The spread of 2-year US Treasury yields over German and Japanese yields - the classic driver of currency moves - has doubled to over 120 basis points since June. This is drawing powerful flows of money into US debt markets. It is a formula for a super-dollar, and it has further to run.

Everything has a late-cycle feel to it. The Cape-Shiller price-to-earnings ratio for the S&P 500 stocks is already above 24, higher than any time over the last 130 years with the exception of the 1929 and the dotcom peak in 2000.

Can Wall Street go higher? Certainly. The creator of the measure, Nobel laureate Robert Shiller, told me in Davos that there may be a final blow-off surge. Mood matters - he argues - and the animal spirits unleashed by Trump's pledge to cut taxes and slash regulations by 75pc could push the Cape-Shiller ratio towards the dotcom record of 45.

This would be followed by a cathartic crash and a day of moral judgment. The Shiller view is that Trump's own supporters will turn against him - and against his wealthy swagger - just as culture turned in the 1930s and people rejected the Coolidge ethos of the Roaring Twenties.

There is no sign yet that Mr Trump is willing to back down on any of his core policies. So my suspicion is that he will try to break out of this dollar trap by leaning on the Fed to delay rate rises and ultimately by ordering intervention to hold down the US exchange rate.

There are precedents for such currency action. The Swiss National Bank vowed in 2011 to spend unlimited sums to stop the franc rising above €1.20 as it battled deflation. The Japanese did it on a nuclear scale in 2003. The Chinese pursued a mercantilist strategy during its growth-spurt, keeping the yuan weak to gain export share.

Recourse to such methods by the holder of the paramount reserve currency would be a different kettle of fish. It would amount to a global free-for-all, a Hobbesian monetary disorder.

Currency intervention is by law a US Treasury prerogative. The New York Fed must in effect do what it is told, if ever ordered to buy foreign bonds. This is the means by which Mr Trump can bend the Fed to his will. Does anybody really think he will resist such a temptation?

David Fuller's view

The Donald Trump bull market in US stocks has morphed into a Trump global uptrend, which has been very powerful in a number of countries since his election on 4^th November.  Following that date it has been one-way traffic in the US stock market which always exerts a strong influence on equities in many other countries.

Why have the US and a number of other stock markets been so strong?  1) People were underinvested before the election result was known; 2) There were a number of short positions in the market; 3) Investors like Trump’s programmes for tax cuts and fiscal spending; 4) Animal spirits have been reawakened and not just in the US; 5) Interest rates remain low although they have started to rise in the US and many other countries will eventually follow this lead; 6) Investment liquidity has increased as fixed-interest investors sense that the bond market bubble is beginning to burst, causing them to sell and transfer some those funds to stock markets. 

How long will this bull market last?

It may be secular, as I have periodically mentioned in recent years.  However, secular bull markets are punctuated by a number of sharp corrections and some cyclical bear trends.  In fact, 1987’s crash occurred in the first third of the last secular bull market, although a decline of that magnitude is very rare in a secular uptrend.  In fact, 1987 was no more than a medium-term accident which did no lasting damage to either the US or the global economy. 

Ambrose Evans-Pritchard has mentioned above factors which could lead to a cyclical bear trend on Wall Street in the medium term.  However, that is the worst case outlook in my opinion.  Moreover, if Trump succeeds in restraining the USD via the Fed and if foreigners seek refuge in the US bond market, these risks which I discussed yesterday would be reduced.  

Here is a PDF of AEP's column.