This Is The GAME PLAN For The U.S. Economy (Uncut) 03-18-2025

REVEALED: This Is The GAME PLAN For The U.S. Economy | Jim Bianco

Do you believe we’re in a crisis right now? Do you believe that the U.S. economy, the U.S. government has too much debt, too big a deficit, is paying too much in interest costs, and is at a point where something has to change? They would argue, and Bessent has said this, and Lutnick has said this, yes, it has to change. We have to go forward with a different approach. Hello and welcome to Soar Financially, a channel where we discuss the macro to understand the micro.

My name is Kai Hoffman, I’m the Ed.J.R. mining guy over on X, and of course I’m your host of this channel, and I’m really looking forward to catching up with Jim Bianco. He’s the founder of Bianco Research, and we have lots to talk about, especially on the macro side. We’ll talk about what is the game plan in the U.S., what is the new administration trying to achieve? Because I’ve been wondering, has there been a PowerPoint that was handed out during the first days of the administration, like a game plan? And I’m really trying to figure that one out.

There’s so much noise, and I think Jim can really help us make sense of it all, and we’ll put it together and really try to, as I said, make sense of it, what is going on. Do we want a lower value dollar? Do we want lower bond yields? Are we trying to put the U.S. into a recession forcibly? Things like that we’ll discuss. Before I switch over to my guest, hit that like and subscribe button, it helps us out tremendously, and we do appreciate it.

And it’s free, of course, so it doesn’t cost you a thing. So thank you so much for that. Now, Jim, it is great to have you back on the program.

It’s good to see you. Thank you so much for joining me. Yeah, thanks for having me.

Enjoyed looking forward to the conversation. Absolutely. Yeah, really enjoyed the first 10 minutes we just had here before hitting the record button.

Really, really enjoyed that. But Jim, we need to set the scene just a little bit before we dive into some of the topics and the game plan discussion here. But what’s your assessment of the economy right now in the financial markets? I’ll answer the question two ways.

January 20th, I thought the economy was good, and I thought the financial markets had a certain viewpoint on how the world was going to work. Now that you get to the middle of March, I still think the economy’s okay, but the world has gotten a lot more uncertain because we’re trying to sort out what it is that the administration is trying to do. And I’ll add that what is really kind of making it difficult to understand is you have to think about Trump’s personality.

Trump is a transactional kind of guy. He’s not an ideological person. So he’s doing something that seems to be an ideological shift, but he’s doing it in a transactional way.

So he hasn’t given like this big policy speech to tell you what he’s trying to do and stuff, because that’s not his way. But yet it seems to be that that’s what he’s doing. So the financial markets are in a bit of turmoil trying to understand what it is he’s doing.

Yeah, the markets absolutely hate uncertainty, of course, and that’s what we’re seeing. The VIX has been taking higher and higher here. Maybe we’ll start with some cabinet members and staff, maybe to help out with the policy here.

And Scott Besson comes to mind here. What are your thoughts on his cabinet members and to sort of push through that game plan that we’ll work through here? I think his cabinet members now, as opposed to Trump 1.0, are much more focused. They have kind of a theme behind them.

Lutnick at Commerce, Besson at Treasury, Scott Mirren, who I think is probably least understood at Council of Economic Advisors, and Jason Furman, who’s the National Economic Council Chairman. These are really good people. These are really good, smart people that seem to have a big view.

Now, I’ve kind of teased that. So I think that these people have a good view. But let me dive into it.

What is that view? And let me answer the question by starting with a question. Do you believe we’re in a crisis right now? Do you believe that the U.S. economy, the U.S. government has too much debt, too big a deficit, is paying too much in interest costs, and is at a point where something has to change? They would argue, and Besson has said this, and Lutnick has said this, yes, it has to change. We have to go forward with a different approach.

So for those, like, and now I’m taking a shot at The Economist magazine, that last week’s cover had a picture of Trump with a can of gasoline and a lit dollar bill about to set the world on fire, that, you know, the basic premise of the article was just stop doing this. He can’t stop doing this. Because the question is, if you believe we’re in a crisis, and they do, as 81 million voters do, a lot of people in the financial markets think that the debt was unsustainable.

Jay Powell has said that the debt in the fiscal situation was unsustainable. That if Trump was to walk to the microphones right now and say, I’ve had to change your heart, I’m a transactional guy. Forget the debt tariffs.

They’re all gone. We’re going to go back to $7 billion budgets. We’re going to go back to $2 trillion of deficits.

We’re going to run, we’re going to run the debt up well over $40 trillion. We’re going to give Ukraine a blank check for whatever they need for as long as they need it. I think that the reaction in the markets would be worse than what we’re seeing right now.

Interest rates would soar. So we have to kind of accept that he believes, even if you don’t, that the status quo that we used to have, we cannot go back to. We have to push forward with something completely different.

