Latest / Trend Watch / Episode 66: Will the TACO Trade Last?

Transcript

Episode 66: Will the TACO Trade Last? · Trend Watch

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Ready to take a deeper look at where history,
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politics,
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and economics all intersect?
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SPEAKER_01: Well then, you've come to the right place.
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SPEAKER_01: Each week,
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SPEAKER_01: here's where we pull back the headlines and focus on the big trends,
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SPEAKER_01: the stuff that actually shapes our future.
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SPEAKER_01: Through the noise, we focus on the signal.
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SPEAKER_01: I'm your host, Neil Howe, and this is Trend Watch.
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SPEAKER_01: Today is July 10th, 2025, and this is Trend Watch.
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SPEAKER_01: Welcome back, everybody.
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SPEAKER_01: As usual, I have on my fellow analyst, Christian Ford.
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SPEAKER_01: So Christian, how was your week?
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SPEAKER_00: It was a pretty good week, Neil.
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I was up in Maine on a nice,
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beautiful lake,
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but I'm back to the humid,
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muggy DC.
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SPEAKER_00: But I understand you're in paradise right now.
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SPEAKER_01: I am in paradise, but of course I'm working.
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At my age,
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I get vicarious delight in hearing younger people talk about
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their vacations.
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SPEAKER_01: That's about as close as I get to vacations these days.
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SPEAKER_01: But I am.
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SPEAKER_01: I'm writing down here in the Keys.
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SPEAKER_00: I don't think we've told our subscribers.
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SPEAKER_00: You're writing a book, Neil, correct?
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Yeah,
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I'm under contract with Simon & Schuster,
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and this will be a new book.
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SPEAKER_01: The single biggest question I got,
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SPEAKER_01: and I still get,
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SPEAKER_01: actually,
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SPEAKER_01: from The Fourth Turning Is Here,
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SPEAKER_01: is people will say,
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SPEAKER_01: well,
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SPEAKER_01: Neil,
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SPEAKER_01: I believe you,
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SPEAKER_01: but what do I do?
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SPEAKER_01: How do I prepare?
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SPEAKER_01: What do I invest in?
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SPEAKER_01: Where should I move?
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SPEAKER_01: How should I organize my life?
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SPEAKER_01: How do I get prepared for this?
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SPEAKER_01: So...
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SPEAKER_01: This is a book about that.
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It's going to be,
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you know,
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focusing a lot more on specifically what's ahead right now.
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SPEAKER_01: And it's going to be much more practical.
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SPEAKER_01: It's going to be less,
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SPEAKER_01: you know,
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SPEAKER_01: less,
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SPEAKER_01: you know,
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SPEAKER_01: theoretical,
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SPEAKER_01: less historical and a lot more what's actually going on on the grounds.
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SPEAKER_01: Very enjoyable.
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SPEAKER_01: I'm having a blast.
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SPEAKER_01: The weather here is what you might imagine in Florida in the summer.
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SPEAKER_01: The less said about that, the better.
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SPEAKER_01: Let's get into today's podcast.
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SPEAKER_01: It's been two weeks, so we have probably even more than usual to cover.
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SPEAKER_01: First, we got market news.
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SPEAKER_01: As usual, we'll be covering some stories from around the world.
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SPEAKER_01: Just to give us an update here on the domestic scene,
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SPEAKER_01: last week,
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SPEAKER_01: Congress passed and Trump signed the One Big Beautiful Bill.
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SPEAKER_01: By the way,
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SPEAKER_01: that is the official title,
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SPEAKER_01: One Big Beautiful Bill,
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SPEAKER_01: a sweeping budget package that is estimated to
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SPEAKER_01: at, I don't know, $3 or $4 or even $5 trillion to the national debt.
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SPEAKER_01: I mean, who's counting, right, by the time you get up there?
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SPEAKER_01: And then over the last two weeks,
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SPEAKER_01: the Supreme Court has issued two major rulings,
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SPEAKER_01: one curbing the power of judges to block federal policies nationwide,
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SPEAKER_01: and
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SPEAKER_01: the so-called universal injunction,
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SPEAKER_01: and the other allowing Trump's mass federal layoffs to proceed.
