JD Straight Up - 27Apr26 - The Long View

The Long View

Drulard Family Capital Fund

Fortnightly Macro View

JD Straight Up:

S&P 500 at 7155 – up 5% from 6795 two weeks ago - hitting all time highs again

VIX at 19 – down 10% from 21 two weeks ago

10yr Treasury yielding 4.32% (flat from 4.33% two weeks ago)

Agg (US Aggregate Bond Index) at 99.54 – flat from 99.30 two weeks ago

Gold at 4709 per oz (down 1% from 4757 two weeks ago)

Silver at 75.47 per ounce (up 2% from 74.34 two weeks ago)

Crude Oil (WTI) at 96 per barrel (down 8% from 104 two weeks ago)

Bitcoin at 78k (up 10% from 71k two weeks ago)

JPM shares at 312 (up 2% from 307 two weeks ago)

Deutsche Bank shares at 31.86 (flat from 31.91 two weeks ago)

Truist shares at 51.28 (up 4% from 49.28 two weeks ago)

Blackstone shares at 119.98 (up 2% from 117.15 two weeks ago)

Magnificent 7 Index at 430 (up 9% from 394 two weeks ago)

US unemployment: at 214,000 in latest claims – down 2% from 219,000 two weeks ago

EUR at 1.17 USD (flat from 1.17 two weeks ago)

GBP at 1.36 USD (up 1% from 1.34 two weeks ago)

Macro Environment

US inflation at 3.3% with fuel costs up 23%.  EU inflation at 2.8%.  War continues in Ukraine.  Ceasefire persists in Gaza.  Ceasefire in place in Iran though Strait of Hormuz remains effectively blocked for most traffic.

Macro View

Nearing three decades of fiscal and monetary stimulus:

S&L Crisis: early 1990s: stimulus~$300 billion; Fed balance sheet~$300 billion; US debt $4 trillion

Dotcom Collapse: 2001–2002: stimulus~$650 billion; Fed balance sheet~$1 trillion; US debt $6 trillion

Global Financial Crisis: 2008–2009: stimulus~$900 billion; Fed balance sheet~$3 trillion; US debt $12 trillion

Pre-COVID: 2019: Fed balance sheet~$4 trillion; US debt $23 trillion

COVID: 2020–2021: stimulus~$9 trillion; Fed balance sheet~$9 trillion; US debt $30 trillion

Today: Fed balance sheet~$7 trillion; US debt $39 trillion

Stimulus seems to end up as national debt.  It keeps growth going and unemployment down at the time, but stacks up to be paid back at some point in the future.  When rates were 0.50%, this was not an immediate or material issue.  With rates at 4% or greater, the debt compounds even faster.  Running a $2 trillion deficit while generating $1 trillion in interest owed and trying to increase the defense (War?) budget by another half trillion will compound it even further.

Relevance

Markets and asset prices hitting all-time highs despite inflation, debt, wars, energy.  There is an ever-increasing, one-way, all-in bet on AI and the US as the purveyor of world-changing innovation through super-intelligence.  Nobody wants to be seen to bet against the US and nobody wants to bet against AI.  If everyone just closes their eyes and holds their breath long enough, maybe we all emerge into a wonderland of high productivity, excess resource, health, wealth and happiness.

Head Scratchers

1 - How much debt can the country handle?  There is a lot of short duration debt reliant on non-US buyers.  What happens if the demand at auctions softens and rates tick even higher?  Tens of trillions shift from short term stimulus to long term debt.  In the immediate term they take time to work their way through the system and they produce inflation.  In the longer term they produce a material burden.  What is the resolution when there is no political willingness to address it or plan to work it down?

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#41 - 27Apr26