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Macro Digest : White House & Congress creates sugar high(?)

Tonight US budget is just a political play, but despite this it will most likely create new “sugar high” for US fixed income, where rates are rising and curve is flattening – RISK of still dominant theme as we have a few days of correction. Remember this sell-off started with combination of higher expected inflation- and rates – We are seeing both continue the trend up!

The Danger Brothers: (Inflation expectations (5y5Y) plus 2 Y US Generic (fwd looking yield))

Source: Bloomberg LLP + Saxo Bank Strategy

Anyone who ventured to the US inside the last five years realize that infrastructure investments are overdue – most airports in the US is vastly inferior to many 3rdworld countries I visit and train system has not been developed for decades, when Trump tonight publishes his Budget 2018- which is “science Fiction (Axios) but still keeps fixed income VERY BID:

 

Axios :

President Trump today will unveil a $1.5 trillion infrastructure plan that his own aides don’t think will pass, and a $4 trillion budget that Axios’ Jonathan Swan calls« science fiction. »

  • It’s the strangest of year-ahead plans for a party that controls the White House and both chambers of commerce: Top Republicans see Job 1 for this year as promoting the tax cut they passed last year.
  • With the House in danger in November’s midterms, a Republican close to the White House tells me this is a year for pumping Trump’s base on taxes, economic growth and the wall (or the fight for the wall), « while the Dems help with focus on immigrants. For Rs, this is a year to avoid losing. »

So ignore the documents and blather today. Here’s Trump’s real plan for ’18:

  • A source close to the White House tells me that with an eye to getting Republicans excited about voting for Republicans in midterms, the president this year will be looking for « unexpected cultural flashpoints » — like the NFL and kneeling — that he can latch onto in person and on Twitter.
  • The source said Trump « is going to be looking for opportunities to stir up the base, more than focusing on any particular legislation or issue. »
  • One of D.C.’s savviest Democrats had come to the same conclusion, without my even mentioning it.
  • Matt Bennettc0-founder of the centrist Democratic group Third Way, said: « His administration is cranking away on these Potemkin legislative efforts. »
  • « But what he’s really interested in is storylines revolving around him — driving the conversation with whatever crosses his mind at that moment, and then comes out of his mouth or his fingers. »

Be smart … All that is more evidence for our continuing reminder to you that Trump will be more Trump this year:

  • With the departure of centrist aides and the gravitational pull of midterms in November and his reelection race in 2020, Trump’s nationalist campaign instincts are likely to get even more sway than they did last year.

P.S. The White House begins this week with unfinished business — continuing fallout from the messy resignation of Staff Secretary Rob Porter:

  • N.Y. Times: « Even when reporters called the White House press office roughly three weeks ago asking about Mr. Porter’s divorces and whether they had affected his security clearance, that did not stir concern. »
  • NYTWithout longtime deputy Kirstjen Nielsen, now Secretary of Homeland Security, Chief of Staff John Kelly « sometimes does not remember what he has said to different people, two officials said. »

L.A. Times« Over and over again the past few days, various White House aides have buttonholed reporters to tell them … that they think Kelly either lied to them or tried to get them to lie about what he knew when. »

 

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US and Japan in league of their own….

 

Interest rates 3.5-4.0% of GDP and of revenue 23 pc +!!!!

 

Them mortgages getting expensive…

 

My Inflation watch shouts: FORGET about it!!!!   (Velocity of money = Net lending demand= Inflation)

 

Still no connection btw US interest & economic activity…

 

Safe travels,

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