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SPEAKER_01: We'll be talking about those decisions.
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SPEAKER_01: And this week,
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SPEAKER_01: Elon Musk announced he's launching a new political party,
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SPEAKER_01: the America Party,
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framing it as a fiscally conservative pro-tech alternative to
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what he calls the
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SPEAKER_01: Republican and Democrat Uni Party.
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SPEAKER_01: Moving abroad, we obviously have to talk about Trump and tariffs.
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SPEAKER_01: On Sunday, Trump extended his tariff deadline to August 1st.
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SPEAKER_01: giving countries more time to strike trade deals.
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So far,
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I believe even so far this afternoon,
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right,
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Christian,
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only the U.K.
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SPEAKER_01: and Vietnam have secured agreements.
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SPEAKER_01: Pretty good agreements, I should say.
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SPEAKER_01: The U.K.
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SPEAKER_01: was obviously the first.
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SPEAKER_01: I mean, that was a while ago.
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SPEAKER_01: And then in Iran, nearly three weeks into the U.S.-brokered ceasefire,
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The truce between Iran and Israel is holding,
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but nuclear fears are growing as Iran blocks U.N.
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SPEAKER_01: inspectors and Western governments begin to weigh new sanctions.
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SPEAKER_01: And finally,
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SPEAKER_01: on Monday,
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SPEAKER_01: Trump's tone toward Vladimir Putin,
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SPEAKER_01: President Vladimir Putin of Russia,
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shifted sharply as he publicly accused the Russian leader of
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dishonesty and
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SPEAKER_01: reinstated U.S.
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SPEAKER_01: weapons shipments to Ukraine following massive Russian drone assaults.
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SPEAKER_01: So with that,
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SPEAKER_01: let's skip back up,
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SPEAKER_01: Christian,
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SPEAKER_01: and talk about the markets and kind of get our way into this.
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SPEAKER_00: All right, Neil.
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SPEAKER_00: Well, today the S&P closed up 0.27%.
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SPEAKER_00: And over the last five trading days, it's up 0.02%.
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SPEAKER_00: I will say the S&P also did hit a record high today.
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SPEAKER_00: As for the global Dow, similar story.
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SPEAKER_00: It closed up today 0.22%.
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SPEAKER_00: And over the last five days, it's been flat.
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SPEAKER_00: The VIX closed today at 15.75%.
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SPEAKER_00: And as for the 10-year Treasury,
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SPEAKER_00: that is at 4.349%,
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SPEAKER_00: down 0.2 basis points over the last five days.
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SPEAKER_01: Yeah, I don't know what to make of it.
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SPEAKER_01: I mean,
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SPEAKER_01: look,
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SPEAKER_01: I think we've said today,
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SPEAKER_01: VIX at 15 is kind of high for the S&P making new highs,
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SPEAKER_01: right?
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SPEAKER_01: Right.
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SPEAKER_01: We talked about that, right?
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SPEAKER_01: What was it?
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SPEAKER_01: Only 7% of the time is the S&P making new highs.
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SPEAKER_01: You'd expect that to be lower than average.
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And well,
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15 is,
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I guess,
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lower than average,
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but it's not quite where you'd expect.
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SPEAKER_01: Well, we could get there.
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SPEAKER_01: I don't expect to get there, but we could get there.
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SPEAKER_01: if we start hitting new highs for several months in a row, right?
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SPEAKER_00: Right.
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SPEAKER_01: Don't hold your breath for that.
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The Wall Street,
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in my opinion,
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has a mixed mood toward the outlook right now.
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SPEAKER_01: For the time being, things are very good
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SPEAKER_01: for Donald Trump, right?
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SPEAKER_01: His foreign policy seems to be in good shape.
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SPEAKER_01: Right now,
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SPEAKER_01: the Middle East,
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SPEAKER_01: the outlook there seems better than it has been in a long time,
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SPEAKER_01: at least,
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SPEAKER_01: you know,
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SPEAKER_01: near term,
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SPEAKER_01: medium term outlook.
