Summary:

In this episode, Will and Adam discuss the potential impact of the OBBBA on government debt and deficits, which could push U.S. debt above 200% of GDP, and how markets are reacting positively to the promise of fiscal stimulus and tax breaks. They also examine President Trump’s public pressure on the Fed to cut rates and the growing risk to Fed independence. The episode concludes with a look at the record Q2 market rebound, led by speculative growth and retail stocks, and the increasing influence of passive investing on market dynamics.

In This Episode:

In the first half, we look at the OBBBA, and what its passage may mean for investors, as well as for the government's balance sheet.

Debt from baseline projection of 154% of GDP to upwards of 200% of GDP with the OBBBA. Deficits from around 6% of GDP to over 7% with the OBBBA.

Despite the ballooning deficits and debt, markets are celebrating the prospect of fiscal stimulus, as well as favorable tax treatments on investment as well as other corporate goodies.

In the second half, we discuss President Trump's penmanship as it relates to his letter to Chair Powell on interest rates and why the "hottest country in the world" should "LOWER THE RATE!!!" We also look at the risk associated with the loss of Fed independence due to either political pressure or a dual role for the Treasury Secretary.

At some point, we finally get around to talking about the stock market, and note the historic rebound in equities in Q2, which was the largest in record by some measures. The biggest winners were growth stocks, which led value by a wider margin than during the tech bubble, and retail favorites, which are often highly speculative names; these soared over 60% in Q2. We also look at the expectations embedded in markets at this point in terms of earnings and multiples, and what effect passive investing is having on markets as over half of U.S. fund assets are now passively invested.

Disclaimer:

The proceeding content is informational only and based on information available when created. It is not an offer or a solicitation nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.

Tea & Crumpets is also available on Apple Podcasts and Spotify.