Bessent's Detox
Just a "Detox" or a Recession?
“The market and the economy have become hooked, become addicted, to excessive government spending and there’s going to be a detox period.”
—Scott Bessent
So here’s the playbook, Trump/Bessent want to shift the US economy away from a government dependence towards being more reliant on the private sector. This means they want to lower government spending and allow the private sector to “take up the slack”..
The argument for this is that Bidenomics excessively intervened in the economy — causing distortions and imbalances that must be fixed.
Bessent says that if the US does not reduce their budget deficit — the debt trajectory will become unsustainable and hence unfixable. Now is the time!
A few weeks after Trump was elected, we published The Bessent Pipe Dream to discuss his plan to fix America’s problems. (The piece has now been removed from paywall.)
After Trump was elected, markets went on a euphoric rally riding high on the Trump 2.0 hopium of deregulation, growth, small-cap rallies and the like.
Two weeks after publishing The Bessent Pipe Dream we published The Spell of Donald to push back against the market narrative. I must add that I barely remember anyone who pushed back against that bullish narrative with any semblance of confidence — but if I am wrong feel free to let me know.
Meanwhile the broad market indices started peaking a few weeks after November 5th (election day) with the Russell 2000 not even managing to break its November 2021 high. So much for that small cap rotation..
The Nasdaq is now down 13% since its February 19th high while the S&P 500 is fairing better with a 9% drawdown. That said, beneath the surface there is significant variance — Nvidia has dropped >30% from its peak.
Post-Trump 2.0 euphoria is swiftly turning into dysphoria as the WH is becoming increasingly unpredictable in its moves regarding tariffs and greater geopolitical posturing. This coupled with weak economic data creeping up is starting to draw bears out of their hiding…
Just a Detox?
Meanwhile, Scott Bessent is dismissing all worries with the response that this is just a detox period that must happen — and that we must not worry about a few weeks of market turmoil.
“Could we be seeing that this economy that we inherited starting to roll a bit? Sure. And look, there’s going to be a natural adjustment as we move away from public spending to private spending.”
“We’re focused on the real economy — can we create an environment where there are long-term gains in the market and long-term gains for the American people.”
Bessent referring to the economy as a drug addict…
“The market and the economy have become hooked, become addicted, to excessive government spending and there’s going to be a detox period.”
And he may be right, but for me the key issue (and what will decide the outcome!) is that the detox isn’t as easy as he may be suggesting.
In his last piece “You are not listening!” —
ended it with an interesting quote.Germany went Fiscal, China went Fiscal, the US went on a Detox, and JD Vance went to Greenland!
Let’s discuss potential this policy divergence coupled with the Trump Put/Call dynamic that Bessent has acknowledged. Let’s see why Bessent’s plan won’t work especially after the economy has been optimised to Biden’s Techno-Imperial Cycle.
You would think Bessent would understand this having worked under Soros for all those years!