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SPEAKER_01: He seems to be getting serious about the Ukraine war.
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SPEAKER_01: He's looking forward to a solution on the tariffs.
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SPEAKER_01: His big, beautiful bill is passed.
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SPEAKER_01: The S&P is up.
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SPEAKER_01: Long-term interest rates aren't that far up.
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He hopes to be able to dragoon the Fed to bring short-term
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interest rates down.
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SPEAKER_01: And right now, it looks as though the economy seems to be grinding on.
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SPEAKER_01: As we've often said,
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SPEAKER_01: it looks as though sentiment is down,
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SPEAKER_01: and labor markets are obviously weakening,
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SPEAKER_01: and we may have a problem in spending.
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SPEAKER_01: But no real downturn in the month-to-month.
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SPEAKER_01: And right now, the market sees that as very positive.
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SPEAKER_01: They also expect if inflation stays low,
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SPEAKER_01: that sooner or later,
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SPEAKER_01: the Fed's going to have to lower rates.
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SPEAKER_01: What do I have wrong here?
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SPEAKER_01: Is that kind of where we are?
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SPEAKER_01: Yeah, sounds good to me.
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SPEAKER_01: That's good to you.
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SPEAKER_01: I will have to say,
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SPEAKER_01: though,
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SPEAKER_01: one phrase has been bandied about recently,
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SPEAKER_01: and I think we're going to hear a lot more of it.
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SPEAKER_01: It's called fiscal dominance.
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With the passage of this new budget legislation,
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which is just guarantees,
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you know,
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SPEAKER_01: very large deficits going ahead.
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Even if the economy stays at full employment or even higher
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than full employment,
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SPEAKER_01: we're going to have these huge deficits.
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We're going to have a rising publicly held national debt as a
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share of GDP.
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SPEAKER_01: And the question is,
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SPEAKER_01: at some point,
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the Fed is going to have to pay attention to how much debt
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there is and what
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how the federal government is managing these deficits as much
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as it has to pay
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SPEAKER_01: attention to inflation.
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SPEAKER_01: That's called fiscal dominance as opposed to monetary dominance.
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It's something we usually associate with economies like
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Venezuela and Argentina,
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right?
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SPEAKER_01: Or Turkey.
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I mean,
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to choose another example in the world where the central bank
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is expected to accommodate
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SPEAKER_01: fiscal policy.
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SPEAKER_01: And there's a recent quote where,
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SPEAKER_01: you know,
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SPEAKER_01: as Trump,
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SPEAKER_01: we all know that he's trying to pick a new Fed chairman.
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SPEAKER_01: Right now, it's a choice between the two Kevins.
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SPEAKER_01: We talked about that, I think, in our last podcast, didn't we?
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About the,
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well,
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it's kind of down now to the two Kevins,
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Kevin Hassett and Kevin Warsh.
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SPEAKER_01: If Trump wants someone to really do what he tells him to,
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SPEAKER_01: he's probably more likely to choose Kevin Hassett.
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SPEAKER_01: On the other hand, if he wants someone with a little more autoritas,
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SPEAKER_01: You know,
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SPEAKER_01: with financial markets,
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SPEAKER_01: he'll choose Kevin Warsh,
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SPEAKER_01: but Kevin Warsh may turn out to have a mind of its own.
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SPEAKER_01: You know,
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SPEAKER_01: we'll see if he turns out to be the next,
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SPEAKER_01: you know,
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SPEAKER_01: McChesney Martin,
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SPEAKER_01: who Harry Truman never forgave for betraying him,
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SPEAKER_01: right,
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SPEAKER_01: by not taking White House's orders anymore.
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SPEAKER_01: Anyway, what Trump wants is a Fed Chairman who takes his orders.
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SPEAKER_01: He had a great quote the other day, which I think was very revealing.
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He went on and on about how much the federal government can
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save if interest rates
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SPEAKER_01: went down to 1%.
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SPEAKER_01: Think about that.
