Pro Perspectives 11/12/19

November 12, 2019

Trump touted the strength of the economy in a speech at the Economic Club of New York today.
Market folks were looking for something new. They didn’t get it.
Most were looking for him to implode the status of a China trade deal. I was listening for some hints on turning focus to infrastructure–the yet to be addressed big pillar of Trumponomics. What we did hear, loud and clear, was another hammering of the Fed, which I suspect is related. How?
How do you pay for a massive infrastructure spend (maybe in the neighborhood of $2 trillion)? An infrastructure bond.
By orchestrating an indefinite trade war, Trump has forced global interest rates back toward record lows (if not beyond). If he had his way, the Fed would have slashed rates more aggressively, and market interest rates on our sovereign debt would have plunged into negative territory, as it has for much of the rest of the world (including Europe). Consider this: In August Germany sold 30-year government bonds for zero interest!
Trump may have a chance to sell a 50- or 100-year infrastructure bond, not for 0% interest, but maybe for 2%-3%. That’s still incredibly cheap money, and the global demand (given the state of global rates) should be plentiful.