…Bloomberg reported that major bond management funds have been shifting away from long Treasuries to more cash-like government securities–some even shorting the long bond to do so. The reason? They think the three prongs of Trump’s agenda, shrinking the workforce, raising prices through taxes on imports and increasing the stock of government debt to fund tax cuts for the wealthy, will sooner or later trigger interest rate increases and substantial currency/financial market declines. As/when this happens, the last place you want to be as a fixed income manager is in a 30-year Treasury with the current 4.75% coupon.
–President Trump posted his belief that Joe Biden was “assassinated” in 2020 and that either a robot or a body double actually governed the country during his term. ???
–I read a series of articles about Washington in the NY Review of Books, addressing the political and economic situation in the US. Oddly enough, one addressed the possibility that Trump is a Manchurian candidate (what he seems to be saying about Biden-as-president)–rejecting this hypothesis on the argument that Trump’s program is so destructive of the social and economic fabric of the US that (in this case) a Russian agent would already have been unmasked
–maybe Wall Street humor, but I find it hilarious that Trump has an economics degree from Wharton
–I started thinking about the domestic steel industry for the first time since my early days in the stock market in the late 1970s. Three thoughts, for what they’re worth:
—-Back then US Steel was still using blast furnaces from the nineteenth century. In contrast, the industrial bases of Western Europe and Japan wee destroyed in WWII, and rebuilt–with US help–afterward. So the mills in both places were far more modern than domestic ones.
—-At the same time, the electric arc furnace–output good for construction, not for autos–began to take market share away from traditional steel firms. Rather than modernize, domestic blast furnaces depended on government protection–sort of like the domestic auto industry.
—-The current issue with US Steel, as I see it, is what typically happens in emerging economies–a foreign firm with superior technology offers to transfer it to a local market entrant, in return for an equity interest and/or operating control. Good for the country, not for existing managements. Unclear how change of control turns out for employees. A bit odd then, in the case of the US, to insist that carmakers locate plants domestically and not to allow local sources of materials or components.
–so far this year, betting on slowing growth and a weak currency–i.e. holding multinationals, special situations and foreign stocks (especially bond-like or with no exposure to the $US)–has been a winning strategy. It has been so good, in fact, that I’m starting to wonder how much longer it will work. Still, for now I don’t see any plausible alternative other than indexing.