17 December 2024

The first thing I read this morning was this article by the Marten's

The Head of Fixed Income at T. Rowe Price Makes the Scary Case for the 10-Year Treasury to Spike to 6 Percent

He's an uber genius.  He is saying what I have been saying for the last year :)

“I think that the 10-year Treasury yield will test the 5.0% threshold in the next six months, steepening the yield curve. There are three dynamics at play: 1. Fed rate cuts could limit yield increases on short-maturity Treasury bills. 2. Ongoing issuance by the Treasury to fund the government’s deficit spending is flooding the market with new supply. 3. The Fed’s quantitative tightening has taken a large, reliable buyer of Treasuries out of the market, further skewing the balance of supply and demand in favor of higher yields.”

And the Martens finish their article with thoughts I hold:

Because the yield on the benchmark 10-year Treasury impacts mortgage interest rates, a rise in its yield could price more home buyers out of the market because they would be unable to afford the higher monthly mortgage cost. This could lead to a slump in home prices and potentially negatively impact consumer sentiment.

A yield of 5 percent or higher on the 10-year Treasury note could also lure money out of stocks and into Treasuries. Should a stock exodus become a stampede, a handful of tech stocks trading at nosebleed valuations might plunge, leading to more selloffs.

Since Donald Trump’s ego is bound up in the stock market only rising when he’s in the driver’s seat, this could lead to Trump making imprudent demands on the Fed Chair, Jerome Powell, or firing him as a scapegoat. Since Powell has said he will serve out his term as Fed Chair, irrespective of Trump’s threats to fire him, a Trump-Powell debacle could unnerve foreign investors, leading to capital flight out of the U.S.

In fact, we’re shocked we haven’t seen that already, given the chaos Trump has outlined for his first 100 days in office.

I fully expect Trump to force the Fed back into the business of suppressing long term interest rates again, something the current Fed says was a mistake the first time.  It involves printing money to buy Treasuries thus reducing supply to the market and bringing interest rates down.  There is just one problem this time...

...inflation is coming back.  The asset owners do not care, below inflation interest rates basically doubled their on paper wealth the last decade.  

If the new Admin is going to go austerity which puts hard braking on the economy, while printing money, it will be a disaster for the people.  And the budget will not be balanced, it may grow with lack of tax revenue.

Mainstream diversification has been all about stocks/bonds/cash

Chaos diversification will be about stocks/gold/cash.  By chaos, I do not mean because of Trump.  He is inheriting an over-leveraged, out-of-control global economy.  But his tariffs will poke a lot of bubbles.  

Bonds become speculative on the ups and downs of interest rates and possibility of default through non-payment or inflation.

Cash is about avoiding large losses in stocks.  Cash includes the TSP G fund and other very short duration Treasuries that pay interest, but do not beat inflation during financial repression.

Stocks are speculative until their valuations come down, then at the right price provide some inflation protection.  But the timing and which stocks matter.  The SP500 after a reset would sort much of this out.

After a reset, we can look at the International fund and what dominates the allocations.  If the over-valued, high risk stocks shrink and the new economy stocks make up a high percent of their weight, it might become a place to invest.  But I am thinking, in a few years.

I have not talked about the I-Series Treasuries in awhile.  I am hanging on to mine in anticipation of financial repression which takes interest rates down but not inflation.  And the I-Series pays inflation and should become the best yielding safe asset in a financial repression era... again.  

You can get 10K per SSN in your family by the end of the year and another 10K in 2025.  Not much help if you are trying to invest a million dollars.  I think of it as safe asset diversification.

Pieces of the Puzzle

I'll be calling information pieces of the puzzle because we do not know what the puzzle looks like yet.  We will be talking about pieces as the come in.

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"The day the Shanghai Gold Exchange surpasses the COMEX in transactions will mark a seismic shift—gold's pricing power will move decisively from the West to the East. That moment is no longer a distant future—it is happening now."

- The legendary Pierre Lassonde

China banned Crypto like a sensible govt would do, so the Chinese only have gold.  And China wants to take over the next currency (backed by gold).  

Gold prices have been suppressed in the US by the wall street banks working with the Fed and Treasury to keep the dollar supreme... that time is fading away.

Gold is not speculation like Bitcoin.  It is 5000 year store of value.  And its 35% rise in 1 year tells us the dollar and all global currencies are being massively devalued while COMEX is losing control of gold's price.

