Control Panel: Markets hold steady despite uncertainty

As all METARs know, there has been a tremendous amount of news flowing out of Washington, DC over the past month.

Much of it is political. Some could potentially have Macroeconomic impact. Announcements are different than execution. Some might happen, some might not.

Some of the topics include:

  1. The White House attempting to control the Federal Reserve using a strategy similar to the takeover of other independent federal agencies. If it succeeds, sure to be inflationary.
  1. Tariff policy which changes by the day. Guaranteed to increase inflation by raising consumer prices.

  2. Immigration policies. It’s not clear yet how many immigrants, illegal and legal, criminal and law-abiding, will be deported. Or how the agriculture, hospitality and personal care segments will be impacted since Americans won’t do these jobs (at least not for the same wages as immigrants). Sure to be inflationary.

  3. Employment situation after mass layoffs of federal workers and potential impact of supply chain to federal government.
    https://www.wsj.com/economy/jobs/what-do-mass-federal-layoffs-mean-for-the-labor-market-33515410?mod=economy_lead_pos1

  4. Rapprochement to Russia which may invite U.S. oil companies. (Fool me once, shame on you. Fool me twice, shame on me. But the force of greed is strong.)
    https://www.nytimes.com/2025/02/23/business/russia-sanctions-oil-gas-energy.html

  5. The rewriting of the 2017 tax law which expires in 2025. This ball is in Congress’ court and the betting is that the tax cuts will be extended and maybe even increased. The budget deficit will continue to grow, which is inflationary since much of government spending goes directly to consumers (either directly or as employees).

The University of Michigan Survey of Consumers shows that, as of February 2025, long-run inflation expectations have risen in recent months to a median of 3.5%. These are elevated relative to the two years pre-pandemic, but remain below peak readings during the post-pandemic inflationary episode. They exhibit substantial uncertainty, particularly in light of policy changes under the new presidential administration.

Elevated inflation expectations, if they become entrenched, could lead to the wage-price spiral seen in the 1970s. Higher inflation leads to higher interest rates. The 30 year TIPS is yielding 2.39% (plus inflation).

The stock market was down last week (VIX rose slightly) but it could be noise. Given the very high market valuations and the level of uncertainty I’m surprised at how steady the market is.

The Treasury yield curve fell a little in flight-to-safety buying. National financial conditions are very loose, as loose as 2021.

The Fear & Greed Index was in Fear. The market is risk-off as stocks and junk bonds fell while Treasury prices rose. Oil prices rose but this is noise within a long-term falling channel. Gold finished near $2950, an all-time high.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 was 2.3 percent on February 19. This is a good, sustainable growth rate which would not cause the Fed to cut the fed funds rate.

Initial unemployment claims are low. Even if government employees are laid off they can’t collect unemployment until finalized which apparently won’t be until fall. Clearly, some regions (such as Washington, DC) have many more government employees than others and will feel the impact most severely.

The METAR for next week is cloudy. With all these pins poking at the bubble it is showing amazing toughness. There are abundant factors that could burst the bubble and more coming every day. Will the market hold steady, continue to rise or finally break? The easiest prediction is noise – small ups and downs. Nobody can predict the bursting of a bubble any more than an earthquake.

Wendy

https://www.cnn.com/markets/fear-and-greed

https://data.sca.isr.umich.edu/fetchdoc.php?docid=78030

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The economy continues to slow. Earnings estimates are less optimistic. Inflation is not falling as rapidly as hoped. Two days of down markets make people talk of recession again. Are federal spending cuts enough to tip the balance?

And when in doubt time to speak of stagflation. Growth is slowing but inflation too high to cut interest rates. Then what? Wait and see?

Lots of stocks are down big numbers from their highs. Thank god for AI and tech stocks.

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The EO states POTUS control does not extend to monetary policy, only to Fed rules and regs concerning the financial industry, the same POTUS control that is being asserted over every other government agency: unilateral determination what rules and regs, which have the force of law, say.

The second sea change is the apparent presumption that having an employee who is either a POC, or female, is a prima facie case of DEI, thus prosecutable.

The two takeaways I see are a rapidly shifting regulatory environment, and considerable upheaval in the employment market, as “JCs” adjust their hiring practices to avoid scrutiny.

Where all this leads, economically? Potentially, good for “JCs”, and good for fit, straight, white, Christian, men. It will probably be a number of years before we see a return of the racial unrest we saw in the 60s.