And the goal is to bring down the value of the dollar, to bring down the value of debt relative to GDP, to shrink the deficit, and to try and bring things under control. And that’s why they’ve argued that their target is the 10-year yield. To bring down the level of the 10-year yield, the S&P will be fine if we do the rest of this.

And so that’s really what we have to start answering the question is, can the status quo, can we go back to it? Could the status quo hold? And the answer that they give, and as 81 million voters give, and Jay Powell seems to agree with, is no, we can’t go back to the status quo. So that’s why we’re pushing forward in something different. Yeah, it’s really, really interesting.

Like Trump session is a word that I’ve been picking up in media as well. And I don’t want to defend Donald Trump, but it drives me nuts, that word, because it comes from the wrong place, in my opinion. Maybe he was the last drop in the bucket here, but the bucket was already full.

It was overflowing almost. And to blame it all on him now seems a bit unfair, in my opinion, regardless of where you stand on the political spectrum here. It doesn’t matter, because the economy was already where it was.

The deficit was where it was, exactly what you said. You know, what people like to say about Trump is that he was the coroner, not the murderer. You know, he’s the guy that looked over the dead body and said, yep, it’s dead.

And you’re confusing him with being the murderer. And so that’s kind of, you know, the thing about Trump. And that also brings to the other thing about, if you believe the status quo can’t hold, or make me a strong case that the status quo can hold, because what that means is, let’s just go back to the way it used to be, the big deficits and the big spending and everything.

And then what do we do? The answer is nothing. We don’t have to do anything if the status quo can hold. We don’t have to raise taxes.

We don’t have to cut spending. We don’t have to do anything. Just, you know, just continue on.

But otherwise, the other problem is, it’s easy to say, he’s doing it wrong. He’s good. This is a bad policy.

There’s a bad policy. The implication has always been, go back to the status quo. But if we can’t go back to the status quo, that’s incomplete.

You can’t say he’s doing it wrong. You got to say, what should we be doing? And otherwise, and the problem is, oh, we should raise taxes on the rich, we should cut spending. That is the status quo.

That is what we’ve been arguing for 60 years, raise taxes on the rich, cut more spending, you know, adjusting baseline budgeting. And that’s got us $36 trillion of debt, 120% of GDP and $2 trillion deficits. So what is it that we should be doing? Look, last thing I’ll say here is, I’m fully open to the idea that what he is proposing might not work.

It might, you know, but what I am also suggesting is, what else are we going to do here? Like I said, just say, go back to big spending and go back to the way we always cut the budget and talk about taxing the rich. That is the status quo that doesn’t work. We can’t go back to that.

That’s why we have to go forward with something different. Yeah, he got a mandate to fix things. Simple as that.

The question is though, and you use the word theme, I have to sort of understand, and that’s my biggest struggle actually running this podcast as well, like what is the game plan? And you said he’s very transactional or transaction oriented. There’s no policy speech or anything like that. But how does he, do you think there was a meeting with his cabinet members with Besson, Mirren, Lutnick, they all sat down and Trump said, okay, this is what we need to fix.

How do we do this? So Mirren wrote a paper back in November, right after the election called Restructuring the Global Financial System. And in it, he had what, you know, has now gotten very popular called the Mar-a-Lago Accord. And just so everybody knows, the reason that came about is all these big realignments of the world, currency accords of the like, are always named after the resort or the hotel where they were made.

Bretton Woods. We all know the Bretton Woods Agreement in 1944. Bretton Woods is actually a resort, still is in existence today in New Hampshire.

The Plaza Agreement in 1985 is named after the Plaza Hotel in New York City, which coincidentally Trump bought in 1988 after the accord wound up taking place. So the Mar-a-Lago Accord isn’t an actual thing. It’s a riff on this idea that you name it after the resort or the hotel where it would take place and presumably it would be in Mar-a-Lago.

So the goal of this is to reduce the value of the debt, reduce the value of the dollar, bring down the cost. Now, the assumptions in this accord or this idea, I don’t want to say accord because I don’t want people to think that there’s actually a meeting in Mar-a-Lago going on right now. There isn’t.

But the assumption behind this idea is, again, status quo can’t hold. We’re going to go back. Second of all, is that the high debt deficit interest costs represent a national security risk for the United States.

They have now transcended from the debt and deficit is no longer about Scott Besant and about the Treasury Secretary and Howard Larkin, the Commerce Secretary. It is now about Marco Rubio, the Secretary of State, and Pete Hexhoff, the Defense Secretary. It’s in their realm, too, that we have to get this debt down.

Why? Neil Ferguson, a couple of weeks ago, wrote an essay in the Wall Street Journal quoting another Ferguson, Adam Ferguson, who was a 17th century economist. And it was about the Ferguson rule. And the Ferguson, this is Adam Ferguson’s rule being quoted by Neil Ferguson, no relation.

