This week a lost soul in the comments section said this pathetic blog had lost its way.
Stop with the politics, he cried. Stay with the investment stuff.
The reply was simple. They’re married. If you don’t understand what’s happening in public life the financial consequences may whack you. In today’s ridiculously-polarized political world, it’s truer than ever. Park your bias. Pay attention.
Example: you can forget about mortgage rates going down. Fivers for sure. Maybe even variables. That could be bitter news for people trying to flog their houses in a dead Spring market. And say a quick little prayer for the condoholics among us. Pooched.
Bond yields around the world are headed up today. The benchmark Canada five-year is zipping to the 3% mark as this is being written. That’s a 12% higher yield than two weeks ago on the security that influences five-year mortgage costs. Meanwhile the Bank of Canada will be reviewing its rate in less than two weeks, and an expected cut is off the table. Core inflation is hot. Now we have this Trumpian bond dump to deal with.
Yup, politics again. Messing up your daughter’s condo listing and that bond ETF in your tax-free savings account.
Mr. Market is indicating this might all get worse before, well, whatever comes next.
Days ago, as we told you, the US was downgraded by Moody’s. It was the final rating agency to strip away a triple-A credit rating America had enjoyed since 1917. A big deal. The move reminded people of what a mess US finances are in – about to be made worse by the current White House. Already there is $36 trillion in debt with trillions more about to be added.
Time out: a million seconds is a vacation (about twelve days). A billion seconds is a career (thirty years). A trillion seconds is 31,688 years (thirty thousand years before Christ).
The realization America’s financial trajectory may be headed down the loo faster than expected weighed on investors. Stocks sold off sharply Wednesday (and wobbled today) after the latest auction of 20-year US bonds went badly. The government had to pay 5.047% interest (a huge sum) to attract enough buyers to raise $16 billion over the next two decades.
Immediately this pushed yields up (and bond prices down) across a range of bond maturities, then across the globe (including the Canada bond referenced above). When the biggest economy on earth, that issues the global reserve currency with the dominant financial markets shows such vulnerability, everybody loses faith in the future. That’s what the bond market is. A place where people place bets on what lies ahead.
Now that future contains a greater possibility of US financial troubles, higher risk premia and tariff-fuelled inflation devaluing the currency. Thanks, MAGA.
What is Trump’s role here?
It’s yuge. Bond yields are rising because investors see trillions more thrown on the debt pile as 47 pursues a reckless agenda of massive tax cuts while pushing tariffs that have sparked an international trade war and threaten a global recession while increasing domestic prices and inflation.
Trump’s ‘big, beautiful bill’ containing those cuts passed the House last night by the narrowest of margins. It may yet hit a wall in the Senate, but the president says failure to approve it will be “the ultimate betrayal” and result in retribution. He’s that kinda guy. My way, or political death.
The 1,000-page legislation would extend $4.5 trillion in tax reductions to corporations (Elon, Jeff and Mark love him), add new cuts for tips, overtime, car loan interest and retirement incomes, increase spending by $350 billion (a bunch for the ‘Golden Dome’) and parially offset lower revenues with a drop in health and welfare payments.
The non-partisan Congressional Budget Office says almost nine million people would lose health care coverage and another three million a month have less in low-income benefits (food stamps). The changes would increase federal deficits by $3.8 trillion over a decade, even as the government spends $1 trillion less on social support. The CBO claims lowest-income households would be robbed and the highest-earning ones rewarded.
Is this what Americans voted for?
Well, for investors it’s all a big red flag. When the US government has to pay more to attract capital to the safest assets on earth (Treasury bonds) then rates everywhere, on everything, are going up. Higher borrowing rates mean less economic activity, lower growth and reduced profits. So markets react. Making it worse are dumb tariffs that hike prices at places like Walmart, Target and Amazon.
You’d think ‘conservative’ politicians would be appalled at this fiscal timebomb and lack of discipline. But you’d be wrong. They love the guy – or at least, fear him.
Overnight Republicans renamed a proposed new children’s savings program as ‘Trump accounts’.
Guess what may end up being in them?
About the picture: “I’ve been reading your blog for many years and thank you for all the advice,” writes Del. “The photos are of our dog Toby who we got 8 years ago from the pound and they said he was two so now he’s ten years old. He now owns our house and would refuse to sell. Ha!”
To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.