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The Bond Market’s Trump Trade is Looking Like a Recession Trade - Article
Some speculated that this administration wants to cause a recession, then they look like hero to have the FED cut interest rate. I don't buy it, but can they be that stupid!
In the meantime, there will be many collateral damages to the economy especially high unemployment and business failures.
Sven, I agree with you, I don’t think they are trying to cause a recession. It seems to be pure incompetence. We are witnessing how you inherit a fortune and go bankrupt 6 times.
No surprise here since he does not knows his math in building business with sustainable profit. His first wife, Ivana, was the brain behind the building of his real estate business. She did all the work, negotiated with the seller, and secure financing with banks. Donald then signed the documents afterward without learning the entire process. Sadly, Ivana was seldom mentioned, let alone given the credi in building his business.
Not surprising (about Ivana), since Donnie often takes credit for the work of others. His failures are many, and we will now "be forced" to share in them.
What Bloomberg Strategists say...
“The details of the [jobs] report were a lot worse than the headlines, and those forward-looking aspects of the report seem to have helped the Treasury rally continue. The data support earlier rate cuts by the Fed, increased recession fears in markets, and, thus, should help to continue the recent bond-bullish, equity-bearish tilt to US financial markets.”
I think that was the plan all along. Get the recession out of the way early before the mid term. As a non MAGA Republican I have little use for Trump and his cronies, But…. I think the Treasury Secretary was one of his better picks. Bessent has been more than transparent that they are targeting the 10 year and oil prices. In that regard they have been spot on. My problem is nothing is logical in this game so I must be missing something. Like maybe new highs in the stock indexes in the coming months. Lord knows some of the sentiment indicators out there from an contrarian viewpoint are at ultra bullish levels, Also, why haven’t junk bonds cratered recently along with equity prices. Then again, it took junk bonds many a months to tank when the bear market in equities began in late 2007. It is never easy!
Junk bonds haven't cratered, but the funds I follow that have any duration on them were down for the week, and looking pretty soft for the last four weeks as intermediate cores were beginning to outperform.
“Recent surveys of households and businesses point to heightened uncertainty about the economic outlook,” said Federal Reserve chair Jerome Powell at the University of Chicago’s Monetary Policy Forum on Friday. “It remains to be seen how these developments might affect future spending and investment.”
In his prepared remarks, Powell stressed the economy is steady at the moment. But the throughline of his remarks was that a heightened sense of unpredictability had permeated the economy in recent weeks. In fact, the first words of Powell’s speech were “despite elevated levels of uncertainty,” but he also sought to reassure the audience the U.S. economy was in a “good place.”
snip
Much of the uncertainty stemmed from an unclear picture about what trade policies the U.S. might enact moving forward, Powell said. The newly inaugurated Trump administration has pledged a series of sweeping changes to everything from energy policy to immigration to tariffs, all of which could have significant impacts for the U.S. economy given the scale of the changes contemplated by the White House.
“Looking ahead, the new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation,” Powell said during his speech.
snip
“It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy,” Powell said. “While there have been recent developments in some of these areas—especially trade policy—uncertainty around the changes and their likely effects remains high as we parse the incoming information. We are focused on separating the signal from the noise.”
Until the outlook of those policies became clear, the Fed would sit tight before cutting or raising interest rates, according to Powell.
I see no reason to guess which way the markets will jump considering so much of the uncertainty is centered in one decision maker. I have no way of knowing how long this single-person uncertainty will last. Under the circumstances, I think conventional wisdom of any variety that touches market turmoil, even the contrarian, is out the window.
The BB article speculated on what the bond market might be saying about the economy. That’s all as far as I can see. As far as making investment changes due to some macro call like this, I would not do it. But I’m not a momentum investor.
Wouldn’t a recession’s impact on investments depend on how deep it was? How long it lasted? And also vary by country and region? Severity would likely be impacted by the response of central banks and fiscal policymakers. Some equities might rise during a recession. High quality bonds should outperform. And based on history, stock markets begin recovering several months before a recession technically ends.
I’d never buy or sell anything based on premonition of immediate recession. Do have a little extra dry powder and would keep an eye out for potential bargains should the economy cool off. Sometimes in severe downturns (like ‘08) I have slowly rotated from more conservative funds into more aggressive. But that’s a tactic reserved only for the darkest hours. You can’t anticipate something like that in advance.
From today’s WSJ:
”A new trading week has done little to calm investors’ nerves. Stock futures and Treasury yields are both falling. President Trump over the weekend refused to rule out the U.S. economy entering a recession this year, telling Fox News there will be a “period of transition because what we’re doing is very big.” Trump’s TV appearance followed a turbulent week in markets, with concerns growing about how the administration's unpredictable tariff policies could affect U.S. growth. The S&P 500 finished Friday with a 3.1% weekly drop, its biggest such decline in six months.”
Comments
In the meantime, there will be many collateral damages to the economy especially high unemployment and business failures.
What Bloomberg Strategists say...
“The details of the [jobs] report were a lot worse than the headlines, and those forward-looking aspects of the report seem to have helped the Treasury rally continue. The data support earlier rate cuts by the Fed, increased recession fears in markets, and, thus, should help to continue the recent bond-bullish, equity-bearish tilt to US financial markets.”
+1
I think Chairman Powell described the situation pretty well the other day: I see no reason to guess which way the markets will jump considering so much of the uncertainty is centered in one decision maker. I have no way of knowing how long this single-person uncertainty will last. Under the circumstances, I think conventional wisdom of any variety that touches market turmoil, even the contrarian, is out the window.
Wouldn’t a recession’s impact on investments depend on how deep it was? How long it lasted? And also vary by country and region? Severity would likely be impacted by the response of central banks and fiscal policymakers. Some equities might rise during a recession. High quality bonds should outperform. And based on history, stock markets begin recovering several months before a recession technically ends.
I’d never buy or sell anything based on premonition of immediate recession. Do have a little extra dry powder and would keep an eye out for potential bargains should the economy cool off. Sometimes in severe downturns (like ‘08) I have slowly rotated from more conservative funds into more aggressive. But that’s a tactic reserved only for the darkest hours. You can’t anticipate something like that in advance.
From today’s WSJ:
”A new trading week has done little to calm investors’ nerves. Stock futures and Treasury yields are both falling. President Trump over the weekend refused to rule out the U.S. economy entering a recession this year, telling Fox News there will be a “period of transition because what we’re doing is very big.” Trump’s TV appearance followed a turbulent week in markets, with concerns growing about how the administration's unpredictable tariff policies could affect U.S. growth. The S&P 500 finished Friday with a 3.1% weekly drop, its biggest such decline in six months.”
The Economic Excuse Industry is Booming