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Meanwhile its getting closer...

Office Property Meltdown Is Starting to Surface at Regional Banks

Many banks have been insolvent in reality but not on paper.  The forced selling and defaults come onto the banks balance sheet and they can no longer hide it. Hits the banks in 2025.

Not in the article, but cities are losing a big chunk of their revenue with the melt down in commercial real estate.  30% of Boston's revenue comes from commercial real estate property taxes.  They will have to make it up by raising home property taxes.  Hits the economy in 2025.

Home builders are even slowing down.  This was the part of the economy that held up longer than thought due to buydowns on mortgage rates, etc.  Now their inventories in some places on new unsold homes is growing rapidly and they will be slowing down on building.. hits economy in 2025.

In the last 15 years we have seen time and again, the wealthy who are not supposed to be bailed out, bailed out.  And the rest who are supposed to be bailed out, not bailed out.  I doubt this will change especially in an administration run by billionaires.

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A little algebra

Corporate Saving + Household Saving + Government Saving + Foreign Saving = 0

means

Corporate Saving + Household Saving + Foreign Saving =  Gov't Deficit Spending

or

Gov't Deficit Spending = Corporate Saving + Household Saving + Foreign Saving

which looks like this in a chart

Deficit spending only drives profits until they cut those deficits one way or another.

14 December 2024

Watch this astounding 2 minute video on how the food industry would shut down in 2 days if illegal  immigrants are deported.

"We have to trust in our officials that are put in place", says the farmer,...

..to NOT do what they said they were going to do, what Project 2025 says, or what those in charge of deportations are saying they are about to do...

..because the food industry would shut down in 2 DAYS !!!

My Saturday morning thoughts are just how the farmer in the video does not believe Trump would be so stupid to do what his new admin is planning to do, the financial markets believe the same thing.

Or they are only focusing on the tax cuts giving the billionaires more money to pour into the financial markets while ignoring the austerity that takes money away from consumers that would hit the economy hard on the demand side. 

Warning: Don't fix what ain't broken. The US economic growth has far surpassed all developed countries economic growth since COVID.  Mend it, don't rebuild it.

The first order effect of a $1 trillion dollar cut to the US budget would be a 4% drop in GDP and GDI.  The second order after this works through the system would be a 8-10% drop in the US GDP due to the multiplier effect.  This is not counting deportations effect on the economy.  

The good news is it might lead to some consumer disinflation in some areas... not coming deportations which will spike food prices.  The bad news is it would lead to much higher deflation in home prices, and the stock market along with increased debt defaults.

We all better hope the farmer is right on all fronts.  Heather Cox Richardson wrote about Trump's recent 60 minute interview where it showed that Trump either did not understand or did not care about a lot of the issues he ran on... it was all about winning of course. So as he is briefed on the effects of what he ran on, he may change his mind.  He is already saying that tariffs may cause more inflation.  

12 December 2024

I 100% agree with Biden's assessment.  I've been talking about the problem of swimming in supply-side false narratives for 40 years.  And he attempted to reverse course.  I was not confident that Harris would continue since she seemed to have a big business slant.  This is why the largest union President did not want to endorse her. 

After reading this, contrast it with the next article.

Heather Cox Richardson excerpt

Yesterday, President Joe Biden spoke at the Brookings Institution, where he gave a major speech on the American economy. He contrasted his approach with the supply-side economics of the forty years before he took office, an approach the incoming administration of Donald Trump has said he would reinstate. Biden urged Trump and his team not to destroy the seeds of growth planted over the past four years. And he laid out the extraordinary successes of his administration as a benchmark going forward.

The president noted that Trump is inheriting a strong economy. Biden shifted the U.S. economy from 40 years of supply-side economics that had transferred about $50 trillion from the bottom 90% to the top 1% and hollowed out the middle class.

By investing in the American people, the Biden team expanded the economy from “the middle out and the bottom up,” as Biden says, and created an economy that he rightfully called “the envy of the world.” Biden listed the numbers: more than 16 million new jobs, the most in any four-year presidential term in U.S. history; low unemployment; a record 20 million applications for the establishment of new businesses; the stock market hitting record highs.

