Journalist: The S&P 500 index returned to 6 thousand points. Without making great fuss. Tremendous resilience that of the bag. Has nothing happened here? False alarm, then? Have all the problems fixed?
Gordon Gekko: It went from everything. And none of the problems was fixed. Neither the old people who came from inheritance nor the new ones that Trump created.
Q.: And yet we are fully recovered. The bag rally is very powerful and rests to only 2% of records. How is it understood?
GG: It is not what we would have thought in advance. But it is understood as a great sample of confidence of the retail investor. Not of the professionals, by the way.
Q.: And not of the Hedge Funds, who continue to maintain their short positions.
GG: That’s how it is. But there are many Davids who took the Goliaths of Wall Street. They saw the fall as an opportunity and have not changed their minds with the rise of the quotes.
Q.: Are they aware of the dangers that run?
GG: I would not underestimate the small investor. Neither your muscle nor your insight. Although they can be underestimating those dangers. In essence, they bet on two great trends. A Trump contained in its most destructive impulses (the taco effect that already popularized) and an economy capable of getting airy of the trance. In part, because they discount that we saw the worst, the most harmful, of the government agenda. That bet does not assume that all doubts or fixed problems have been cleared.
Q.: But they will not get aggravated again.
GG: As is. Trump launched a shock policy, and could not hold it. He arrogated, when reality came on him. The markets disciplined it. It is the taco effect. And it is also supposed to be hidden damage, already produced but that we still do not know, and that it can go to the surface and force to rethink the logic of the rally.
Q.: A recession or an overflowing overflowing. Or the worst of the worlds, a stagflation.
GG: Correct. We saw consumer psychology depressed as never before with Trump’s tariff offensive. His trust in April played floor. It sank at a level that in the past was more than compatible with a recession. And he registered, at the same time, a jump of inflation expectations to the highest threshold in forty years. At the Michigan University survey, he touched 7.3% to one year. That is, a figure that was not even observed when inflation effectively exceeds 7% in mid -2022.
Q.: Let’s see if I understood it well. The rise of the bag tells us that it will not be so. That the consumer exaggerates, who panicked and sees visions, above all, in inflation. When the bag quoted as now, in February, optimism reigned and did not think of a recession or a price debauchery. Although Trump’s agenda was known, no one imagined that he wanted to apply it to the letter.
GG: And now we returned to the starting point because it is thought that, even if I want to apply it, it cannot do it.
Q.: China is the last of the shoe.
GG: That is the background fight. But Trump has had to give in other adventures that he proposed. The reciprocal tariffs to half the world, the pressed with the Powell’s Fed … for not citing eccentricities: Canada as state 51 or the purchase of Greenland.
Q.: The softening theme is pending is the tax reduction package that Trump promotes in Congress.
GG: Correct.
Q.: The bag does not believe that Trump can get his way.
GG: A sales package will finally be approved. But how spicy? That is the question.
Q.: What do you think?
GG: It will be what the bond market accepts to finance. The key to the situation does not have Trump or the Speaker Johnson. If long rates are triggered, if treasure bonds auctions become a ordeal, there will be no better alternative for the government to wrinkle in this front.
Q.: And what will happen to the bag?
GG: We already saw it in April. If the struggle is important, the long rates will take the baton. And the bag is not going to get rid of the storm.
Q.: Do you see it likely?
GG: It cannot be ruled out, even if it is an unnecessary mishap.
Q.: This week we will see the first reading of May inflation. The Fed meets next week. And Trump, last week, insisted with the need to lower the rates. See any connection?
GG: April inflation did well. If the May, also, as the bag trusts, we will hear more than a fed rate decline before the end of the year. And not because Trump asks for it. The tariff war began in March. April and May was its peak. And if no transfer is noticed at prices, the Fed that sat from December to see and wait, will thus have a very important evidence in sight. You will want to wait more, sure. That tariffs settle, that the consumer regains morality, and that there are no surprises. But it will be a much quieter wait. With the attention, again, in which an unforeseen weakening of the real economy does not happen.
Source: Ambito
