On Saturday, the White House announced the imposition of heavy tariffs on goods exported from Mexico, Canada and China and all three nations announced their intention to retaliate. These tariffs threaten to raise prices and slow economic activity across all four countries. While the end game of this trade war remains very uncertain, it has the potential to impact bonds, stocks and exchange rates. For investors, regardless of the early market reaction, the reality of a trade war suggest the need for broad diversification including allocations to real assets and international assets.
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6:51
White House Actions, Fed Reactions and Investing
This Wednesday, at 2:00 PM, the Federal Reserve will release a statement on monetary policy. It will, as usual, be a brief and colorless document and will look paler still in comparison to the more than 60 executive orders, proclamations and memoranda that have emanated from the White House in the first week of the President’s new term. However, the Fed’s statement and Jay Powell’s press conference could well be of equal importance to financial markets.
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10:10
The Big Picture on Debt, Deficits and Interest Rates
“Unsustainable!”
To quote Inigo Montoya: “You keep using that word. I do not think it means what you think it means”
For decades, journalists, economists, politicians, and central bankers have said that the U.S. federal debt is on an “unsustainable” path. However, it has stayed on that path, climbing from a very manageable $3.3 trillion, or 31.5% of GDP, in fiscal 2001, to $28.3 trillion, or 98.2% of GDP in fiscal 2024.
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12:25
Interest Rates, Inflation and the Uncertainty Tax
In football, it’s always better, at the snap of the ball to disguise your intentions. Are you going to pass or run the ball? Is it a zone defense or man-to-man? In business or in military maneuvers the same rule applies – keep them guessing.
However, in macro-economic management, it is better to make your plans clear. That way businesses can feel more confident in hiring and investing, as can consumers when deciding to buy. It is one of the reasons the Federal Reserve publishes a quarterly Summary of Economic Projections (or SEP) and so frequently repeats its determination to achieve 2% inflation.
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12:22
Stability and Extremes
Over the holiday season, we got to spend some time with our very charming granddaughter and, as a bonus, I am now fully re-acquainted with all the verses of “The Wheels on the Bus”.
As we enter 2025, the American economy is rather like an old school bus – slow but steady, reliable and resilient. It generally moves forward. However, it is not invulnerable. The wheels of the bus are being pulled off the ground by ballooning asset prices. The new driver of the bus may or may not try some dangerous policy maneuvers. The wipers of the bus may be obscuring obstacles in the road ahead. And the people on the bus, instead of spreading out and sitting down, are all standing up, crowded to one side so that if something does go wrong, there could be significant injuries.
USA