Trump Woos Wall Street With Corporate Tax Cuts at NYSE Visit  12 Dec 2024 Bloomberg

This is grotesque.  The top 1% pay a lower total tax rate than the other 99% thanks to the many previous tax cuts for the wealthy.  They have to cut social benefits (social security, Medicare, healthcare, pensions, financial aid for education) to allow this to happen today with $2 trillion in deficits already.  

Statistically we are already in the gilded age 2.0.  And yes, $50 trillion has been transferred all the while they complain.  It is really this bad.  And I do not think the American people understand.  They are just frustrated with higher prices even though wages climbed more. Our media stinks.

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If Trump carries through, we will be in recession for the mid-terms.  Will there be a stealth bailout in 2025 for the 80% defaults on commercial real estate working its way toward the wall street banks?  

Meanwhile the Producer Price Index is climbed sharply back above 3%.  This feeds future CPI inflation.  A year ago it was down to 2.4% year over year.  

I've long said based on larger factors that inflation would settle in higher (3-4% range) simply due to ending the transfer of US manufacturing to lower cost China.  If we manage to bring some of that back to the US then it will be closer to 4%.  

Mass deportations will re-introduce wage push inflation.  Minor tariffs will be offset by China devaluing their currency and equal amount.  This action would keep manufacturing in China and mute US inflation growth.  A massive tariff would lead to counter tariffs and supply freezes, etc. It's a dangerous game.

If the tariff revenue does not come through in 2025, Trump lowering taxes will explode the deficit. He will demand the Fed interfere again in the free markets and force interest rates down.  This will allow inflation to rise above 4%.

We are sitting at the highest valuations of the US stock market in history (relative to revenue).  And 2025 will be a year of high stakes geo-politics and finance.

We are approaching the next look at what allocation levels to risk assets (stocks) we should be holding.  Possible change coming by Christmas.  The higher PPI news is dragging stocks down today.  We will see how they recover and what changes in the next week.

2 December 2024

We have something knew to wrap our heads around.  And it may be big.

I'm asking the question where all the liquidity is coming from.  We know the corporations are burning close to a trillion into the stock market via their own stock buybacks.  This is large.  But there is an equally large amount coming into our financial markets I had not noticed slipped into the back door.

QE is over, they are doing slow QT removing the massive liquidity.  Interest rates a close enough to normal to not matter anymore.  

Fiscal policy has pumped funds into the real economy and thus helped corporate profits and demand.  But that trade deficit seems to be the large source of funds into our financial markets to include the SP500 that I was missing.  And it is getting worse.  A lot worse and those 2017 tax cuts did not help - we'll talk about this in a minute.

The trade deficit is based on that fact we buy more from other countries than they buy from us.  This means we flood the rest of the world with US dollars to buy their junk.  And they have to do something with all those dollars.  Other countries actually turn around and make US dollar loans in Europe and elsewhere.  But a lot of those dollars are parked back in our stock market and Treasuries to earn interest and income.  

From 2015 to 2020 this averaged $50 billion a month or $600 billion a year, some of invested in the SP500.  But now we are approaching $80B a month or $1 trillion a year.  And if you look at the ups and downs of the trade deficit we see an inverse effect on the market.  

This in effect is a giant inflation machine.  But it is inflating the price of things in dollars mostly since it creates an abundance of US dollars overseas to invest.

Is this good for America?  No.  Not in the long run.  How much of our farm land, stock market, interest paying bonds are now owned by overseas investors some of which are national slush funds. 

And are they getting nervous about the deluge of US dollars flooding the world... yes.  This is why all the European central banks have been buying gold.  They need a plan B to start a monetary system over again, if we blow the current one up.

Probably the accelerate to this is our budget deficit at just under $2 trillion now.  Think about it for awhile.  In the days of near balanced budgets, companies borrowed money from banks and invested in business growth.  If the economy was hot, interest rates would go up on high demand and only the most competitive business investments were made. Savers would save more in theory to get those high interest payments.  If the economy slowed, interest rates would naturally come down which helped the economy stabilize. 

After the Great Financial Crisis and before to some extent, this was replaced.  Savers were no longer needed in an era where money printing by the govt simply was dumped into the system.  They drove interest rates in to the ground expecting higher growth they never got.  They got financial asset bubbles instead.  

