"It's a Bold Strategy, Cotton. Let's see If It Pays Off"

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Five years ago this week, the COVID lockdowns started, and with it, the largest transfer of wealth in human history, and also the largest accumulation of government debt. 

Since then, the M2 money supply, which consists of checking, savings, CD's, money market accounts, and Keogh balances in banks, has increased by about 35%.

The Dow Jones Industrial Average has more than doubled. The average single family home price nationwide has increased by 33%.  

The actual growth in the US gross national product, which is a measure of US assets worldwide, as opposed to GDP, which is those held domestically, has increased by 9.6%. Government spending has increased by 23.4%. Federal spending, as a percentage of GDP, was never under 22% during the Biden presidency. 

The federal debt has grown by 56% to over $36 trillion. In 2020, the average yield on the 10-year treasury bill was .89%. Now it is between 4.25 and 4.30%, so you can see how the cost to service that ever-expanding debt has reached crisis levels as well.  

This year, the federal government has to refinance about a quarter of its debt, about $9.2 trillion, into starkly higher rates. 

As our elected representatives spent the past 5 years ripping us off and spending us into oblivion, Fed Chairman Jerome Powell has been trying to straddle the fence between being a good swamp rat- ie not hurting the DC dems and Biden- and somehow trying to rein in the inflation that the out-of-control spending, draconian regulation, and boneheaded energy policy has created. Powell has spoken often about a "smooth landing' as he raised interest rates. Well, all except one month in September when they cut the fed funds rate by half a point, which in my opinion was to help democrats in November's election, and you see where that got us, reignited inflation of .4% and .5% month over month in December and January. There's no smooth landing, Powell's out of runway.   

Between the gold bars off the Titanic, and Powell's blatant political mismanagement of fed policy, Powell and Biden managed to reignite the inflation fire.

So you can see that President Trump has been handed a steaming pile by the Biden administration and the uniparty on Capitol Hill. It is a fiscal crisis.

The quickest way out of this is the short-term pain of a recession. President Trump realizes this, and the former market friendly President and his cabinet shifted their messaging on March 6, when Trump said he's not even looking at the stock market, and last Sunday he told Maria Bartiromo that we are in for a "period of transition" and it will "take a little time." The same line of messaging was echoed in interviews by Commerce Secretary Lutnick and Treasury Secretary Bessent last weekend.

Trump's strategy seems to be three-fold. Number one, use tariffs to lower asset prices, reduce the trade deficit, reset markets, and repatriate investment capital and manufacturing.

 Number two, streamline the government, eliminate fraud and waste, reduce spending, make the tax cuts permanent, and give every dollar coming out of Washington a name and legitimate purpose which would slow and the growth of the deficit and eventually reduce it. 

Number three, and this one is the big one, lower oil prices, which is working. Oil prices are down 20% since January 20. Citigroup's economists recently stated that if oil prices get to $53, inflation would drop to 2% which would cause interest rates across the yield curve to drop, reigniting the economy in a more sustainable way, and lowering the government's debt service. 

Trump can do a lot of the heavy lifting with executive orders and eliminating regulation. But a recession will do it faster and because of the democrats and RINO's, he can't count on Capitol Hill's help, so it is basically his battle to fight. 

The inflation numbers we got on Wednesday with the CPI and Thursday with the PPI gives an early indication that the strategy is working, but there is a long way to go.

Trump is going all in, and is sacrificing his political capital and perhaps his historical legacy, to do the HARD RIGHT THING (in the words of our friend Col. McKnight). The predicament we find ourselves in is not all that different than what President Reagan and Fed Chairman Volcker found themselves in back in 1981 with stagflation, double digit inflation, and double-digit interest rates. Their bold but correct actions cost Reagan a lot of political capital short term but led to an economic rebirth, retired the misery index, toppled the Soviet Union, and gave us a 25-year bull market run. Hopefully President Trump's strategy will yield similar results.

We need to understand that our nation is severely fiscally ill, and like a surgery on a sick body, temporarily injuring some healthy tissue is the only way to cut the cancer out and cure the disease. The media and democrats are going to message that Trump is an authoritarian, that he is destroying the country, that he is making his cronies rich at your expense, going to make you lose your job, is going to steal grandma's social security and Medicare; and they will publish push polls stating that voters hate it and he is the most unpopular president ever. However, it is all a lie and THEY are the ones who stand to lose the most long term, as DOGE has already shown us. 

Stick with the program and ignore the noise, it is the best way out. You might even call it the REAL Great Reset.

Like Pepper Brooks said in the movie Dodgeball, "It's a bold strategy, Cotton. Let's see if it pays off."