Right so Donald Trump is going to be talking about numbers today and that’s always fun. Specifically, he’s going to unveil his budget and also his infrastructure proposal.
Notably, he’s apparently going to just go ahead and abandon GOP dogma when it comes to balancing the budget.
“On Monday, Trump is slated to announce a new budget plan that will no longer seek to eliminate the deficit over the next decade, forfeiting a major Republican goal,” the Washington Post wrote on Sunday evening, citing three people familiar with the document.
Although he will shout about “a range of spending cuts” aimed at “reducing the growth” of the deficit, any effort to actually balance the federal budget is out the window and shit, it’s not heard to understand why. I mean after all, he’s just crammed a deficit-funded tax cut for corporations and rich people down America’s throat and last week he signed a bipartisan budget deal that lifts spending caps by $500 billion and suspends the debt limit. On top of that, he wants “bigly” infrastructure spending and is hell-bent on wasting tens of billions of dollars on his Mexican-be-gone wall and just to add fiscal insult to fiscal injury, he wants to waste another couple of million on a goddamn military parade.
So yeah, fiscal discipline is out the window.
As we’ve noted on countless occasions of late, piling this kind of fiscal stimulus atop an overheating economy is a recipe for disaster and it’s also a recipe for higher yields and an aggressively hawkish Fed.
“You have to say that . . . Powell has his work cut out for him,” said Greg Valliere, chief global strategist for Horizon Investments told WaPo. “I would not be surprised to see friction develop between Trump and Powell. Trump may get tired of seeing the Fed raise rates.”
Right. Remember what we said last week? To wit, from a Dealbreaker post:
Everyone knows monetary policy is never going to be any semblance of “normal” again and no one believed the Eccles gang was “independent” in the first place, so we don’t really lose much if Trump starts bullying Jerome Powell. In fact, we’d actually gain something in the way of comic relief because there are all manner of Twitter nicknames Trump could dream up for someone whose first name starts with “J” and whose last name starts with “P”. We’re probably just a couple of thousand Dow points away from #JackoffJerome and/or #PissPoorPowell and/or #FailingFed.
And look, there’s no escaping the hypocrisy here anymore. No one is even trying. As WaPo reminds you:
The Republican turnaround on economic policy stands in sharp contrast to the party’s opposition to President Barack Obama’s stimulus program during the Great Recession. At that time, Rep. Paul D. Ryan (R-Wis.), now the speaker of the House, warned of a “debt crisis” and said that “spending is the problem.” Trump’s budget director, Mick Mulvaney, then a congressman from South Carolina, derided Obama’s spending plans as a “joke” and backed a constitutional amendment requiring a balanced budget.
I mean, just read this shit from a transcript of Mulvaney’s interview with CBS over the weekend:
MAJOR GARRETT: All right. Let’s go to the budget. Why is spending this money now and having deficits projected at more than a trillion dollars in a growing non-recessionary economy that is already jittered Wall Street for a full week a good idea?
MICK MULVANEY: It’s a very dangerous idea, but it’s the world we live in. Here’s what happens. We want money to defend the nation. We believe General Mattis has made a case, I think to both Democrats and Republicans and to the public alike, that we need more money to defend the nation against things like the threats from the North Koreans. We were hoping that we could sit down with the Democrats and figure out a way to get additional funds to the military to respond to these threats. Publicly the Democrats said they wanted to help fund the Defense Department. Privately, though, what they said was they would not give us a single additional dollar for defense unless we gave them dollar for social programs.
MAJOR GARRETT: Congressman Mick Mulvaney, would have voted for this?
MICK MULVANEY: Oh, probably not. But keep in mind I’m not Congressman Mick Mulvaney anymore.
Oh. Ok, well at least thanks for your honesty, Mick.
In a separate interview with state television, Mulvaney also conceded that interest rates are likely to “spike” as a result of the larger deficits.
And “spike” they will and “spike” they already fucking have. Exactly none of the above is what you want to hear if you’re worried about the extent to which a continuation of the bond selloff could imperil equities. 10Y yields were up again overnight and that CPI print looms large on the horizon.
To be sure, there are some folks out this morning arguing that the CPI number will end up being benign and might put an end to the near-term bond selloff, but everything said above and everything outlined here over the weekend certainly seems to suggest that whatever happens this week, the medium- to long-term outlook is for higher yields.
“Let’s run through the numbers”…