And the Ferguson rule was, anytime a great power spends more in interest costs than it does in defense, it stops being a great power. And the rest of the essay went through for 200 years, all of the examples that this has happened, and one of two things has happened. Either your interest costs came down quickly below your defense costs, or you stopped being a great power.

In 2022, the United States started spending more in interest costs than in defense. So that’s why, like I said, it’s now a national security issue is what they’re trying to do. If you listen to Elon Musk, why do we have to do the Doge thing? The first thing he says is, we spend more in interest costs on defense.

He points out that is the driving thing, he says over and over again. So what is it that they’re trying to do in simple terms, bring down the value of the dollar through the use of tariffs. And that should make the U.S. more competitive to bring back jobs to the United States.

Will it create more inflation? Yes. But a number of people, including the former chairman of Goldman Sachs, Lloyd Blankfein, in today’s Wall Street Journal, the day we’re recording, in an op-ed said, look, this program that Trump is going with might work. Sure, it might make you pay $1,000 or $2,000 more for a car, meaning inflation.

But it might be worth it in the long run because we’re going to have more people that are going to have more jobs in the United States that can actually afford a car in the first place. Now, you might recoil in horror at such an idea. But what is driving Trump is 50 percent of the United States, 5-0, can, a little more, it’s like 54 percent, cannot come up with $1,000 in savings in an emergency.

They’d have to put it in a credit card or borrow it from somebody. So if their hot water heater breaks or the car breaks down or something like that, they don’t have the money to deal with it. Those are largely the people who vote for Trump.

Their businesses, their industries, heavy manufacturing, industrial and the like has been hollowed out because of globalization. I understand the virtues of globalization and I’m for the virtues of globalization, but I also understand the huge economic damage that has been done to these communities because of globalization. And Trump is there to say we need to help these communities revitalize.

We need to make manufacturing come back to the United States. That’s why he trumpets one SoftBank and Intel and the rest of them start talking about big investments in the United States to put people back to work. So bring down the value of the dollar using tariffs as a leverage.

That’s the other thing about being a transactional guy, right? Tariff on, tariff off. What’s the purpose of tariffs? Because he’s transactional. He wants to get something out of tariffs.

He’s not ideological about getting out of tariffs. The second part, especially since I’m talking to somebody from Europe, this one is a lot more controversial. Since defense is now a national security issue, we need to look to our partners to help pay for defense.

That’s been the giant push towards getting Europe to spend more on defense. The idea is not in this year’s budget, but if they spend more, it could shoulder more of the burden of policing the free world. The U.S. could spend less doing something along those same lines.

And that’s what they’re really pushing. Now, look, I’ll say it in a cynical way. History has always shown that when great powers run out of money or run up debts too much and stuff like that and essentially run out of money, they wind up looking outside their borders for it.

Now, historically, that meant war. Go to war with somebody else and try and plunder their reserves. We’re not going to war with Europe.

We’re not going to war with our allies. We’re doing the 2025 version. We’re sending them a bill.

And we’re saying, here’s a bill, pay it. And for the moment, especially led by Frederick Merz in Germany, seems like they’re willing to say, yeah, we’ll pay the bill. We’ll release the debt break in Germany.

We’ll allow for deficit spending of 500 billion euros. We’re willing to do that. And the implication for the United States is, if you raise an army and get defense and you can do certain things, we, the United States, don’t have to.

And that should relieve the burden on us. The debate could still be in Germany, whether that was actually the main trigger. It might have been the trigger, but they might have wanted to do it all along to spend more money and lift the debt break in Germany because we needed to.

Our growth has been abysmal in recent years, actually. So this is probably a welcome excuse. Just blame it on Trump.

Everybody hates the guy over here anyway. Might as well, right? I’ll speak to the European crowd here real quick. If you look at Trump’s approval ratings, and I tweeted about this the day before we were recording on March 16th, his approval rating in the United States is actually the highest it’s been.

Even though it’s been falling in the last couple of weeks, it’s higher now than any time during Trump won. It’s higher now than any time during the last three and a half years of Biden. And it’s higher now than the average of the last 13 years, going back to the second term of Obama.

It’s 47%. So you can say, well, it’s less than 50. He’s not very popular.

No, in this world, the polarized world, his approval rating is high. In other words, hate him all you want, I understand, and don’t want him to do any of this stuff. The American public is not, for the moment, is not rejecting this, even with a 10% correction in the stock market.

And with all the turmoil that he seems to be doing and all the histrionics, they are not rejecting it. He is going to go forward with what he’s doing. Scott Besant said on the Sunday talk shows in the United States the day before we were recording, I’ve been a hedge fund manager for 35 years.

Markets go up, markets go down. Corrections are healthy. Don’t worry about it.

It’s no big deal. It’s just 10%. If we do the right policy, it’ll all work out at the end.

There is no, oh my God, five alarm fire at the White House because somebody is having a bad quarter in this environment. They are going to continue to go forward with these policies. So like I said, hate him all you want, but understand the reality.