It was the breaking of the ice on monetary printing in a non-wartime that enabled the reckless Trump 2017 tax cuts.  This deficit spending accelerate corporate profits and gave America more money to spend on overseas junk.  The trade deficit is growing not shrinking.  It's a monetary inflation machine via dollars.

The trade balance is posted after the month or quarter, the SP500 is instant.  You have to mentally shift the purple plot to the left a little to see they are more closely aligned if it was not already obvious.

70% of the Tech sector profits come from overseas.  And we are buying their stuff with printed money, and they turn around and buy tech products or invest in tech products.  

Our govt spends more and more than it takes in via taxes drives the fiscal deficit.  This is paid for with new debt which is created out of thin air too.  It just comes with an interest payment to whomever buys it. 

So in effect, the driver of the fiscal deficit and thus the trade deficit and thus the reinvestment boom, is our tax and spend policy. Our exploding debt is the driver.

So part 1 in wrapping our head around this, is to think about where we are headed if everything remains the same.  Part 2, is what will probably happen with the new policies that will hit hard starting next year.

To keep it simple right now, because this requires more thought, I would say that part 1 keeps budget deficits large, more debt created out of thin air, higher trade deficits given other countries more dollars to invest... but where?  If they continue like they are, can the SP500 keep growing in multiples to its revenue?  It does get more expensive for sovereign funds at this multiple to revenue and they are starting to diversify out of the US financial assets.

In other words, this monetary inflation machine is not done.  But will fail one day. This is why everyone including the new Treasury Secretary is talking about a new global financial system with new rules.

Part 2 is more complicated because we still do not know everything the new admin will bring, but since the trend has been lower taxes and now budget cuts the expectation would be lower deficits and less monetary inflation.  But research shows austerity measures actually grow deficit spending because they create a recession.  So I remain in the camp that only half of the Project 2025 plan will accelerate a global monetary dislocation.  But I need to spend more time on this one and see where the new admin backs off.

Investment advice:

Carefully ride the terminal phase and be ready to sell stocks.  Do not invest in corporate bonds, just Treasuries.

Dollar cost average into some gold like the rest of the world.  This is a diversifier and insurance buy.

The gold mining stocks are cheap but going no where fast because Americans are not into gold...yet.

Bitcoin is booming on hopes Trump/Elon print money to create a Crypto reserve we do not need, but they will get richer.

The unknown is what Trump will force the Fed to do.  He wanted negative interest rates like Europe in his first term.  He will probably want too low interest rates.  Inflation has already bottomed and many think it will return to a lesser degree.  So will they ignore 3-4% consumer inflation to save the financial economy some pain?  Very likely.  What happens if he creates a recession with cuts and the market tanks?  What happens if the rest of the world takes our dollars and keeps buying gold and tangible assets instead of our paper assets.

There is so much coming to a head in the next 2-4 years.  

26 November 2024

The Twitter-in-Chief is already at it.  Just posted he will place a 25% tariff on Canada and Mexico on day one. If I had not listened to the interview of Bessent below I would be much more worried.  Bessent believes Trump is using tariffs to force changes in other country's policies.  Yet will Bessent be listened to. 

The point now is that Canada and Mexico have 6 weeks to do what Trump wants before his day 1 tariffs.  I expect more of this in the next 6 weeks.  It will have impacts before he is in office.  Here is what happened to Mexico's exchange rate immediately. It's a big move for a currency.  Imports from Mexico are now 1.5% more expensive than yesterday.

One thing I did not mention below.  Bessent was the main analyst for George Soros when they broke the Bank of England and the pound.  He describes it in the interview manner-of-fact way that since the floating mortgage rates in the UK change weekly, he knew the BOE would buckle as they pushed the mortgage rates up past 14% because they were bankrupting home owners.

So home owners were collateral damage to them making money and breaking a central bank.

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Here is Vought who is going to obliterate the Separations of Powers by not listening to Congress and decide on their own where to direct money in order to turn America into a Christian Government.  Me: Which religion wins out of the many Christian churches.  Me again: Our Christian founding fathers bent over backwards to make sure other Christians did not tell them how to live or worship.

On the bright side, Trump picked a pro-union Representative to be Labor Secretary, Oregon Representative Lori Chavez-DeRemer, probably from pressure from the Teamsters who withheld an endorsement for Harris.  I heard a rumor they thought Harris was pro-big-business like previous Democrats prior to Biden.  This means his cabinet pick is not all pro-employer and anti-worker like his first administration.

