The long game

Warren Buffett says that predictions tell you more about the person that makes them, rather than the predictions themselves. The chart below shows growth projections from the White House vs. others, including CBO. The difference is so big and radical, that optimism is an incredible understatement. it’s dangerous. The fact is, the U.S. is piling up on debt, the Treasury cannot issue enough long term debt without sending yields to new highs, and the dollar is sinking. If we want to see the future we can look at Japan, with 250% debt to GDP, growing inflation (3%ish) and no growth (0.6%). In the “hope”’side of the equation for the U.S., we have AI, with no clear immediate path and in tough competition with China, tariffs that will collect some billions against a Trillions problem, and onshoring for manufacturing which will take years to play out. If yields across the curve continue to go up, or simply stay still, the commercial real estate market will collapse, adding a few more trillions to the problem, which will be blamed on its entirety to the Fed. But it’s the lethal combination of high costs of debt and remote working that is weighting on the sector. Equity markets are not discounting any of these scenarios, living day by day. Investors are waiting for the straw that breaks the camel back.

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