Key Highlights From Our Latest Log Entries

5/21/2025

Consistent with our view that the recent rise in yields has everything to do with the proposed federal spending package, the 10yr treasury yield just popped to above 4.5%, and the 30-year to 5.01% on news that an agreement was reached to raise the state and local tax deduction to 40%.

Again, fiscal stimulus, and expanding the budget deficit, at this juncture, virtually has to be viewed as inflationary... Like I keep saying, while clearly they sense urgency as economic weakness brews under the surface, pumping the gas before the hard data roll over will likely prove to be yet more problematic for the bond market, and ultimately equities (at these valuations).

5/20/2025

P. Boockvar on the latest banking survey:

“The May Banking Conditions Survey was released yesterday by the Dallas Fed and here was the summary:

"Loan volume grew slightly while loan demand was unchanged in May. Credit tightening continued, but loan pricing declined. Loan nonperformance decelerated sharply, increasing at the slowest pace since the end of 2022. Nevertheless, bankers reported a continued contraction in general business activity. Bankers are less optimistic about the outlook. On net, survey respondents still expect an improvement in loan demand and business activity six months from now, but that sentiment is less broad based than in previous months, and loan nonperformance is expected to increase."

The data was collected between May 6 and 14 so it does capture a few days after the China trade truce. https://www.dallasfed.org/research/surveys/bcs/2025/bcs2503#tab-report

Here were comments from some bankers that answered the survey and it was littered with the word 'uncertainty'

• Loan activity has held up, although it's softer than three to six months ago. The broader uncertainty in the economic outlook is driven by tariffs and government spending [cuts]. Nevertheless, there is hope that the uncertainty will dissipate as the tariff impact is more known along with potential interest rates cuts.

• Lots of companies and consumers paused [activity] due to tariff policy, but expectations of further negotiation with China should boost activity.

• Concerns around an increase in cost for construction supplies may impact current projects underway along with future residential construction projects being put on hold. Higher rates and insurance costs continue to impact the ability for some borrowers to qualify for residential home loans. [We are] anticipating a temporary slowdown in supplies due to tariffs and [them] possibly having a negative impact on inflation. Although we have seen some deposit costs come down, deposit pricing remains competitive within some of our markets.

• Tariffs and their impact on a local level are of great concern to our bank, specifically for oilfield companies and low-and-moderate-income individuals, two of our most-served markets. The impact of tariffs is unknown at this point, but how far their impact will potentially reach is concerning.

• No specific concern, but sentiment is weakening due to the unknown length and impact of tariffs.

• [We are concerned about] liquidity to keep up with loan demand.

• We continue to feel the pressure of the heightened level of economic and regulatory uncertainty. [We are] running a variety of scenarios, both formally and informally, to gauge the impact of different possible outcomes.

• Tariff uncertainties seem to have had the biggest impact over the last six weeks. Interest rates have not declined as expected, which has impacted loan demand. Consumer uncertainty and a decline in consumer confidence have had an impact on consumer spending. I am observing a wait-and-see attitude, so our members are cutting back on big purchases right now.

• Economic uncertainty created by tariffs (real or threatened) and decreasing consumer sentiment at the local level are not helpful for consumers or the banking industry.

• Tariffs are causing uncertainty with small businesses and in the economy in general. This needs to be resolved as soon as possible. Banks will be affected.

• Uncertainty regarding the potential effects of tariffs has certainly delayed capital-investment decisions for both business and consumer customers. We did not meet loan growth [projections] for the first quarter and probably will not meet these goals for the second quarter.

• Job insecurity has negatively impacted loan demand, both in the consumer and commercial areas.”

5/18/2025

I sympathize with economist Diane Swonk’s post this morning:

“There is a souring mood that hangs over the economy. It is showing up in virtually every survey from that for consumers attitudes to manufacturing activity. Service sector measures have held up somewhat better but what little in guidance we are getting by major companies is worrisome on that front. Guidance by major airlines has been suspended or is moving to the downside, as consumers show more discretion in the purchases and uncertainty about the toll tariffs might take mounts."

5/14/2025

Two CEOs, two different takes on current general conditions (HT P. Boockvar):

Barry Sternlicht, Starwood Properties:

"The economy is going to weaken. I just was talking to CEOs of Fortune 100 companies in the past few days, returning from the West Coast and there will be issues on shelves and there will be prices for consumers to absorb. And you kind of already were in a recession, you kind of saw it at the lower half of the country and the top 10%, 15% of the country was carrying spending in consumption. And now, we'll see how the wealth effect actually plays through. Actually, the markets have recovered shockingly to pre-Liberation Day highs, but that doesn't really feel right. And things like travel are clearly off. I guess it was Expedia that reported and then Airbnb, and we've seen the travel numbers, the airlines have talked about their stress as international travel in the United States dissipates. But it will go somewhere. So, Canadians will go to Europe or they'll go to the Caribbean. They may not come here."

James Dolan, Sphere Entertainment:

"Las Vegas has over 40 million visitors every year so far. We've seen that the international accounts for a little over 20% of the guests to Sphere and 10% for concerts. We really haven't seen any change. So I think, there's a little going on in our economy with that right? Maybe later on we'll see some substantive reaction from the marketplace, but right now we're really not seeing it. So, and even if we did, it doesn't account for that big of a difference, right? And, I think in general, when it comes to concerts, demand exceeds capacity."

------------------------------------------------------------

The bullish case for a fiscally stimulative, "Big Beautiful," federal spending bill:

Bullish for spending, notably reduces the odds of recession.

Bearish case:

Budget deficit deterioration accelerates (potential for fiscal crisis [bond market], rates rise with inflation (mess for consumers, as well as for the govt rolling over volumes of debt) and investor sentiment falls.


5/12/2025

The US equity market is rallying hard today on the weekend agreement to reduce tariffs on Chinese goods to 30%, and for China to cut US tariffs to 10%.

Clearly, the administration does not have the economic and market pain tolerance to follow through on Trump’s ambitious objective to entirely re-do the global trade matrix… Therefore, even the 30% tariff on Chinese goods won’t ultimately stick (they’re set for 90 days), as that, reduction notwithstanding, would be very destructive – economically-speaking!

For now, it appears as though 10% on all imports is Trump’s bottom line… Which, by itself, takes us back to the Smoot-Hawley days – 1.4% of GDP today, vs 1.3% then.