Dose of Reality
Markets closed the week near new highs despite the volatility of the news that on first look might cause an investor to pause in the purchase of stocks because of concern about a sharp decline. Chaos and uncertainty generally cause large declines with the last bear market and recession caused by covid in 2020 although brief. Of course, as stated before, this could change in a day such as 11 days ago on a Monday. In searching for some wisdom in regard to market behavior Randall Forsyth from Barron’s provides some insight. Reassuring it is not but a dose of reality in terms of stated goals by the new administration. Here we go:
“Investors might take comfort that reciprocal tariffs will be a lesser evil than universal tariffs, " he said. But Capital Economics’ working assumption remains that Trump will eventually hike tariffs substantially, as promised, pressuring stocks and bonds alike.”
A dose of data reality:
“The 75,000 workers who reportedly have accepted buyouts represent about 2.5% of the federal workforce, according to a report from Veneta Dimitrova and London Stockton of Ned Davis Research, which would represent a savings of about $15 billion out of the $650 billion in employee compensation. “In the context of $7.0 trillion total federal outlays, however, the expected savings are a drop in the bucket,” they note.
“To save $100 billion annually—one-tenth of the $1 trillion of cost cuts bruited by Musk—would mean sacking a quarter of the federal workforce, some 750,000 employees, according to an analysis by Macquarie economists David Doyle, Chinara Azizova, and Ric Deverell. To realize the $1 trillion goal would require a 30% reduction in nondefense spending (excluding entitlements such as Social Security, Medicare, and Medicaid); a 15% cut in defense outlays; and a 15% cut in social spending such as entitlements. They also note a GAO estimate that between $233 billion and $421 billion annually was lost to fraud between 2018 and 2022, which included pandemic spending.”
Bottom line, with tariffs being used as a negotiating tool and so far not gaining the administration much in the case of Mexico and Canada, markets are optimistic based on animal feelings about the new administration and artificial intelligence. With historic valuations in place, these analysts, with a dose of data and analysis, say at some point the reality of the challenge of achieving these goals will set in. Of course this is the data side of the brain-left side. Decisions however, lean mostly to the right brain where emotions and decision making reside. Just like financial planning, data and the left side are necessary but not sufficient for decision making because decisions are made on the right side of the brain.
Trump and inflation-he promised to lower prices on day one: WSJ Greg Ip
Inflation Helped Trump Get Elected. Now It’s His Problem. - WSJ
