Look, Steve Mnuchin isn’t worried about anything, ok?
He’s not worried about a trade war with China, he’s not worried about upending global markets by pushing a massive conglomerate to the edge of insolvency and he (he who is Treasury Secretary) is definitely not worried about flooding the market with new supply in the course of funding his boss’s ill-advised foray into late-cycle fiscal stimulus.
I mean, does this look like the face of a man who is worried about anything?
Ok, actually yes. Yes, that looks like a man who is worried. In fact, it looks like a man who is fucking terrified and a man who looks like he isn’t sure how to use a chair.
But you shouldn’t judge a book by its cover.
No, you should listen to the words that come out of that hole in the tightly-stretched skin mask he wears over top of his skull and here’s a sample of those words, delivered in an interview with Bloomberg TV on the sidelines of the Milken Global Investment Conference in Beverly Hills:
- MNUCHIN: A LITTLE BIT OF INFLATION IS `A GOOD THING’
- MNUCHIN: BOND MARKET CAN EASILY ABSORB MORE TREASURIES SUPPLY
It’s a “good thing” he cleared that latter point up because as noted earlier today, Treasury borrowed $488 billion during the January — March 2018 quarter, a record for the period.
While the market has generally absorbed the supply deluge, it’s been with varying degrees of alacrity and with yields on the rise and questions about foreign demand, there are concerns in some corners that Trump’s fiscal stimulus has the potential to create a yield shock of epic proportions, especially considering the Fed is running down the balance sheet. Here’s the clip, for those of you who can stomach watching his mouth move:
Here are some other highlights from comments he made at the conference on Monday:
- MNUCHIN SAYS HE DOESN’T EXPECT TO SEE A LOT OF INFLATION
- MNUCHIN SAYS HE’S NOT HEARING THAT LABOR MARKET IS TIGHT
The former point is probably some semblance of accurate, but the latter bit sounds like he’s been hanging out with Trump too much – something like this: “there’s still a lot of slack in the labor market, a lot of people are saying that.”
And as far as his inflation/labor market slack comments are concerned, they seem remotely consistent (and this is Mnuchin we’re talking about, so “remotely consistent” is the most consistency one can reasonably expect) with what he said earlier this year about nascent signs of price pressure and how you can have wage growth without broader inflation. You’ll recall that those comments freaked Jeff Gundlach out:
In the same Bloomberg interview mentioned above, Mnuchin also reassured the world that his intention is “not to put Rusal out of business”, a needlessly hyperbolic statement that raises more questions than it answers, much like Wilbur Ross’s ill-fated attempt to calm fears of a trade war by telling CNBC that he and Trump “aren’t trying to blow up the world.”
Mnuchin reiterated the notion that Deripaska will need to reduce his stake to less than 50% in order to pacify Treasury.
Ultimately, the jury is still out on whether the Trump administration is going to end up creating such a disastrous supply/demand backdrop for U.S. debt that they plunge the country into fiscal oblivion, but what’s not up for debate is the notion that they are indeed playing with fire.
There was nothing bullish for bonds in Mnuchin’s comments and he seems to be deliberately dodging the important question: it’s not a matter of whether the market will clear, it’s a matter of “at what price?”