The price action the past week is consistent with a foreign investor exodus out of dollar assets that could potentially be the beginnings of a currency crisis. Despite significant risk off moves in equities, Treasury yields actually rose notably throughout the week. The dollar depreciated significantly against major currencies even as it had recently strengthened in response to tariffs. Most alarmingly, gold emerged as the market's only safe haven asset. While these moves could simply […]
A durable bounce in the market is much more likely to come from a Fed pivot to an accommodative policy stance than a Trump pivot on trade policy. President Trump's has believed strongly for decades that tariffs could rekindle American industry and he is unlikely to alter his path due to a decline in asset prices. However, the Fed is both capable and bound by their mandate to respond to rising recession concerns. Powell has […]
The Administration's overall revenue goals suggest that Liberation Day will unveil tariffs that are both large and persistent. Officials have guided towards a goal of a reducing the fiscal deficit from 6% to 3%, which implies a $2t deficit reduction. Recent communication suggests half of this amount will come from austerity, and the balance from higher revenue. Secretary Lutnick has proposed golden visas, tax reform, and tariff revenue as the three primary mechanisms to raise […]
Although equity prices have declined, credit spreads remain relatively tight and look to be supported by bank deregulation and potentially large rate cuts. Banks have historically been a primary source of credit for businesses, but the supply of bank credit has been crimped by post-financial crisis regulations. This has led to a boom in less regulated sectors like private credit and small banks. A rethinking of the Basel III End-Game for large banks and further […]
The Administration's policies are on track to deliver a promised lower ten yield by weakening demand and forcing the Fed to overtighten. The significant and volatile trade policy shifts have dampened business sentiment and contributed to the recent decline in equity prices. Slowing business activity and softer consumer spending are beginning to show up in the economic data. Furthermore, the rapid policy shifts are causing the Fed to freeze into a position of reactiveness. Fed […]
Fiscal policy on both sides of the Atlantic is shifting in a way that looks to reverse capital flows that have contributed to U.S. outperformance. While the U.S. focuses on reducing its fiscal deficit, European nations are promising to unleash trillions in defense spending. This difference could set up a wave of repatriation flows as European investors return home to take advantage of the potential rearmament boom and higher European interest rates. The policy may […]
