ddubs

Bessent’s interview with Tucker Carlson reaffirmed a lot of views that many of us already held—but I think it’s worth highlighting a few key points that are particularly relevant. First, they’re 100% serious about addressing the wealth imbalance. He spoke about record European vacations and record food bank visits in 2024. That means they’re not coming to save stocks anytime soon. Rate cuts to stimulate risk assets are off the table because they completely undermine the goal. Bessent cited data showing that while equity markets have performed well, the lower class hasn’t participated—widening the economic divide. They’re steady in their stance: a 15% drop in equities isn’t a pain point. One example he mentioned was that the equal-weighted S&P wasn’t even down much. Relative to long-term charts, this drawdown is a blip. Their language around markets has remained consistent despite the recent weakness. This, in my view, widens the so-called “Trump put” significantly. Stimulus—especially in capital markets—is unlikely unless we enter a full-blown recession. Thinking they’ll change course just because the S&P drops 20% is wishful. Doing so would defeat the entire purpose of their strategy and waste a bullet that could be used if things really go off the rails. Bessent also made it clear that the U.S. believes it holds the cards when it comes to China. He argues that China, as a surplus nation, is in a structurally weaker position. In his words, the Chinese business model and economy are among the most imbalanced in modern history. They’re currently in a deflationary recession—or even depression—and are trying to export their way out of it. Given their trade deficit and dependence on U.S. markets, he believes they simply can’t afford to retaliate in any meaningful way. This means the U.S is going to fight this battle because they really think they have the cards. His outlook on tariffs was also unambiguous: they’re here to stay. He believes we’ll see substantial tariffs up front, with revenue from those tariffs gradually declining as manufacturers shift production domestically and U.S. revenue rises. There is no expectation that these measures will be walked back. Also worth noting—Bessent made it abundantly clear that Powell no longer has real autonomy. A major theme of the interview was the desire to shift the Fed’s mandate back to strict monetary policy, stripping away its recent focus on things like climate change—which Bessent dismissed as misguided. He openly described himself as a bond salesman, and the idea that this administration would allow the Fed full control of rates seems naive. Rates are arguably more important to this administration than to any cabinet in recent memory, given Bessent’s influence. Bottom line: rate cuts, banking deregulations, or any kind of stimulus package are not coming anytime soon.

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