High stakes

While the new tax bill is still being debated in the Senate, equity indices are reaching new highs. As it stands now, the new bill will add $5Tn to the debt ceiling. In other words, it allows the government to reach $42Tn of debt without having to justify anything else other than the natural course of business. At the same time, for the end of the first half of the year, the REPO market was under stress, as banks try to close the books with a clean balance sheet to show that in the Call report. And the rumours that the Trump administration is already on the hunt for a new chairman for the Fed, are becoming a fact. The market is shifting and is starting to think that the Fed will cut rates in September, after Jackson Hole, with or without Jerome Powell. The bottom line: more debt, more monetary stimulus expected, with equity markets welcoming that liquidity wave, with the dollar sinking and valuations on the S&P 500 reaching new highs. What can go wrong?

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