Was it overestimation in the statistical sense or just plain blindness? Let's examine what I thought and draw some parallels based on what has unfolded until now.
On March 30th, 2025, I wrote a piece ( Trump's Economic Plan ) questioning whether or not Trump's economic plan was bravery or a brave gamble. Fair to say, about two years in, it is looking like a gamble (at least from the perspective of debt markets). It was obvious in the early days of 2025 that Trump 2.0 was going to be disruptive, with an agenda that sought to put America on the map based on a strategy of America against the rest of the world (China, if you want another synonym) looking at manufacturing. At the time, I, like most people, could not guess rightly what the Trump admin was up to next, given they were flaunting ideas of annexing Greenland and Canada. And just like that, 5 days after I posted, Trump announced his "April 2nd Trump Tariffs," compounding the already brewing confusion in my mind. It would take a market rout in terms of record stock market declines and record rallies in US long-term Treasury yields for Trump to quickly offer a concession and surrender to the markets. Those who are used to playing cards know exactly what it means when one says "he showed his hand". And indeed, Trump showed the markets that a sustained rise in yields or stock decline will cause him to surrender/give in. Now that we have laid the framework for what to look at, let us dive deep into some of the unfoldings leading up to me writing this.
As I write, the stock market, as measured by the S&P 500 Index (500 top US companies), has continued to gain value and make high after high. This is a barometer the Trump Admin attributes to when trying to appease his base about the economy. I'd just like to point out that most of these companies are not doing as great as the highs the broad index is making. Performance and weighting have meant that the top companies heavily involved in AI development are the ones responsible for the broader outperformance of the basket.
I may be a point estimate, but this phenomenon is seen in my personal portfolio whereby the major companies like Nvidia, which I bought after the market "correction" following the April 2nd tariffs announcement, have kept pace with the growth seen in the S&P index unlike the other stocks. This is, however, not the point of this paragraph, but to show that everything looks superficial. Speaking of superficial, we had a long-standing feud between the Trump admin and the US central bank (the Fed) resolved with Jerome Powell's tenure ending. Historically, and as I had previously identified, the success of any presidency is highly correlated with the rate of prevailing interest rates. Trump definitely knows this, which is why he went hard on Jerome Powell to lower rates. The data so far hasn't supported a rate cut, and Powell's successor, Kevin Warsh, has faced the reality and verdict of the market, and has defied Trump and raised rates as demanded by the bond market.
The tariff policy in a global market filled with interconnectedness is bound to cause disruptions to the supply of goods and services, thereby causing inflation. One-off tariffs have generally led to short-term price shocks, but a persistent and unclear tariff path has always been inflationary. In 2022, we had supply issues from the Russia-Ukraine war adding inflation to the already supply-induced inflation caused two years prior by the COVID-19 pandemic. Trump championing an America-first strategy abroad is very much justified in a world where debt burdens have begun threatening America's dominant role. Such policies have meant persistent inflation and shocks in the domestic US market and, likewise, an increase in the cost of living for Americans. Such a reality is counter to the Fed's ability to cut interest rates. Prior to Powell's departure as the Fed chair, we had inflation on a slow path down until Trump engaged the Iranians and made the Iranians aware of the significant leverage they had with the Strait of Hormuz. I think it was already a war tool for the Iranians, given how prepared they were with fast small boats that patrolled the Strait.
Regardless, the profound impact the closure caused on global markets showed them where to engage the US in a "death by a thousand cuts". I say this because the global economy is an oil-denominated economy. Biden had prioritized a different approach to investing in alternative and renewable energy sources, but such policies aggravated the inflation problem, which ultimately contributed to his ousting. A war that Trump had termed a "mere detour" is proving to be a puzzle regarding the status of the Vietnam War. War is a dangerous and costly endeavor, especially one where you underestimate your adversary. We're all paying the price of the war dragging on, adding to the budget deficit, increasing borrowing costs for us as individuals with mortgages on homes, making it difficult for companies to fund their investments (worst for unreasonable ones), etc.
As we speak, yields on US debt securities are nearing highs last seen in the 2000s. These are rates that are unsustainable for borrowers, including the US government, companies, and you and me. I have already talked about this (
Yields) in previous posts, and you can read them to understand why this is so crucial. Keeping aside the number of stock trades the president has made while in office, the amount of wealth he has generated for he and his family, as well as his cabinet members, I think the ultimate verdict will be the outcome of what these rates mean for his presidency. As we approach the midterm elections, this admin has guaranteed they can count only the ballots cast by American citizens (which is something I personally support). At least, after the results, one camp will do away with some conspiracy theories, and historically, the party in power has always lost the midterms. Thus, if history were to repeat itself or even rhyme, we're inclined to expect the Dems to take charge. Will this be good or bad? I don't think there's such an easy answer to it, and for me to answer, I need about 4 paragraphs. So not now.
As it stands, the rates are telling us that debts of $40 trillion and higher yields on the debt service can be classified as a BIG gamble. Perhaps we don't see what they see (to quote Scott Bessent), or are just too short-sighted. I have always thought the aggressive approach towards China in the global markets is warranted. However, I do not know how that can be accomplished without hurting the local American consumer, given China is so correlated with the US consumer. That being said, I think I overestimated them back in March 2025, and the debt market makes that uncontestable. Given crowd thinking is usually short-term, hopes remain that perhaps there's a grand plan in all this chaos and I'm just too dumb to see it. Despite the civil wars and "small wars" in other parts of the world, I think the realities of the First and Second World Wars should never be relived. So, I cherish the American World Order and wish that it can somehow find a way to solve its debt problems or put the next generations on a path to doing just that. I know this is a far cry given I'm a student of history and have read empires come and go. May this time be different, even though this admin is ballooning the debt, which only leads us closer to losing an empire. If we were to buy a house, we're looking at mortgages in the 6-7% range, and long-term, this is only going to get worse. It's been a GAMBLE so far.
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