Here's Why I Think We Could See 4 Rate Cuts, Putin's Under Pressure, Eyeing Security Plays
Let me explain why I expect several rate cuts to come, why Russia appears to be getting the 'stick' and why we should watch stocks related to national security.
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Fed Chair Jerome Powell had every opportunity to downplay the risk to jobs on Friday. He could have focused on the low unemployment rate (primarily due to smaller labor force and labor participation rate, which may be why he didn’t). He could have focused on theories that the number of monthly jobs required to keep the unemployment rate steady is as low as 50,000 (it is possible, but that is not an “exciting” number for anyone to hear). He could have tried to talk up inflation.
He did none of those things.
I suspect that while we had two official dissents at the last meeting, the tone was even more dovish than that, and that was while they still thought the June payroll data was strong.
I think three to four cuts are coming, mostly because I remain nervous about the job market and growth prospects.
I don’t see steepening of the yield curve (losing control of the long end) like last September, because this administration (Treasury Sec. Scott Bessent and Commerce Sec. Howard Lutnick) will be well aware of that risk and looking to take measures to prevent a repeat of that.
Applying the 'Stick' to Putin
For the first time, since inauguration day, I see a clear path to peace in the Russian war on Ukraine. I always thought it would require carrot and stick for both sides. Zelenskyy got the stick early, but it has been more balanced of late. Until recently, Putin seemed to get all “carrot” but that may be changing:
Weapons to Ukraine via Europe. That seems to solve the issue of the U.S. getting paid for weapons, which has been a key hurdle from the President.
It will be curious to see if Europe is able to hold back any of Russia’s frozen dollar reserves to fund their purchases.
Attacking into Russia. The President seemed to condone Ukraine attacking into Russia. While I work with many retired flag officers at Academy Securities, it only takes a modicum of military understanding to know that in warfare attacking supply lines is crucial to success. So is taking out supply depots and destroying rail and other means of transit. Hitting rear area deployment zones is also necessary. All of those are standard operating procedure and largely not been done (allowed) by Ukraine. That could push Russia’s forces back and bring Putin to the table.
The escalation could lead to more casualties on both sides and does risk that Russia does something even more aggressive than they already have done. That is a real risk, I’m not ignoring, but it not my base case.
One more push on tough sanctions. While I’ve argued that sanctions are relatively ineffective, especially if not fully enforced (which has been the case, not just with Russia, but with Iran), severe sanctions with commitment to enforce for several months, could push Putin over the edge, economically.
It remains to be seen if Europe has the “guts” to close off purchases of Russian commodities. They are closer to being able to do that than at the start of the war, but it will take some sacrifice. Will the U.S. be comfortable hurting India or China, the main purchasers of Russian oil? Maybe, but that could interfere with broader policies on trade? Brazil, could also be targeted, which seems easier than targeting China or India, except much of what Brazil imports, is useful for farmers and could hurt our own agriculture business.
I think we are closer to peace and think the President will negotiate very favorable terms for our commodity (and energy) companies to reform Ukraine and maybe even parts of Russia.
As we’ve seen with MP MP and now INTC, look for the administration to find ways to “jumpstart” industry critical to national security, but in ways that allow the country to do better if they get the decisions correctly (gains on their holdings, if they achieve them, will reduce the deficit).
So scouring the universe of companies that could see big benefits from the National Production for National Security policy makes sense. Companies and industries that mostly need deregulation to thrive, should do particularly well, if the administration continues to focus their attention on this path.
I'm comfortable on yields and would be taking advantage of Friday’s rally to reduce exposure to mega tech and add exposure to commodities, industrials and small/mid cap stocks.
At the time of publication, Tchir had no position in any security mentioned.
