Why Trump Needs To Break Some Promises, Fast!

In the alpha dominated, testosterone saturated, world of professional wrestling, there’s a tacit agreement between wrestlers and watchers that the whole thing is fake.

The hits are fake, the noises are fake, but the punters know this before buying their tickets.

In fact, their fakeness is so real they even have a name for it – ‘kayfabe’.

Kayfabe is the suspension of disbelief that allows fans to immerse themselves in the storyline as if it were real.

And they love it!

This week, the US got a ticket to their own kayfabe thanks to a vacuum of choices.

Put simply, they think Trump is the answer to a dire debt situation that he started in 2016 and Biden put on steroids in 2020.

This is what it looks like…

Imagine you have a friend who’s household expenses are $100k per year but their take home pay is only $80k.

They’d have a shortfall of $20k per year.

But they’re not worried because they have a line of credit to draw from to plug the shortfall.

The problem is, they keep drawing down $20k pa for the next eight years until they have a debt of $160,000 which they can’t pay off.

But it gets better…they come to you with a new year’s resolution!

In 2025, they want to work part time so they can do more fun stuff which means reducing their income from $80 to $60k pa.

And because they have more spare time, they increase their spending from $100k to $120k pa.

They now have a shortfall of $60k pa.

Sounds stupid doesn’t it!

This is what America voted for on Wednesday. A president elect who promised to cut taxes (government revenue) and increase spending (more debt).

But you can’t have it both ways – decrease income and increase spending – and expect to get away with it.

And Trump knows this.

He knows that to make a business work you have to do the opposite – drive revenue and cut expenses to the bone.

In 2016 when Trump was first elected to power, the economy had plenty of ‘slack’.

Asset prices weren’t hot, there was no threat of inflation or rising rates and the US government debt and deficit was half of where it is now.

All that has changed, especially the unbridled debt trajectory which Trump started.

On Wednesday, the stock market climber higher in already overstretched market.

Meanwhile, the bond market was flashing red warning us Trump’s promises will be the biggest kayfabe since the GFC unless he breaks a few.

Have a great weekend!

Adam

Back paddock – Warren Buffett, the world’s greatest investor, has recently increased his cash pile to US$325 billion, the highest level ever due to concerns the market is overheated.

His cash pile is greater than the market capitalisation of 477 out of 500 companies in the S&P 500!