Beware the Ides of March
Trump’s speech last night sure set the river ablaze…
Tax cuts, deregulation, infrastructure spending, defense spending — American Greatness on a dozen fronts — and something for everyone!
The Big Board blasted 303 points skyward today… all the way past 21,000… for the first time ever.
Dow 20,000, we hardly knew ye.
And the dollar had its best day in six weeks. Treasuries slumped as yields on the telltale 10-year topped 2.45%. Gold slipped 3½ bucks.
All hale and hearty signs of an economy building steam.
But hard schooling has conditioned us to meet good news with mild alarm. Matching H.L. Mencken’s definition of a cynic, when we smell flowers… we start looking around for a coffin.
Today’s the first of March, two weeks from March 15… the ides of March…
Beware the ides of March, the soothsayer Spurinna allegedly warned Caesar about his approaching doom. He didn’t.
David Stockman doesn’t claim to be a soothsayer. But he’s a crackerjack analyst with 40 years of government and market experience. And David too says to beware the ides of March:
“What people are missing is this date: March 15, 2017.”
Why March 15?:
That’s the day that this debt ceiling holiday that Obama and House Speaker Boehner put together right before the last election in October 2015. That holiday expires. The debt ceiling will freeze in at $20 trillion. It will then be law. It will be a hard stop.
The Treasury will have roughly $200 billion in cash. We are burning cash at a $75 billion-a-month rate. By summer, they will be out of cash.
Then we will be in the mother of all debt ceiling crises. Everything will grind to a halt. I think we will have a government shutdown. There will not be Obamacare repeal and replace. There will be no tax cut. There will be no infrastructure stimulus. There will be just one giant fiscal bloodbath over a debt ceiling that has to be increased and no one wants to vote for.
Here David draws a dark sketch. And March 15 is just two weeks away. Does the debt ceiling raise the curtain on “one giant fiscal bloodbath,” as David fears?
We don’t know. And David says the crisis won’t necessarily strike March 15. He says it’ll probably start “slowly at first” followed by “accelerating intensity” as the Treasury runs short on cash.
But there may be other reasons to beware the ides of March…
The Fed’s Open Market Committee concludes its two day meeting March 15. Do they raise rates? Last week, the fed funds futures indicated just a 20% chance of a hike. But after Trump’s stemwinder, today they’re flashing a 69% chance.
But Bloomberg says the timing of the next rate hike is a “balancing act.” Raise too soon and it could strangle growth in its crib. Raise too late and it could give inflation too much running room.
And some signs indicate inflation is percolating amid all the growth talk. That’s why Dallas Fed head Robert Kaplan argues, “We want to guard against a situation where we get behind the curve.”
Just so. But maybe the economy’s weaker than they think…
Despite the low official unemployment rate and mounting inflation, the economy grew only a skinny 1.6% for all of 2016 — its lowest rate since 2011.
MarketWatch says the number of distressed U.S. retailers is at the highest level since the Great Recession of 2009–09. Forbes told us yesterday that the U.S. economy is “weaker than you think.”
Is this an economy in need of a rate hike?
Some other potential market movers clustered around the ides of March:
The European Central Bank (ECB) meets March 9. U.S. employment data for February comes out March 10…
The Netherlands holds the first European election of the year on March 15, the ides…
The G-20 gaggle of finance ministers and central bankers meets March 17–18.
Who knows if any surprises lay in store?
Maybe the ECB surprises. Maybe a populist, anti-EU party wins in the Netherlands, throwing more doubt on the EU’s future. Maybe something big comes out of the G-20. Or maybe nothing at all.
But add something else to a looming debt ceiling crisis and a potentially botched rate hike… and bewaring the ides of March might be sage advice…