He is going to keep doing what he’s doing. And you tusking him or screaming that he’s wrong or threatening that he’s going to let the world on fire like The Economist magazine, ain’t going to change a damn thing about what he’s doing right now. So that is the reality that we live in.

No, he’s got a clear mandate. I said that before. He’s got a clear mandate to try to change things.

We’ll see where we’re at in four years. That’s a different story. But for now, I’m very pragmatic in my approach as well, and I fully agree with what is happening.

We’ll see. The bill is due at the end of that term, and then we’ll figure it out. And maybe in 10 years from now, we’ll look back and say, oh, probably not everything was bad that he did.

So we’ll take it from there. But I’ve read the Mar-a-Lago report or the paper by Stephen Merrin as well, and the role of the dollar is an interesting one in all of this. And it’s a bit of a two-edged sword.

A, yes, we want to stay the reserve currency, but B, we need to devalue the dollar a little bit to stay competitive as well. Where do you end up here and what camp do you end up in? How do we achieve the best of both worlds here, Jim? So I want to emphasize what you just said. Scott Bassin has always said that he comes out and he talks about the role of the dollar and they want the dollar to be strong.

But he has a specific meaning for strong. He means the reserve currency and a powerful monetary brand. That’s what he means by strong because the next words out of his mouth were, but that doesn’t mean that anybody else can weaken their currency.

So interpreting that, what he means is we want to remain the reserve currency. We want to remain the exorbitant privilege. We want the dollar to be recognized as the most important monetary unit in the world, but we also want the level of it to go down.

So they want both at the same time and don’t confuse the two when they talk about both at the same time. Now, what’s important to understand is which level are they referring to? There is a series that the Federal Reserve puts out called the trade weighted dollar index. So it’s 26 currencies.

It’s weighted by trade. The biggest weighting in it is Mexico. The next biggest weighting in it is Canada.

Third biggest weighting in it is the UK. Now, this is different from the DXY, which all of us financial types watch, which is six currencies and is 57% weighted the euro. Over the last 40 years, the DXY, I’ll start with that one, is down 8% in 40 years.

In other words, its return is effectively zero, slightly negative on a yearly basis, like 0.22% down on a yearly basis. But the trade weighted dollar is up 220% in the last 40 years because it’s Canada, it’s Mexico, and the peso continuously gets devalued all the time. So I don’t think it was a coincidence that when Trump marches in with tariffs and he wants to start changing things, who does he go after first? Canada and Mexico.

Why does he go after them? They are our two biggest trading partners. They are our biggest trading partners that are causing the hollowing out of the manufacturing and the industrial base. Now, to be fair, I’m not sure what’s going on with Canada, just to start with them.

I get that it probably started off as a troll, that he doesn’t like Justin Trudeau calling him the governor and saying that I want Canada to be the 51st state and stuff. And it kind of spun from there. He can’t let it go because I don’t quite see the problems there.

But Mexico, Mexico is a bigger problem, the fentanyl crisis, the illegal immigration crisis. And also keep in mind that 30 years ago, when we signed the NAFTA agreement, which eventually became USMCA, the trade deficit with Mexico was like $10 billion. Today, it’s almost $200 billion.

How did it grow 20x? Because a lot of Chinese businesses ship stuff to Mexico, it’s assembled in Mexico, and then it flows into the United States with no tariffs under the USMCA. In other words, it’s a dodge by the Chinese to get away from paying tariffs because it’s a Mexican product. They ship the raw material, it’s assembled in Mexico, and up it comes.

That’s why he’s been really hammering at those countries, because they’re the ones that have been using their position and their free trade agreements to cause the problems with the manufacturing base and the strong dollar in the US. So when he talks about lowering the dollar, I think he’s talking about the peso, he’s talking about the Canadian dollar, and he’s talking about the Chinese yuan. He is not necessarily talking about the British pound and the euro and the Japanese yen, and what we would refer to as the financially oriented currencies.

Look, remember, the trade weighted dollar went up 200% while the DXY went zero over the same period. So it’s possible the trade weighted dollar could decline quite a bit without necessarily meaning that the euro is going to decline or the pound is going to decline, or the dollar is going to decline against those and the yen as well too. Now, that’s the interesting part of it.

They threaten tariffs on the BRICS countries if they were to establish their own currency, for example. So they have an interest to stay the world reserve currency, because one of my biggest, I wouldn’t say fears, but that the US keeps kicking the can down the road and ends up like Japan, where they give up reserve currency status, the debt goes to 250%, and it’s just the same old, right? Do you see the risk of that happening under Trump, under the current administration? I think that’s one thing they’re desperately trying to avoid. No, I don’t.

I don’t see that happening at this point at all, in terms of him, you know, basically calling it off. Because like I said, at the beginning, calling it off to what purpose, right? If, like I said, if we were to just, if he was to just come out during our recording and say, I’ve changed my mind about deficits, you know, but excuse me, I changed my mind about tariffs. I fired Elon and Doge, we’re closing that out.

