless numbers climbed week over week and the Leading Economic Index slipped more than expected—both negative for the economy, but not negative enough for the Fed’s doves to fly. They have been in hiding recently.

NEXT UP

• S&P Global Flash US Manufacturing PMI (February) may have inched higher to 51.4 from 51.2, and the Services component of the release may reflect a gain to 53.0 from 52.9.
• University of Michigan Sentiment (February) is likely to come in at 67.8, in line with earlier estimates.
• Existing Home Sales (January) are expected to have slipped by -2.6% after climbing by 2.2% a month earlier.
• Fed speakers today: Jefferson and Goolsbee.
• Next week: still more earnings, as well as more housing numbers, more regional Fed numbers, Consumer Confidence, GDP, Durable Goods Orders, Personal Income, Personal Spending, and PCE Price Index. Check back in on Monday to get your weekly economic and earnings calendars.

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