HERE'S A THOUGHT!

Please check your political predilections at the door. I want to focus on economic impact and the difference between the two Trump administrations. In Trump I, he was very pleased that the stock market was reacting positively to his message: America first, rebuilding manufacturing, cutting taxes, and cutting regulation. This was a business first, business friendly approach and the stock market loved every minute of the show. In many instances, it seemed that President Trump viewed the positive stock market moves as affirmation of his plan. As we fast forward to current day, Trump II is focused very little on the stock market and has even discussed openly the desire to see longer borrowing rates decline. More on this in a moment.

We got here from excessive spending and the lunacy of too much stimulus in the later stages of Covid. As the stimulus money built up in the bank accounts of states, municipalities, and citizens, the classic economic scenario of too much money chasing too few goods developed, and we were off to the inflation races. Inflation came down off its’ peak, but it did not come down low enough to cause longer term rates for housing to be in an attractive zone for many Americans. As a result, there is little inventory in many markets. It is true, that following the Great Financial Crisis that we had very little new home construction and there is a deficit of housing units. Make no mistake, this is a significant issue in the supply/demand dynamics of the housing market.

Last week, I began discussing the notion that the administration might be talking up an economic slowdown in the hopes of actually causing one. I know, this seems crazy, but inflation is sticky and when we look at all of the statistical releases on production indexes, the “prices paid” portion of these releases does not show any abatement in inflation coming soon. If we can have a short and well managed slow down, interest rates can come down to a level where they too will act as an economic stimulant. Since the election, our near-term peak on the 10-year Treasury note was 4.79% on January 14^th[1]. Fast forward to this morning (March 10^th at 9:00 AM) and we are sitting at 4.24% for the very same Treasury note1! That 55 basis point drop is not too bad in about two months. This is also significant because I read that about $9 trillion of our federal debt comes due this year. The lower the rates, the cheaper it will be for the government to refinance this debt.

We can have a forever debate on DOGE, but many Americans like the fact that someone is at least looking at wasteful spending. I am not sure if the Republicans are trying to play this long game, but if they can manage the rollover of 2025 Treasury debt, “contain” wasteful government spending, and be viewed as bringing longer term borrowing rates to more palatable levels, they will appeal to independents as well as their base. Like I said, here’s a thought.

[1] Source: Bloomberg