You know, we’re not going to try and rein in government spending. What do you think would be the response? I think the bond market would collapse, because it would be looking at, it would be looking at crushing levels of issuance that we would have to be doing to satisfy the current trajectory that we were on in the first place. And the only reason why I think we’re at 425 right now, and not much higher is because for the moment, we’re trying something different.

And the bond market is open to the idea that this might work at some level, and not produce like a six or 7% 10 year yield. And so that’s why I don’t think he’s going to call it off. Now, if you tell me in a month, or 90 days, or something that his approval rating has plummeted, and he’s a very unpopular person, you might correctly say to me, Trump doesn’t care, he’s going to keep doing what he’s doing.

Yes. But the Republican Party might care, because they want to get reelected. And he might lose support among them that could effectively kill his program.

Remember, we got a very thin majority of Republicans over Democrats in the House and the Senate. And if he becomes very unpopular, some of those Republicans up for reelection, won’t vote for the programs that Trump wants right now, don’t give him anything he wants, because they perceive him as being very strong, and very powerful. So maybe that changes in the next few months.

We’ll see. But so far, it hasn’t. So he’s going to continue to move forward with this plan of forcing a bill on Europe, start paying for defense, hammering China, I’m sorry, not China, China’s getting hammered too, but hammering Canada and Mexico, to try and bring down the values of the dollar versus those currencies to help make manufacturing in the US a lot more attractive.

And there’s a lot of people in the country that would be willing to take those kinds of jobs. Okay, I’ve got conflicting ideas right now where to take this conversation. I want to say on geopolitics real quick, in terms of billing other countries, like we talked Europe, and in the Financial Times this morning, there were I would say rumors, there’s just I thought it was an interesting article about potentially sending a bill to South Korea and Japan as well.

And then there’s the Philippines and Southeast Asia, where the US has bases as well. How does that factor in? Is it a capacity constraint right now that he’s focused more on Europe because it’s imminent with the Ukraine war and that’s more in the headlines right now? And when is it Asia’s turn to potentially start footing the bill here? Oh, probably by the end of this call, it’ll be Asia’s turn to fill the bill. But I mean, just to give you an idea of the thinking, right, we have $36 trillion in debt, we didn’t rack that up in a couple of years, we racked that up over many decades.

What has probably been the single biggest reason we’ve got so much debt? We’ve been the policeman in the We fought communism, then we fought terrorism. And we’ve run up trillions and trillions of dollars to keep the trade lanes open, to push back against anything that would impede on the free world. The US has over decades spent five or 6% of its money on defense, five or 6% of its GDP on defense every year.

Europe has spent one or two over the many, many years. What is Europe done with that extra three or 4% that they didn’t spend on tanks and fighter planes, or paying soldiers? You know, nationalized health care, progressive movements, green movements and stuff. And that was JD Vance, the Vice President’s speech in Munich about the diverging interests, right? That Europe has gone much more in a progressive move towards national health care and all the green movements and stuff like that, where the US has had to play the role of the cop of the world.

Well, now, he’s looking at, well, since we ran up all this debt protecting all of them, it’s time that they start paying for it. And that’s why, you know, the bill is coming due. And that was part of the Mar-a-Lago Accord, too, that everybody got all hung up about, about this debt swap thing, where he would turn to the Europeans and the NATO members and say, look, you guys own trillions of dollars of treasuries, give them to us, and we’ll give you 100 years zero coupon bond, which has a market value of about 13 cents as a way to reduce the level of debt.

All that is, is, do you agree that you should pay? Europe seems to agree. Europe says, we’ll pay by doing it ourselves. That’s just another form of payment.

But everybody thinks the Mar-a-Lago Accord is that. No, that was just a payment form. That’s like, you agreed, you agreed to send me money.

Now you’re gonna write me a paper check and we’re gonna do Venmo. That’s really all the debt swap was, was just a way to pay. You know, Europe could do that, too.

They could say, look, instead of trying to, to raise our own army, we’ll just pay the U.S. to continue to do it. And maybe that’s what South Korea, maybe that’s what Japan might wind up actually doing is saying, it’s too hard for us to raise our own army. We’ll just write a check to the U.S. to, to cover for our security.

It’s a different thinking. I understand it’s a different thinking. And it’s a thinking that you might not agree with.

But I will come back to, this is transcended, transcended, the idea that this is just a financial problem. It’s now a national security problem. Our interest costs are above our debt costs.

And I think that there’s a lot of sympathy in the White House to that. If we don’t bring that down, we’ll stop being a great power. And we have to get this debt levels down for a national security reason, which is why we’re pushing so hard in this kind of direction.

Very different approach than what we saw under Biden. Very different approach from what we’ve seen under previous presidents. But like I said, as long as his approval rating is where it is, you could argue to me all day long that it’s wrong and it shouldn’t be done this way.