25 November 2024

I listened to this interview of the incoming Treasury Secretary.  He SEEMS reasonable.  He discusses a measured approach to tariffs that would be used to force change on other countries to include China.  

He also acknowledged we have a bifurcated economy of the have-assets and the do-not-have assets. He mentioned a sentiment indicator where the bottom quarter answered that they though inflation was 2x the overall medium answer which he implied that inflation did have 2x an impact on the lower income persons.  He also mentioned our policies have favored the top and hurt the bottom.

Yet, he's on record for lower taxes which means on corporations and the wealthy mainly.  

He did not give away any thoughts on interest rates going forward. My question is will they engage in printing again to keep long duration rates down.

He appropriately mentioned Yellen's use over-supplying the short end to avoid pushing the long end up more being a problem that he will face as they normalize this "slowly over time".

On tariffs he believes currency moves blunt the effects of tariffs on inflation by half.  Meaning China would devalue their currency to offset the impact of tariffs... but this would lead to a strong dollar, not weak, and make it more expensive to export. 

For his plan to work, we need lower inflation to keep interest rates down. 

Not said, but some believe deep fiscal cuts will lead to less supply of Treasuries thus keep interest rates down.  My view remains that deep cuts to the demand side of the economy (which is what they are) would slow the economy significantly and not lead to a big drop in the deficit. 

He does offer that the plan is a 10-year plan, not a two year plan.  My main positive comment is that he sounds careful and would tell Trump to succeed he needs to move slower than he might like to keep everything on track.

My worry are still the cuts to the budget being too deep, too fast or unfair. 

I have yet and do not expect to see anyone to come out and say that we need higher taxes as incentives for businesses to invest in the US (tax deductions) vs burning cash on stock buybacks.

I do think the positive sentiment at this stage of the bubble is detached from reality.  Wall Street is giddy over deregulation of their industry and somehow deregulation is expected to provide stronger growth.  I need to understand this better.  I think it simply leads to lower expenses and higher profits, not more growth.

23 November 2024

This article describes the "new political" in the US political-economy.  It is not democratic in anyway.  It's about consolidating power under the new President and pushing aside Congress and anyone who gets in their way.  The new OMB manager Vought is willing to not release money Congress has appropriated like he did before. 

Note:  When they say taking power away from the administrative state and giving it back to "the People", they mean giving it to Trump. 

Project 2025: On It's Predictability

“We are in the process of the second American Revolution, which will remain bloodless if the left allows it to be"

              --Heritage Foundation President (Project 2025 architect) 

...they’re going to force it on us, and apparently, they’re willing to engage in bloodshed if Americans stand up for democracy.

Hence, the Supreme Court giving the President full immunity for ANY act as long as it is considered an official act... and they will all be official acts.

MGT, Elon and far-right Congressmen are all warning Republican Senators to stand out of the way and not do their job of checking Trump's power or vetting his picks.

Note, the new admin is refusing to do what has been done since 1963 and sign the transition memo.  Why?  Because it would allow the FBI to start doing background checks on Trump's picks to speed the process up later.  And we know many of his picks have no chance of passing, therefore they want to force Congress into recess so he can bypass Congress and get his 2000+ picks through with zero vetting by the Senate.  

The bottom line here, is the political is going to push the Project 2025 economic objectives. 

The new Treasury Secretary may be able to talk Trump into avoiding some of the major pitfalls by pushing too far and too fast, but the direction is set.

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This is not a fluff piece.  It provides a great overview and framework for understanding the history of political-economics on the global scale.

A New World Order Is Here, and It Looks a Lot Like Mercantilism  Bloomberg

The chaotic politics of the last 16 years masked the steady development of a new economic order.

A small section in history...

The new government [Obama] opted against nationalizing the banks in favor of a timid and rules-bound re-regulation in the sprawling Dodd-Frank Act. They also chose not to prosecute financiers who might have been deemed responsible (a big difference from the 1930s). These decisions contributed to growing public mistrust, fostering the impression that it was the bankers and not their customers who had been bailed out, paving the way for Donald Trump.