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SPEAKER_01: He said, we can save trillions and it wouldn't take any effort.
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SPEAKER_01: All the Fed would have to do is just lower the rate down, right?
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And then suddenly we could save so much money on the federal
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government,
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right?
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SPEAKER_01: Do you see what fiscal dominance means?
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SPEAKER_01: That's what it means, right?
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SPEAKER_01: Inflation, well, you know, not on my watch, presumably, right?
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SPEAKER_01: So let's keep an eye on that.
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I would say that that's something the market's going to keep in
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mind as it looks ahead.
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SPEAKER_01: What do we have?
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SPEAKER_01: Do we have any economic indicators?
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SPEAKER_00: Yeah, we have a few here.
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Last week,
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we got the non-farm payrolls,
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which came in at $147,000 for June.
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That was slightly above the May reading and was significantly
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above expectations for
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SPEAKER_00: We also just got the ISM PMIs for June.
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SPEAKER_00: Manufacturing rose from 48.5 to 49.0.
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SPEAKER_00: That's a rise.
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SPEAKER_00: It still marks four months of contraction.
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SPEAKER_00: As for services, that rose from 49.9 to 50.8.
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SPEAKER_00: So not looking great there.
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SPEAKER_01: Not looking great.
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SPEAKER_01: And, you know, just on the edge between...
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SPEAKER_01: you know, a going nowhere economy, right?
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SPEAKER_01: Right.
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SPEAKER_01: And given that very poor Q1 reading and GDP growth, right?
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SPEAKER_01: You kind of wonder what's out there, don't you?
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SPEAKER_01: Yeah.
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SPEAKER_01: And I think that's a little bit on the negative side of the market.
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SPEAKER_01: But the positive side of the market is,
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SPEAKER_01: My God, look at all the demand out there, right?
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SPEAKER_01: We're going to run these huge deficits.
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SPEAKER_01: I mean,
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everyone's going to have more income and we're still going to
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get all these
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SPEAKER_01: government benefits,
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SPEAKER_01: right?
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SPEAKER_01: What's not to like about that?
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SPEAKER_01: And so if there was a danger,
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SPEAKER_01: which I think a lot of people still think,
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SPEAKER_01: right,
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SPEAKER_01: that we're into near-term softness in the economy,
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SPEAKER_01: that
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SPEAKER_01: That question solved.
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SPEAKER_01: The downside?
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SPEAKER_01: Well, obviously inflation, but that takes a while.
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SPEAKER_01: And right now people don't see it, right?
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SPEAKER_01: So there you have it.
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SPEAKER_01: I think this looks good for Trump in the near term.
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I think the choice of the Fred chairman and being able to
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dictate Fed policy is
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SPEAKER_01: more to see if he can keep that going in the medium and longer term,
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SPEAKER_01: meaning next year and the year after,
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SPEAKER_01: you know,
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SPEAKER_01: toward the latter end of his term as president.
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SPEAKER_01: Anything international?
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SPEAKER_00: Yeah, we have PMIs from both the Eurozone and China.
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SPEAKER_00: I'll start with the Eurozone.
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SPEAKER_00: Manufacturing was practically flat at 49.5.
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SPEAKER_00: That marks 35 straight months of contraction.
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SPEAKER_00: As for services, those rose from 49.7 to 50.5.
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SPEAKER_00: Still not that impressive.
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SPEAKER_00: If we go to China, we'll start with the Saishin PMIs.
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SPEAKER_00: That's more private sector companies.
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SPEAKER_00: Manufacturing rose from 48.3 to 50.4, and services fell from 51 to 50.6.
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Then if we look at the NBS PMIs,
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these are more the state-owned businesses.
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Manufacturing slightly rose to 49.7,
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and non-manufacturing slightly rose to 50.5.
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You know,
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again,
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I would say for both Eurozone and China,
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Neil,
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it's pretty stagnant.
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SPEAKER_00: Nothing that impressive coming out.
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Nothing that impressive in the United States either,
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just at least in terms of PMIs,
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right?
