While stock indexes are posting record YTD gains, with the S&P 500 showing a 20% annual gain for the first time in more than 25 years, market melt-ups may conceal a juiced up economy. Is the next presidential administration being handed a live grenade?
Parabolic government spending and a surge in public sector jobs gains may indicate the pin is out.
Dash Indicators Flashing Trump Victory — And Possibly a Bumpy Economic Ride
Meanwhile, legendary investor Stanley Druckenmiller told Bloomberg earlier this week markets, his favored election indicator, appear to be pricing in a Trump victory. Druckenmiller pointed to signs in bank stocks, crypto markets, and even Trump’s own social media company, $DJT.
Even as markets soar, and per Druckenmiller, a Trump victory is baked into market indicators, there are signs the next Trump administration could reap a harvest of economic turmoil being sown now.
Is the failed Biden-Harris admin and the sinking, joyless Harris handing Trump the bag?
Americans are coping with record low housing affordability under the Biden-Harris administration, and while wages have failed to keep up with inflation for generations, inflation has gone parabolic during the past four years.
[READ: Trump’s tariff and tax plan could generate enough revenue to eliminate federal income taxes for 93 million Americans — half the U.S. electorate ].
However, soaring equities, and dash indicators leading investors to go risk-on and hedge funds to pile in with their biggest equities buys in years may conceal pain to come.
Whether that pain arrives or not, one source of trouble is the government itself. Interest payments on the national debt have now eclipsed U.S. defense spending. In just three weeks, the U.S. has added nearly half a trillion to its $35.8 trillion debt. In other words, the government borrowed, or printed 1.5% of its debt in just 21 days.
Perhaps like no other figure since Ron Paul in 2008, Elon Musk, who has joined the MAGA movement stumping for Trump in Pennsylvania, has sounded the alarm on government spending.
For their part, soaring bond and treasury yields may be a sign of the risk in buying bonds from a government nearly $36 trillion in the hole.
https://twitter.com/texasrunnerDFW/status/1848755419054805228
Meanwhile, bond yields are rocketing upward.
Could soaring bond and treasury yields be a sign of inflation’s return?
Money supply could also have a say-so, but like last year, treasuries may indicate markets are risk-off on Biden-Harris spending and the government itself, further complicating Fed policy going forward.
According to Druckenmiller, pain could follow. “When you’re easing into a melt-up in financial markets, and you have the fiscal policy we have going forward, it’s a risk … I think markets have priced in a 97% [chance of a] cut at the next meeting. If they’re wrong and inflation takes off, because monetary policy is in fact not restrictive and we have fiscal expansion going on, it could be a nightmare for markets,” Druckenmiller said, with even the fed’s independence at stake.
The Federal Reserve is supposed to operate independently of the White House. Biden falsely stated last month that he and Federal Reserve Chair Jerome Powell never met. They in fact met in 2022.
Whatever transpired at that meeting, the White House, and Congress, are doing the next administration no favors.
One factor concealing weakness in the economy: jobs. While the Bureau of Labor Statistics has, repeating a theme in this administration, revised jobs reports downward of late, this month’s strong jobs report concealed another warning indicator. The public sector dominated jobs gains, with “the biggest monthly surge in government workers on record.”
In other words, recent signs of strength in employment are the product of government spending — that is, debt. Why would the Biden-Harris administration, and their enablers in Congress, hand an incoming administration a ticking time bomb?
Another challenge is that even with rate cuts, the cost of borrowing has paradoxically gone up with mortgage rates rising with 10-year treasury yields.
In any event, whoever winds up holding the economic hot potato in the next administration, Americans will be tasked with paying the government’s bills, either through taxation, or the second tax of inflation.
[READ: Trump’s tariff and tax plan could generate enough revenue to eliminate federal income taxes for 93 million Americans — half the U.S. electorate].