And in some respects, I’ll agree with you. But the reality is, this is what we’re doing. Sorry.

But I heard you speak about sort of Japan and South Korea to a degree paying the U.S. by buying their bonds, buying the U.S.’s bonds, right? And I’m wondering how much the yen carry trade, as we know it, is part of that payment system to keep the U.S. afloat and liquid. How does that fit together? Well, I think the yen carry trade is there, but it’s not necessarily been a big driver for the U.S. It’s been a big driver for emerging markets. Let’s define the yen carry trade.

Interest rates in Japan are near zero. They were zero until very recently, and now they’ve pushed them up to about a quarter of a percent. And for decades, they’ve been around zero.

So a lot of people have said, let’s go borrow a big sum of money in Japan because we don’t have to pay any interest costs. They do a very good job of keeping their currency rather stable. The yen doesn’t move a whole lot.

And what we’re going to do with all this borrowed money, we’re going to go buy something that yields a lot. And the great example everybody uses is three-month bills in Mexico. They’re called bonos.

They yield around 10%. So we’re going to borrow at zero in Japan. We’re not going to take a currency risk.

We’re going to buy a bunch of bills in Japan. We’re going to buy some stuff in Argentina. We’re going to buy some stuff in Brazil.

You know, we’re going to buy some, because they all yield a lot and pocket the difference. That’s what the yen carry trade has been. Now, to some extent, there’s been some buying of U.S. treasuries, maybe U.S. equities, but it’s very, very small.

But the difference is, though, that the yen carry trade is coming to an end. The Japanese are raising interest rates. Their currency is becoming a lot more volatile.

That simple cost of go borrow in Japan. Yeah, well, now it’s not zero and rates are going up. And like I said, markets are very efficient.

If I wanted to borrow in Japan, hedge the currency and buy a 5% yield in the United States, it’s going to cost me 5%. So there’s no point in doing it. I have to take that currency risk.

Well, now that’s becoming a little bit disadvantageous. Last August, the Bank of Japan surprised everybody by raising rates more and sounding very hawkish. And they unleashed a big yen carry trade unwind.

And then they apologized, like the Japanese always do, and apologized again and again. And that trade kind of returned. But I think that the air is slowly coming out of that trade, because Japan’s inflation rate is 3.6%. It is higher than the United States’ inflation rate for the first time in probably our lifetime.

Japan has more inflation than the United States. They have to continue to raise rates. And as they do, the advantage of doing that trade goes away.

And so I think that, naturally speaking, that we’re at the twilight of the yen carry trade anyway. But it was always more about emerging markets than it was about the United States. Yeah, I watched a press conference with Lagarde, Jerome Powell, and I forgot the Japanese central bank, the head of the central bank.

Onida, yeah. Yeah, I think so. A year and a half ago or so, they were in Sintra, I think, in Portugal.

They sat together. And I could not shake the feeling that he was just there to fill a seat and that he was listening to what Jerome Powell and, to a lesser degree, Christine Lagarde were telling him to say and do. I could not shake that feeling.

That’s why sort of that question popped into my head, because it seemed like there were some strings being pulled in Japan to keep the lid on inflation and maybe the carry trade, just to keep the system afloat here. So if you want a conspiracy theory towards your idea, do you know where Onida got his PhD in economics? Harvard? MIT. Oh, close.

Okay. Just to the other side of the street, pretty much. Yeah, MIT.

But what’s important about MIT is who was the economics student in the office next to him? Some guy named Mario Draghi. You might have heard of him. And who was one of his mentors when he was there? Some other guy named Ben Bernanke.

Maybe you’ve heard of him, too. So, I mean, he’s right from ground zero of all of that stuff. And Stan Fisher was a big influence on him as well.

So, you know, the apple hasn’t fallen far from the tree when you’re talking about he’s sitting there listening to what they’re telling him and stuff like that. I just couldn’t shake that feeling, yeah. These have always been his compatriots.

These have always been the people that he has trafficked with. Yeah. No, interesting.

But the other topic that was going through my mind before we went to the Asian route here was really just bond deals in the bond market that we need to talk about. And we have a Fed meeting coming up this week as well. A, what should the bond rate be, the 10-year? What is that telling you right now? You touched on it earlier, but also Jerome Powell’s got to do a tap dance this week, trying to appease everybody.

I don’t think we’ll see a cut personally. I’m curious what your thoughts are. But he’s got a tap dance, and I’m curious what you think, how good of a tap dancer he is.

We’ll find out. So let me answer about the bond yield. 10-year yield right now, as we talk, is about 430, a little bit underneath that.

Let me back up, everybody. Remember last September when the end care trade got unwound and we weren’t worried about a recession, we had an 8% correction in the stock market. It hit 360, 360 last September.

Now it’s 430. Stock market’s down 10%. We’re all breathing through paper bags.