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SPEAKER_01: So it's kind of,
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SPEAKER_01: you know,
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unless you're going to start looking further for stimulus
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around the world,
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SPEAKER_01: either...
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You know,
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Japan,
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South Korea,
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you'd have to sort of look for much smaller economies.
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SPEAKER_01: Kind of interesting.
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SPEAKER_01: Okay, do we plunge in?
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SPEAKER_00: Let's plunge in.
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SPEAKER_00: Let's go.
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SPEAKER_00: Last week,
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Congress passed and President Trump signed the massive One Big
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Beautiful Bill Act,
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SPEAKER_00: a sweeping budget package combining tax cuts,
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SPEAKER_00: spending changes,
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SPEAKER_00: and policy shifts.
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SPEAKER_00: The Senate passed the bill on July 1st with a 51 to 50 vote.
13:14
Vice President Vance casting a tie-breaking vote after an
13:16
intense overnight session.
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The House approved it 2018-214 early July 3rd after days of
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deal-making by Speaker Johnson.
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And President Trump signed it into law on July 4th,
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his self-imposed Independence Day deadline.
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SPEAKER_00: So let's look at what's in it.
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SPEAKER_00: We got permanent tax cuts extending the rates from Trump's 2017 reform,
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SPEAKER_00: $150 billion to new defense spending,
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SPEAKER_00: and a further $170 billion for border enforcement and deportations.
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SPEAKER_00: We had large cuts to Medicaid and SNAP,
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SPEAKER_00: potentially stripping health care from nearly 11.8 million people,
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SPEAKER_00: slashes to clean energy incentives,
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SPEAKER_00: rolling back EV,
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SPEAKER_00: solar,
13:58
SPEAKER_00: and wind credits,
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SPEAKER_00: and it raised the debt ceiling by $5 trillion.
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SPEAKER_00: Now,
14:02
the CBO estimates the bill will add about $3.3 trillion to
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federal deficits,
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while the Committee for Responsible Federal Budget says it
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would be closer to over
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SPEAKER_00: $4 trillion.
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SPEAKER_00: And I will say,
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SPEAKER_00: Neil,
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SPEAKER_00: the bill's passage,
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SPEAKER_00: you know,
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SPEAKER_00: it caused a lot of tension within the Republican Party.
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SPEAKER_00: You know,
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SPEAKER_00: we learned that Senator Tom Tillis,
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SPEAKER_00: who voted against him and got the,
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SPEAKER_00: you know,
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SPEAKER_00: the wrath of Trump,
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SPEAKER_00: he announced that he will not be seeking reelection in 2026.
14:28
SPEAKER_00: You know, there's a lot to discuss about this.
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SPEAKER_00: But I think my first question for you,
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SPEAKER_00: Neil,
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SPEAKER_00: is how do you think the public is going to perceive this?
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Will this be a major victory for Trump or,
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you know,
14:40
is he going to lose some support here?
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SPEAKER_01: I think it's time will tell.
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I mean,
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you know,
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it all depends on how people feel about it,
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you know,
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a year from now.
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SPEAKER_01: Right.
14:50
SPEAKER_01: I mean, where is the economy going to go?
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And right now,
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I think the opinion polls,
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you could you could quote them on me.
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SPEAKER_01: Right.
14:57
SPEAKER_01: But they're not that favorable, particularly concerning.
15:01
SPEAKER_01: how much this bill offers to most people,
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SPEAKER_01: you know,
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SPEAKER_01: at least in terms of what they get versus what they were going to get.
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SPEAKER_01: Of course,
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I think a lot of people didn't even know that a lot of these
15:12
tax cuts were going to
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SPEAKER_01: come to a close,
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SPEAKER_01: right?
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SPEAKER_01: So Trump simply keeping them on, you know, going forward is simply...
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SPEAKER_01: you know, more of the same for most people.
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And I think that was always one of the kind of psychological
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problems about this
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SPEAKER_01: bill from the beginning,
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SPEAKER_01: right?
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SPEAKER_01: You're not offering anything new to most people.
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You're just giving them what they've already thought they were
15:33
going to get.