Here's the Deal with the Economy - February 9, 2025

Economy: In Slowdown

Market Cycle: Bullish

_{Week 6 of 52 for 2024: 11.54% of the way through 2025}

Table of Contents

• Weekly Note:

• Tariffs for Canada and Mexico lasted all of 2 days …

• A Sovereign Wealth Fund? Be Careful What You Wish …

• D.O.G.E. Kicks the Hornet’s Nest with USAID, and t …

• Fewer job openings, but better employment numbers.

• Morgan Stanley reading Here’s the Deal, too?

• Data center construction peaking for this cycle?

• Markets liking Treasury Secretary Scott Bessent’s …

• Significant Economic Data from the week:

Weekly Note:

This week brought a whirlwind of economic and political developments, from abrupt tariff reversals on Canada and Mexico to the rollout of additional levies on China. The shifting stance on trade policy raises questions about whether these measures are truly about correcting imbalances or simply a high-stakes game of political maneuvering. Meanwhile, the proposed U.S. Sovereign Wealth Fund has sparked debate, signaling a potential late-stage bull market move with significant economic implications depending on its structure and governance.

Beyond trade and economic shifts, the D.O.G.E. team’s investigation into USAID spending has ignited controversy, exposing potential misuse of taxpayer funds for ideological and geopolitical agendas. The fallout is just beginning, with reactions ranging from calls for transparency to outright dismissal of any wrongdoing. As always, market participants must cut through the noise, focusing on structural shifts that could impact investments and economic stability rather than getting caught up in the political theater.

Tariffs for Canada and Mexico lasted all of 2 days… So far.

This week kicked off with yet another curveball. On Monday morning, the planned tariffs on Mexico were officially postponed until March 1st. Shortly after, Canada received the same postponement. The reason? Both countries agreed to deploy 10,000 troops to bolster their respective borders.

There’s a bit of a catch here as Canada had already made this commitment back in December.

So, this raises an important question: Are these tariffs really about addressing unfair trade practices (which were put into place in the first Trump presidency), or is this more about border security? On the surface, it could be either or both. But events of the past week also say that this about scoring “easy” political wins which can be highlighted later as a success. Which is also a good strategy as that’s how politics works since most citizens don’t pay close enough attention to what’s actually happening.

Meanwhile, the additional 10% tariffs for China went into effect as planned.

A Sovereign Wealth Fund? Be Careful What You Wish For

The Trump administration has proposed creating a Sovereign Wealth Fund (SWF) within the next 12 months.

While SWF’s are usually a tool for emerging economies, not well-established ones like the U.S., there are potential benefits. As with anything, it all depends on how it’s implemented.

While SWFs can provide significant economic benefits for developed nations, they also come with challenges related to governance, risk management, and geopolitical considerations.

There is also some question as to whether a federal SWF can be implemented without Congress.

Ultimately, the most important aspect is how it would be structured and implemented. Most importantly, how who would be in control of it and what the investing parameters would be.

Certainly something to keep an eye on in the coming months.

I’d be remiss if I also didn’t point out that the push for a Sovereign Wealth Fund is also a classic marker of a later-stage secular bull market. It’s the type of thing you see when the economy and markets have been running hot for over a decade.

D.O.G.E. Kicks the Hornet’s Nest with USAID, and the Fallout Is Just Beginning

This week, the D.O.G.E. team stirred up major controversy by shutting down USAID headquarters and exposing where some of its funds have been flowing.

Truth is, USAID has been criticized for years for its questionable spending of taxpayer dollars, often funding left-leaning organizations under the guise of foreign aid as well as allegedly funding coups and unrest in other countries. Now, thanks to D.O.G.E., this debate has been thrown into the public spotlight.

One of the most fascinating reactions has been watching people suddenly pretend that the government is highly efficient with taxpayer dollars, at least when it comes to certain agencies. These same voices have spent years complaining about the Department of Defense (DOD) being bloated and wasteful, yet now they insist USAID’s spending is above reproach.

The reality? D.O.G.E. appears to also have its sights on the DOD as well. But instead of taking on the biggest target first, they appear to be starting with the easier and more obvious cases of fraud and taxpayer abuse. A good strategy if that is the case.

Any serious person knows the need for serious audits of bloated government agencies which have been provably sending money to organizations around the globe which go against the best interests of the taxpayers flipping the bills.

On one side of the debate, there’s growing concern that taxpayer dollars have been used to:

• Financially support media outlets which pushed censorship and extreme left-wing narratives.

• Fund opposition movements in foreign countries to encourage political upheaval (think Ukraine, Syria, Brazil, etc).

On the other side, I suppose that some are arguing that the government is efficient, its spending is neutral and nonpartisan, ensuring funds are evenly distributed to serve the public good, rather than enriching political allies, driving ideological agendas, and fomenting unrest among governments they don’t align.

For those of us who have worked directly with government agencies, from municipalities to federal, we’ve seen and experienced this dysfunction firsthand.

It reminds me of a conversation I had while working on a government contract when I stated to a government official:

“It seems to take government agencies two weeks to walk a piece of paper down the hall for a signature that was already agreed upon and approved, and then another two weeks to walk it back and get it on record.”