We’re going to have a recession and the like. Why are we back at 360? Why aren’t we at 350 right now? I think that to some extent, there’s a concern that there is inflation and inflation is building in the system. Japan’s got more inflation than we do.

Europe is stimulating like crazy. The one thing you could say about Europe, look at the bond yields going up and stuff like that. You’re going to unleash the debt break and you’re going to start spending money.

Are you going to get stimulus in your economy? Yes, you’re also going to get inflation. And the US has a sticky inflation problem by a lot of the numbers as well. That’s what I think is holding interest rates now.

Like I said, all things being equal, we should be at 350 right now, but we’re not because of that latent concern about inflation. If we relax that, no, we’re not going to have a recession. I think we go back to 475 or 5% on the yield.

I don’t think we go to six or seven. That’s what my concern was. If we were doing nothing and just letting it rip with all of this borrowing and deficits and weakening or strengthening dollar versus the trade partners.

So we’re not going to do that. But I do think that we’re going to continue to see interest rates stay in this sticky realm. Does that mean for risk assets like stocks? Do I think that stocks can recover? Yes.

But do I think that they’re going to recover big and go blasting through to major all-time highs? No, they might still make a new all-time high, but I’ve been of this opinion that over the next several years that I’ve called it the four, five, six markets, that over the next several years, cash, a money market fund, will return you 4%. Bonds will return you something like 5%. Stocks, the index level for stocks, US stocks, will return you something like six.

But within stocks, there will be other opportunities to earn more. Maybe Europe, maybe the DAX might be a good one as well. But the DAX is probably more concentrated than the US with what, SAP is like 16% of the index and five stocks are like over half the index and the like.

So we always complain about the US, the max sevens being such a concentrated number of the S&P. It’s much more concentrated in the German stock market. But so those kind of things, or let me give you another analogy that I’ve been using about the US stock market.

If it keeps returning 20% a year, like it’s done the last couple of years, it’s like I’m sailing. I know nothing about sailing. But if you put me on a sailboat in a 20 knot wind, all I got to do is get the damn sail up in the air and the boat’s moving forward.

I don’t need to know anything more than that. But if you put me out there in a 6% or a six knot wind, now I need to learn to tack and trim and all that other stuff. I don’t know how to do that.

But if you do, you could move forward. So I think that we’re going to see in the financial markets, four, five, six, but things like themes, sectors, concepts that can wind up giving you money. If you want to think about it this way, if you were to go late last year and somebody came up to you, I got this great idea about what you should do with healthcare stocks or energy stocks or financials, or consumer cyclical, get out of here.

I’m just buying VOO or SPY and just the sail, the wind is at my back and we’re going forward. I don’t need to get that nuanced. Well, in a 6% world, you might have to get nuanced.

And if you get nuanced correctly, you can wind up doing a little bit better than that. So it’s going to be a very different type of environment over the next several years is four, five, and six. And bonds, quick word about bonds.

We used to say, Tina, there is no alternative. They are now. What they’re going to do is they’re going to give you most of what the stock market used to give you with far less volatility.

So you’re going to get 80% of what the stock market will return you with 30% of the volatility of the stock market in bonds, roughly speaking, just conceptually. So it’s not a bad option for people that are in the certain age group or risk tolerances. It will be a very viable option for them as opposed to what it used to be in 2019 in that there was an alternative.

And the only reason you don’t own bonds was they were crash insurance. If the stock market fell apart, the bond market would rally. Last thought for you, by the way, stock market corrected 10%.

What did the bond market do? For the last 8% of that move, the stock market fell 2%. We were at a 4.30 yield. It then went from down 2% to down 10%.

We went from a 4.30 yield to a 4.30 yield. But the stock market did not provide you any, or the bond market, excuse me, did not provide you any crash insurance from falling stocks. And it didn’t in 22 either when we had that massive fall in the stock market and a giant rise in interest rates.

So bonds are just a low, with the coupon, they’re a low volatility version of the stock market. A little bit less return, a little bit less volatility. Yeah.

And it sounds like the 60-40 isn’t dead just yet. It’s been redefined. It’s been, because the old 60-40 was, 40 was sitting there because it was crash insurance.

The stock market goes down, they rally. That’s not the case now. Bonds are now an alternative to the stock market.

They will provide, like I said, as I’ve argued to people, last year was not a good year in the bond market. What did it do? On a total return basis, you were up 1.5%. That’s now a bad year, up 1.5% in the bond market. When the stock market has a bad year, it ain’t gonna be up 1.5%. It’s gonna be a lot worse than that.

So maybe you’ll take a churning out of a 5% coupon year in and year out with the bad year being up one, the good year being up eight or nine, averaging five. That for a lot of people is very attractive, depending on, like I said, the risk bucket that you fall into. Yeah.

It was for the longest time until we hit the global financial crisis and the S&P 500 took off like a dog that somebody stepped on the tail or so. Well, that’s because of all the money printing and everything else we did. And we were able to get away from the financial crisis of 2020.

