Control Panel: Uncertainty slightly moderates

Investment Analysis Clubs Macro Economic Trends and Risks
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The extreme uncertainly of the past 2 months has moderated slightly over the past week.

On March 15, 2025, Congress managed to pass a full-year “continuing resolution” (CR) that continues funding the federal government through the rest of the fiscal year. This eliminates the threat that the government will shut down immediately. Treasury will be able to continue to pay the government’s bills.

As expected, the FOMC kept the fed funds rate stable.

The tariff situation didn’t change last week so the markets could take a breath.

President Donald Trump imposed sweeping 25% tariffs on all steel and aluminum imported into the United States the week before last, a policy aimed at leveling the playing field for US manufacturing but a move that threatens to drive up prices on a broad range of consumer and industrial goods for Americans. That’s in addition to the 25% tariffs on Canada, Mexico and the EU and 20% on China. China and Canada have both retaliated against the IEEPA tariffs, while Canada and the European Union have both retaliated against the steel and aluminum tariffs. Here is a list:

The stock market slightly recovered its losses during last week’s reprieve from new tariffs. Investors shifted to bonds and gold. The Fear & Greed Index is in Extreme Fear. The trade is strongly risk-off.

The Treasury yield curve continued to fall.

Unlike Treasuries, the Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, tightened slightly. Financial Stress increased slightly although both these indicators are still loose.

Since tariffs are expected to both increase inflation and slow economic growth the markets are looking forward to stagflation.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 was -1.8 percent on March 18. The Cleveland Fed’s Inflation Nowcasting predicts Quarterly annualized percent change of the CPI of 3.85% in 2025:Q1.

The administration and DOGE have laid off many government employees but they are to be cut off in September so the numbers haven’t hit the unemployment figures yet. Congress is planning to cut programs that will directly impact poor and working class families, including Medicaid and SNAP, which will directly impact the companies that provide goods and services. Discount chains and junk food stock prices have already been impacted.

https://www.wsj.com/business/retail/are-pop-tarts-on-the-chopping-block-with-gop-cuts-9f6fa346?mod=finance_lead_pos5

The METAR for next week is cloudy. It’s impossible to predict the next monkey wrench that will be thrown into the machinery of trade and government in the next week.

Wendy

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Meanwhile, the Canadian PM called a snap election, today, for April 28th. So, maybe Canada will elect a government that will bend over for the US, or maybe not?

https://www.reuters.com/world/americas/canadas-carney-poised-call-election-seeks-mandate-tackle-trump-2025-03-23/

Steve

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Three points:

  1. All this effort to keep the tax cuts in place won’t boost the economy. The cuts have been in-place for years. Why should maintaining them be likely to accelerate the economy?

  2. For years politicians have been running around with their hair on fire crying about how Social Security is on its last legs. There is an easy fix, but none will admit it because, their largest donors would string them up by their short and curlies.

For 2025, the Social Security payroll tax cap, also known as the taxable maximum, is $176,100, meaning Social Security taxes only apply to the first $176,100 of an employee’s annual wages. Employers and employees each contribute 6.2% of wages up to the cap, and the self-employed pay 12.4%.

That means that, as your salary increases from that point, on a prorated basis, your total Social Security tax becomes lower.

Medicare, however, has no salary cap. To save Social Security, all they would have to do is remove the salary cap.

  1. To save Medicare, all they would have to do is to apply the same rules of “commerciality” that GSA uses for all other commodity purchases. A drug supplier would have to agree to two conditions for any insurance program utilizing federal funds:

a) The drug has had substantial sales in the market. (to prevent special government names being used to evade)

b) They agree to sell at the cheapest price that they charge any party world-wide under similar terms and conditions of sale..

Easy-peesy, but every Congressman/Senator needs money from the drug dealers to get elected.

We used to have the best government money could buy. Now we just have a government money can buy.

Jeff

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Social Security BENEFITS also only apply up to that amount (with associated bend points in level of benefits).

But removing the cap, also means that benefits paid will go way way up. Unless you want to add a bend point that reaches all the way to zero benefit. And as time passes, that will cause social security to have its support eroded as inflation makes its relentless climb.

This would literally KILL millions in the third world. A pharma company sells drug X for $5 in most of Africa, for $25 in Europe/Asia, and for $100 in the USA. They end up with an average price of perhaps $40. If they had to sell drug X to medicare for $5, it wouldn’t be worth doing it anymore. So the only solution is to not sell that drug to Africa anymore at $5. And that would apply pretty much across the board - no lifesaving drugs to the third-world because the only price they can pay is too low to make the whole thing work.

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@MarkR @WendyBG @OrmontUS

The issue if momentum is used now the tax cuts will happen as dictated to Congress.

If time elapses the Congresscritters will begin to think they are in charge.

He has to have it now in the next two months to resolve things his way. Johnson is going to sense this and demand action.

The math on the tax cut is worse than you are making out Jeff. It is not just the prior cuts. The NYT did the best write up of the actual numbers about three days ago.

The bond market is going to crash…al a Liz Truss 2022

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A number of years ago, my wife and I were wandering the alleys of nearly glamorous Dutch Harbor, Alaska and she discovered she had a cold sore on her lip. The local pharmacy (I think CVS) said that she needed acyclovir, but they were out of stock. The price would have been $80.

A couple of days later, we were in Petropavlovsk (and you thought Kamchatka was just invented for “Risk” games :slight_smile: ). After a somewhat humorous adventure, we picked up a tube of acyclovir for 19 rubles ($.28 USD at the time). A few years ago, we picked up a year’s supply of an anti-cholesterol drug in Argentina for $70 USD which cost my wife $90 a month on Medicare.

Are there cases where drug companies give stuff away as charity? Sure, but that’s not “similar terms and conditions of sale”. But any negotiation by a national health plan would be. Don’t kid yourself - while there are some over-the-counter drugs which are available in, say Europe, which aren’t worth the expense of getting US approval, there are far too many drugs where we USians pay multiples (sometimes orders of magnitude) more than anyone else in the world. And, incidentally, you can count the US-based major pharma companies on the fingers of your hand.

Jeff

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The cuts are “America First”?

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How you dare doubt it - the „savings for taxpayers“ total on that DOGE website will surely go up impressively.

Prepare to receive an even larger check :wink:

However, recent cuts to the MS-ISAC, which serves as a force multiplier to whole-of-state efforts, may disrupt these collaborative efforts, potentially weakening the collective cyber resilience of state-level and local institutions.

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Will it fit on a 40’ truck trailer? Or need a double 40’ = 80’?
Maybe an extra-long rail car–or two?