Under pressure from the Tea Party revolt, thoughts of New Deal-style big fiscal spending were abandoned, but by printing money, the Federal Reserve turned what might have been a screeching conflagration into a slow-burning train wreck. A second Great Depression was averted, but growth remained painfully slow, and low interest rates rewarded those who already had assets, intensifying inequality.

We are seeing a lot of "not prosecuting" at the top.

20 November 2024

Charlie posted an interesting fact.  Over time almost 60% of stocks do NOT outperform Treasuries.  This makes the case for not investing in the whole market via index funds.  The SP500 is not the whole market and only the more successful make it into the index, so it would be interesting to know about this group.  I assume that the Russell 2000 has a lot that do not beat Treasuries in the long run.  

We have to also consider that until 2008 the Fed did not repress Treasuries.  We just lived through a period that was distorted and Treasuries were forced to under perform and this created lower interest expense and higher stock prices.  So my view is the catch down phase is coming for stocks, but we can never get the lost Treasury yield back (G fund yields repressed).  

I believe today over half of the smallest 2000 stocks (Russell 2000) have negative earnings and most are junk rated.  Hell the SP500 is turning to junk ratings to or should be with the amount of leverage built up.

We've had kind of a winner-take-all market with monopolies and the Magnificent Seven (or is it 8 or 9).  

The non-SP500 have a larger swing from the favorable season to unfavorable, but also in bear markets.  It is in the bear markets many small companies swing into bankruptcy and their stocks get wiped out.  

If Trump executes half of his promises on Tariffs and Deportations and Federal agency cuts, then we will be in a pretty deep recession for awhile.  It seems many think the deficit will just go away with cuts and this is why the market is doing okay today.  They have no clue what is coming.

And with these false mental economic models, they will call for MORE cuts when everything heads down.  

One positive.  Trump is interviewing qualified Treasury and potential future Federal Reserve Chairman until his Defense, DNI and Justice picks.

I wonder why?  Treasury Secretaries protect the billionaires first and foremost. 

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Kevin Warsh who is interviewing again for the Treasury job in a recent video.  It's excellent.  I think he will not get the job.  Some say he will replace Powell at the Fed in 2026.  Wall Street would not like him because he wants to focus policy on the economy instead of asset prices.

One of his main criticisms of the Fed today is their policy is unanchored.  They say they are data dependent and are forced to keep changing the data they say they are dependent on because NONE of it points to needing interest rate cuts, but they cut anyway.

They cut again this week.

But let's watch the market rates reaction, because I think they lost control.

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I read a paywalled article last week that says the reason high yield credit spreads have tightened (our risk indicator) is because of the explosive growth of private credit diminishing the supply of high yield bonds for financing.  In other words, low supply drives up price and pushes yields down close to risk free yields.

This would explain a lot and forces a broader look at indicators and market internals to avoid mistakes.

14 November 2024

The stock market is taking a breather during the weak part of November.  If it manages to trade flat, then expect another good rally into December.  

Credit spreads are crazy tight even for High Yield (High Risk) bonds.  It's as if investors do not think defaults are possible anymore.  I see this as due to a strong economy, high liquidity and surging Republican sentiment.  It tells me more about investor behavior that carries over to the stock market, than the actual state for the economy or banking system.  

So I see positive sentiment driving the market until sometime in 2025 when reality starts to sink in.

What reality to look for: 

Once they get to cutting and deporting it will slow down the economy probably into a recession by the end of 2025.  The market will see it coming.  

Also interest rates do not come down to save the housing market or economy in general.  Mortage rates are back above 7% again.  Inflation is settling in above 3% and Trump's policies of deportation and tariffs would kick in another round of higher inflation (hang on to those I-series Treasuries if you have them). 

Lower corporate taxes equals higher retained earnings and higher post taxes profit margins, but the effective tax rate on corporations today is only 14% with the 21% statutory rate.  So bringing the rate down to 15% would probably only bring the effective rate down to 10% which is not a massive bump compared to the first cut from 35% to 21%.

To get this new cut, Trump wants tariffs.  So the corporations simply pass this extra cost onto the customer who now has less to spend on other products and we have a mild quantity sold recession as opposed to a dollar spent recession.  This will cut into profits.

I think the AI bubble begins to unravel in 2025 no matter who was elected.  They are finding limits to AI's performance and never figured out how to increase profits on AI other than the few companies building it out for the mega cash rich companies.  