We could go to zero interest rates, Europe could go to negative interest rates, and we could print money like crazy because we had no inflation. Now, I think when the Fed cut rates in September, what was the first thing that the bond market did was yields went up. As I joke, we’re talking the week of the Fed meeting.

What could Paul do to kill the bond market? I mean, just send yields soaring. Come out and be really dovish. Man, oh, man, we’re going to have a recession.

These tariffs are terrible. I want to cut rates like a madman. I want to start the money printer.

You know what the first thing will happen is bond yields will go vertical and they will crush the stock market. You couldn’t do enough. You couldn’t get to that point where you overprinted to drive bond yields up between 2008 and 2020.

But now we can’t do that anymore because of the fear of inflation, that if we talk about cutting rates and we talk about money printing, we’ll just annihilate the bond market and it’ll take everything else down with it. Jim, I know we only have a couple of minutes left, but I do have to ask you that. It might be a bigger topic, but are we entering a forced recession? I don’t think we’re entering a forced recession because I don’t think anybody wants it.

I don’t think Trump wants a recession. But I do think that, again, they feel like the status quo can’t hold. They’re not afraid of the adjustment process that they are going to have to go through.

And if we have to do that adjustment process, we will do that adjustment process. And so if it does create turbulence and volatility, they feel like we’ll be better off on the backside of this. So no, they’re not trying to force a recession, but they’re not towing in fear of the idea that things might get a little bit wobbly.

Again, because they believe that there’s no default to fall back to, right? Well, if they would just stop doing this, stop doing what? And go back to what that would get everybody to calm down, get the VIX back under 12, get the stock market at an all-time high, and everybody fall back asleep again. What is that scenario that causes that to happen? Their argument is it doesn’t exist anymore. If we stop doing this, we get volatility.

If we continue to do this, we get volatility. Well, we got to push forward with this new realignment, pay for security, get the dollar down, try and bring back those middle-class manufacturing jobs. If we risk a little bit more inflation, we risk a little bit more inflation.

Again, I can’t emphasize enough. It all comes back to kind of have no choice. We have to do this.

That’s kind of what’s driving their thinking on it right now. Yeah. I keep coming back to shock therapy and detox are the two terms that keep coming back.

I keep coming back to. And we’ll all see how that plays out. But Jim, we’ll have to have you back in about six months or so to see how we’re progressing here.

Globally, actually, global financial markets, they’re all impacted by the US. That’s why we keep talking about the US so much here on this channel, because it is impacting everything else. The US almost- I’m happy to come back in six months because now the moniker that they’re giving Mertz is BlackRockFred.

And we’ll have to see how he’s doing as your new chancellor in about six months. Well, he’s giving concessions left and right already. I’m not even sure.

I’m already confused. I need to do some more reading on where he’s going to spend the money. But he’s already giving concessions left and right.

And that’s already irritating. Is there going to be any left for defense? I have no idea. Maybe we’ll do it like, oh, I just read in the Financial Times this morning or this afternoon online that one of the countries, I forget which one it was, we’re hiding.

Oh, Spain. We’re going to put green spending under defense. So that was an article in the Financial Times today.

They’re trying to greenwash some stuff so we can keep the voters happy. Maybe we’ll do that. I don’t know.

Maybe we’ll color the tanks green or something or rainbow colored or something. I don’t want to go there, but I’m trying to be funny here. We’ll come back in six months and talk about the green tanks in Germany.

I look forward to it. Fantastic. Jim, thank you so much for your time.

Where can we send our audience? A couple of places. Bianco Research. I got two businesses.

Biancoresearch.com, at Biancoresearch on YouTube, on X, Jim Bianco on LinkedIn is where you can find out about the research we do, the concepts we talk about. I also run an ETF. We actually run an index and there’s an ETF that tracks it.

The ETF is WTBN. WTBN, it’s a wisdom tree ETF. Or at Biancoadvisors.com tells you more about the money management that we’re doing.

It’s a total return fixed income fund. But thanks for letting me bring that up. Oh, absolutely.

Maybe one very last question, because I should have asked it earlier, because it goes back to the very first question I asked, or the second question I asked you. Is the Mar-a-Lago Accord the game plan? I think it is. I think it is.

If you think about the game plan, meaning lower the dollar, bring down the debt. There’s a big pile of money we need to pay for the debt. It isn’t rich people in the United States.

It’s you. It’s NATO. It’s Japan.

It’s Korea. And it’s under the guise of, here’s a bill for the security we’ve done for the last 70 years. Now you got to start paying it.

Now maybe you elect to pay it by doing defense yourself so we could do less, or maybe you pay it by paying us to do it. But either way, that’s what the game plan essentially is. Fantastic.

Jim, thank you so much for joining us. I know we have a call at the top of the hour here, so I’m going to let you go, and everybody else. Thank you so much for tuning in.

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