Trump Administration Could Have National Template After Intel News Turns Heads
News of a potential agreement between the federal government and the chip maker could extend to pharma, biotech and more.
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The Alaska Summit has set the stage for more meetings, which is about as expected. We should find out more in the coming days on what is on the table for Ukraine.
A wide range of outcomes still seems possible — with Ukraine reluctantly getting forced into a deal high on the list. But also, the possibility that sanctions are increased (and enforced) along with the U.S. selling more weapons to Europe who can then, in turn, pass them on to Ukraine – effectively giving Putin more of the proverbial “stick” than “carrot”.
As important as it is from a humanitarian perspective and even a European perspective, markets are likely to be relatively calm regardless of the outcome. Oil and commodities could swing the most, but even then, unless we get materially tougher sanctions, I don’t see those moves being large.
The president does have more time to focus on peace in Ukraine, but he also has time to focus on "national production for national security" — with discussions surrounding Intel INTC (I own this stock and was one of my “picks” for 2025 – which has taken longer to play out, but seems to be getting some traction here), taking center stage.
I got to talk about this deal, the summit, jobs, inflation and the Fed on on Bloomberg TV (6:00 mark) , Bloomberg Radio (9:45 mark) and Tom Keen’s Single Best Idea podcast. It was a busy Friday.
National Production for National Security and Sovereign Wealth
The Intel news was the biggest new in this space on the week on this front. We see a “template” for government involvement in developing chips, pharma, biotech and a host of commodities (especially the refined/processed versions).
While Intel isn’t finalized, it sounds like money earmarked for the CHIPS Act could be used to make the investment, reminiscent of how the Department of Defense had money for the MP investment. Investments let the American public benefit if the deals work out (versus subsidies, etc., which tend to benefit existing stakeholders).
Look for more of these types of deals in the industries associated with national security. Increasingly, I’m think we will see a lot on “electricity” generation.
There are some “concerns” about too much government involvement. Not just in investing, but tariffs, regulations and even “fees” to export certain products to certain countries. That's not an urgent fear, but something that we need to think about, as the “flip side” of the positives I’m seeing with national production for national security.
Inflation
The data was mixed, but there were so many inconsistencies, one-offs, etc., that I don’t think the outlook on inflation changed for anyone (I’m still in the elevated but manageable camp – 2% to 3%).
The Bond Market
Look for the bond market to continue to move towards pricing in three, or maybe four cuts. One interesting thing about how the search for potential Federal Reserve chair candidates is being conducted is that we are hearing from a lot of respected and capable people that they would already have cut rates. I think that is an interesting approach and while inflation may make that difficult, my belief is that job market will nudge the Fed along faster than is currently priced in.
The long end may face pressure as the market is uncertain about the dual mandate commitment of the Fed. So risk premium, all else being equal, should increase.
But all else may not be equal. What will the Fed do if 10s (or 30s) stay higher than where the administration thinks they should be? The admin has had goals of getting 10s with a three handle, so couldn’t we see versions of operation twist done to achieve that goal?
There's lots to be done before we get to something like true yield curve control. I think the conversation will morph from just discussing cuts, but to “fixing” the yield curve. Seriously, if we want lower mortgage rates, the admin will need to do something on 10s and I expect cuts alone won’t get us there as risk premium will grow.
I will want to extend duration once we start hearing more chatter about yield curve control.
I continue to really like closed-end muni cipalfunds, especially those that hold longer dated bonds (which is the majority of them). Munis are “cheap” relative to taxable bonds (institutions are starting to see the opportunity), we will get cuts (which helps on the leverage) and while I have some minor concerns about the long end of the yield curve, I do think the admin will start focusing on getting those yields lower
At the time of publication, Tchir was long INTC.