Steve

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Fact Sheet: Executive Order to Establish United States Leadership in Digital Financial Technology – The White House

  • President Trump will help make the United States the center of digital financial technology innovation by halting aggressive enforcement actions and regulatory overreach that have stifled crypto innovation under previous administrations.

What’s the name of Trump’s crypto again? How long will it be safe to have $USD?

IP

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Especially with the POTUS having final approval of all Fed regs regarding the financial industry?

Steve

wrt “Trump crypto”, I would fully expect it to be subject to hitherto unheard of levels of manipulation, so that anyone outside of the one or two people doing the manipulating, will be robbed blind.

Steve

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The US Federal Gov’t is being re-imagined and re-shaped, right before our eyes.

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That is what he promised. Kill the “deep state”, ie the established, rules based, order.

Steve

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Isn’t that exactly what the Trump name implies? Don’t worry, he will assure us how good it will be for all.

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He promised a lot of things he has no intention of keeping, like price of eggs coming down day 1. Who the heck actually believe he had the power to do that, or keep his hands off Medicare/Medicaid/SS?

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We have been assured, for 45 years, that making the rich richer, would be good for everyone. Anything TIG offers, can be assumed to be intended to make the rich richer.

Steve

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I’m not a gold bug, but this is a chart which indicates gold has risen by 60% over the past year, does not indicate concern about inflation, but concern about the stability of the USD itself:

There are stories that this trend is due to arbitrage between London and NYC because of fear of possible US import tariffs, but this movement seems too significant over this period of time and likely indicates something else.

Interestingly, the US Dollar index is surprisingly stable at a relatively high 106 +/-

I have a theory, which has been shot to hell over the past few years, that the stock market chart is the invert of the USD Index chart. Either tghe whole theory is BS or we are now cranked up for a major stock market downdraft (or a crash in the international value of the USD).

Jeff

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That is an oxymoron. If these agencies are part of the Executive branch they are not independent of the head of the Executive branch. To be independent that need to belong to a new Independent branch.

In business the agents that need to be Independent are outsiders like rating agencies and auditors.

The Captain

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Thanks Jeff. So how are you protecting your assets, assuming you have not been buying up gold? Which currency would you consider moving funds into and where would you do that if looking to diversify out of US dollar and control?

IP

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They are independent in that they have a politically balanced board, rather than everyone being an appointee of the current POTUS.

For instance, the FCC:

The FCC is directed by five commissioners appointed by the president of the United States and confirmed by the United States Senate for five-year terms, except when filling an unexpired term. The U.S. president designates one of the commissioners to serve as chairman. No more than three commissioners may be members of the same political party. None of them may have a financial interest in any FCC-related business

Currently, there are only four commissioners: three appointed by Trump. Biden appointed one, and appointed one of the Trump people for an additional term. Technically, Trump should appoint another Commissioner, who would need to be a Democrat. Or he can wave his magical wand, and declare “inherent power” to ignore the rules of the Commission, and appoint anyone he wants. The one Dem on the Commission, Anna Gomez, has been in place since 2023, so her term expires in 2028.

If we had an all Shiny FCC, AT&T could see it’s dream realized, of over the air TV being shut down entirely, so the cell phone operators could grab all the spectrum.

Steve

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37.90, if you discount the dot com boom, the index is at an all time high.

So far the effect would be less inflationary than last year.

Trump deporting people at a slower rate than Biden’s last year in office
https://www.reuters.com/world/us/trump-set-broaden-arrests-deportation-routes-expand-immigration-crackdown-2025-02-21/
U.S. President Donald Trump deported 37,660 people during his first month in office, previously unpublished U.S. Department of Homeland Security data show, far less than the monthly average of 57,000 removals and returns in the last full year of Joe Biden’s administration. A senior Trump administration official and experts said deportations were poised to rise in coming months as Trump opens up new avenues to ramp up arrests and removals.

Market breadth has been improving. YTD returns for the S&P sectors:

Cons staples        5.9%
Health care         5.6
Utilities           4.8
Financials          4.4
Energy              4.3
Comm. services      4.2
Materials           4.1
Real estate         3.7
Industrials         1.3
Info tech          -0.9
Cons discretionary -3.4

DB2

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Stand by for new. Shinier, quotas.

Trump’s new plan to ramp up migrant deportations after firing ICE boss

As the incentives grow to grab every brown person they see, and toss them out of the country, with zero legal due process, don’t expect to get your fancy “turn down” service at the hotel.

Steve

Yup. A 50% increase is needed to reach parity.

DB2

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How has the price of gold changed in other currencies? Is it worried about the stability of those as well?