To which the government official shot back:

“No, Nick. We would lose the piece of paper walking it down the hall first.”

At least there’s still a little honesty left in government.

At this point, it’s hard to ignore the irony of Democrats expressing outrage over this latest investigation. Both parties continuously campaign on promises to "fix the system" and ensure fairness, but if the federal government is actively directing funds to push certain narratives and hiding that information, then the playing field isn’t level at all.

While it’s been great political theater so far, this story is far from over. In fact, it’s only just beginning as this is exactly the kind of action Trump campaigned on, and a major reason he won by such a strong margin.

There’s an old saying making the rounds online, “When fraud is being uncovered, the people screaming the loudest are usually the ones benefiting the most.”

Another one that rings true is the strange irony of people attacking those uncovering fraud instead of questioning the fraud itself.

One of the more ridiculous criticisms has been the doxxing and smearing of the young researchers who walked away from lucrative jobs to analyze government budgets, specifically a 19-year-old who was one of the first targets. The criticism? "He’s only 19."

The problem with that argument? This same 19-year-old deciphered a 2000 year old Greek scroll using AI. Not exactly the local teenager struggling to show up for work on time.

But here’s where the real hypocrisy shows up:

• The same people dismissing these young analysts as “just kids” are often the same ones who support 5-year-olds making irreversible medical decisions about their bodies.

• They’re also perfectly fine sending 18-year-olds into war to fight and die in conflicts that profit the political class.

So which is it? If a 5-year-old is mature enough to make permanent life-altering choices and an 18-year-old can be sent to die on a battlefield, then a few brilliant young minds using AI to root out government waste and corruption and make government spending transparent should be more than welcome.

But then again, most of this is simply political theater.

While I don’t agree with everything about how this investigation is being handled or promoted, there’s no doubt that it’s long overdue, and nothing like this is ever going to be perfect.

But here’s the key takeaway:

This isn’t just about politics. The reallocation of massive amounts of government funding will have real economic and market ramifications. That’s why it’s worth paying attention. Not for the noise and hyperbole, but for the structural shifts that could impact businesses, industries, and investments worldwide.

So, as always, stay open-minded and keep your emotions out of it. There’s plenty of BS flying from both sides, and none of it should negatively affect your life. Trust me, the people leading these battles don’t care how you feel unless you agree with them anyway.

Fewer job openings, but better employment numbers.

JOLTS (Current Job Openings) came in softer than expected this week. Falling back below the eight million mark. Another sign of a slowing economy.

Below is a breakdown of the change in job openings per sector.

Meanwhile ADP non-farm employment change came in higher than expected, but private payrolls and nonfarm private payrolls came in below expectations. The good news is that last month’s numbers for all three were revised up, which resulted in the unemployment rate falling to 4.0% from 4.1%.

Morgan Stanley reading Here’s the Deal, too?

Last week it was Chrystia Freeland echoing the prior weekend’s edition of Here’s the Deal. This week it’s Morgan Stanley as they came out this week and said that they no longer expect a rate cut in March. Instead they now expect the first one in June.

The change was announced AFTER last week’s Here’s the Deal was posted which stated:

Once again showing that either world leaders and major investment banks are readers of Here’s the Deal, or this is just more proof that your favorite economic writer knows what he’s talking about. You still only get those two choices though, because it’s still my rule. 😃

Data center construction peaking for this cycle?

In another sign that the narrative powering the current credit cycle looks to be running out of steam, Data Center construction is showing signs of topping for the time being.

While this may be true now, probably best to expect it to resume higher in the future as Microsoft, Amazon, and Meta (Facebook) all stated in their earnings reports and calls that they are continuing to invest huge sums into AI as they still cannot keep up with the increasingly growing demand.

More proof that AI is truly transforming the entire economy as this 4th Industrial Revolution is only just beginning.

Markets liking Treasury Secretary Scott Bessent’s course of action.

New Treasury Secretary, Scott Bessent, relieved some pressure on the Fed this week by continuing the Biden Administrations policy of maintaining the current size of bond sales well into 2025. They are also not asking for the Federal Reserve to lower the short term rate at this time, and instead continuing to focus on longer term yields.

For those that read US Treasury with the “Kick Save” in November 2023, this was the “kick save” of the markets and the economy by Janet Yellen.

Interestingly, Bessent had been critical of the move by the US Treasury at the time and the past few months. However, Bessent stated this week, “He and I are focused on the 10-yr Treasury.” referring to Trump.

Also interesting is Trump now stating that he is not demanding rate cuts the week after he criticized the Fed for not cutting rates after weeks of demanding cuts.

This was definitely good to hear as was Bessent also stating that he is only going to discuss what the Fed has done and not speak about their future actions going forward. This is a great development as the importance of a Central Bank’s independence and politic-free is crucial to free and open markets.

Bessent also stated that the Trump Administration will have a strong dollar policy. Something to keep an eye on as a strong dollar is typically bad for trade and asset prices. However, it’s a good move here with the current conditions.

All good news on this front this week. It might lead to some shorter term pain, but if handled correctly it could limit the pain and help lead to a stronger economy in the future.

Significant Economic Data from the week:

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