My view is monetary and fiscal policy were propping up the financial bubbles.  And the Fed is done with the propping saying that QE (money printing) was a mistake.  They would need to be forced back into printing but that leads to other problems.  And Trump's temporary pain is going from positive fiscal spending to negative.  So the stool is about to get kicked out from under the markets in 2025 and 2026.  And I am assuming they will not do half of what they say.

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Anybody remember Rick Perry of TX who bashed the Department of Energy for oil prices and policy for years and also when he ran in the primaries against Trump the first time.  Trump ended up making Rick Perry the Secretary of the Department of Energy to "fix it".

Imagine him showing up to work his first day and finding out the Dept of Energy had nothing to do with oil or energy prices... they manage our nuclear arsenal which is why most previous Secretaries had very technical backgrounds.

The lesson here is do not assume politicians know what the govt Departments do and especially billionaire CEOs.  We have heard repeatedly they want to shut down the Department of Education which wastes money and pushes non-conservative policies (vouchers for private schools which voters trashed by voters this election).  

So I decided to look where the Dept of Education money goes...

Mostly financial aid for college and trade schools.

Then to schools (not college)

A bit to special ed programs

Very little to admin

The admin manages the financial aid programs working with parents, students and colleges. 

Are they getting rid of financial aid?  It sounds like it or will they find out the Department mostly does stuff they know nothing about.

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I'm hoping we get the middle ground, meaning the extreme talk is designed to make the middle ground more palatable to push through.  

Here is our favorite historian discussing the news today:

Excerpt from Heather Cox Richardson...

The gulf between Trump’s promises to slash the government and voters’ actual support for government programs is not going to make the Republicans’ job easier. Conservative pundit George Will wrote today that “the world’s richest person is about to receive a free public education,” suggesting Elon Musk, who has emerged as the shadow president, will find his plans to cut the government difficult to enact as elected officials reject cuts to programs their constituents like.

Musk’s vow to cut “at least” $2 trillion from federal spending, Will notes, will run up against reality in a hurry. Of the $6.75 trillion fiscal 2024 spending, debt service makes up 13.1%; defense—which Trump wants to increase—is 12.9%. Entitlements, primarily Social Security and Medicare, account for 34.6%, and while the Republican Study Group has called for cuts to them, Trump said during the campaign, at least, that they would not be cut.

So Musk has said he would cut about 30% of the total budget from about 40% of it. Will points out that Trump is hardly the first president to vow dramatic cuts. Notably, Ronald Reagan appointed J. Peter Grace, an entrepreneur, to make government “more responsive to the wishes of the people” after voters had elected Reagan on a platform of cutting government. Grace’s commission made 2,478 recommendations but quickly found that every lawmaker liked cuts to someone else’s district but not their own.

Will notes that a possible outcome of the Trump chaos might be to check the modern movement toward executive power, inducing Congress to recapture some of the power it has ceded to the president in order to restore the stability businessmen prefer.

Franklin Delano Roosevelt was himself a wealthy man, and in the 1930s he tried to explain to angry critics on the right that his efforts to address the nation’s inequalities were not an attack on American capitalism, but rather an attempt to save it from the communism or fascism that would destroy the rule of law.

“I want to save our system, the capitalistic system,” FDR wrote to a friend in 1935. “[T]o save it is to give some heed to world thought of today.”

The protections of the system FDR ushered in—the banking and equities regulation that killed crony finance, for example—are now under attack by the very sort of movement he warned against. Whether today’s lawmakers are as willing as their predecessors were to stand against that movement remains unclear, especially as Trump tries to bring lawmakers to heel, but Thune’s victory in the Senate today and the widespread Republican outrage over Trump’s appointment of Gaetz and Hegseth are hopeful signs.

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10 November 2024

Great graphs from Maverick Equity Research.  I added comments in red.  The light plot is 2016 the last time Trump (Republican) was elected.

I still believe we are in the positive sentiment phase based solely on a Republican being elected.  Remember the top 10% own 93% of equities and mutual funds.  And a majority of them are Republican and so it impacts their investment decisions. 

On the other hand, once the honeymoon is over reality sets in.  The last time households equity allocations were this high... it was all over shortly after.  

Shortly can still be December or even the 1st quarter of 2025. The point is, once investors are all-in, there is little more that can flow in... and a lot that can flow out.

We are close, but no signs yet.