MacroVoices #481 Jim Bianco: This is The End of The Beginning

Episode Summary

Executive Summary: Jim Bianco argued the U.S. is only at "the end of the beginning" of a major Trump-era reset: tariffs are likely shifting from shock tactic to leverage and possibly a revenue tool, while broader efforts aim to reorder trade, taxes, defense burdens, and the monetary system. Both Bianco and the hosts see higher inflation risk, higher bond yields, a weaker but range-bound dollar, and a more volatile, headline-driven market backdrop.

Main Topics: Trump policy as a structural reset, not a temporary trade war (Priority: 5/5): Bianco says tariffs were the first phase of a broader effort to change global trade and financial architecture. He frames the period as "the end of the beginning" and argues the U.S. must change course because the old status quo cannot hold. Tariffs: leverage vs. revenue and the inflation pass-through debate (Priority: 5/5): A central tension is whether tariffs are mainly a negotiating club to force market access and lower non-tariff barriers, or a durable revenue source. Bianco argues they cannot be both cleanly, and that if tariffs are passed through to consumers they become inflationary and politically toxic. Bond market outlook: higher yields, higher uncertainty, and limited Fed cuts (Priority: 5/5): Bianco expects long yields to remain biased higher because inflation risk, fiscal uncertainty, and policy ambiguity increase the term premium. He argues the Fed will not cut if inflation rises, and warns that cutting into inflation pressure could cause long rates to rise rather than fall. Gold and crypto as partial exits from the financial system (Priority: 4/5): Gold and Bitcoin are seen as hedges against uncertainty about the reordering of the financial system. Bianco thinks gold’s bull market may still have another leg, though the easy move may be over and a more volatile, parabolic phase may be underway. Equities: overbought, expensive, and likely to deliver lower forward returns (Priority: 4/5): Eric Townsend sees the S&P 500 as technically exhausted after a sharp rebound, while Bianco argues high valuations imply more modest medium-term returns. Both suggest the market may still work tactically, but the regime is less favorable for outsized gains. Retail dominance and leverage in modern markets (Priority: 4/5): Bianco says retail traders now dominate equity flows through zero commissions, ETFs, options, and leveraged products. He warns that this structure can sustain rallies temporarily, but it also encourages misbehavior and makes markets more fragile. Moody’s downgrade as a message, not a mechanical event (Priority: 3/5): Bianco says the U.S. had effectively already lost AAA status when Fitch downgraded it in 2023; Moody’s simply aligned itself. The real significance is the warning about persistent deficits, debt, and Congress’s inability to restrain spending.

Key Arguments: Tariffs are most defensible as leverage to open foreign markets and reduce non-tariff barriers; if used as permanent revenue policy, they amount to a tax increase on Americans. The Trump/Bessent agenda is broader than tariffs: it includes reorienting trade, defense burden-sharing, and the monetary order. If tariffs raise CPI/PCE, the Fed will not cut rates; inflation remains the Fed’s priority even if growth slows. Cutting rates in an inflationary environment may not lower long yields; markets may respond by selling bonds if the Fed appears to abandon inflation control. The U.S. is moving into a higher-uncertainty, higher-term-premium regime because debt, deficits, and fiscal policy remain unresolved. Gold and crypto are benefiting because investors want partial protection from policy and system risk. Retail traders now have institutional-grade access to markets and are a dominant force, especially in megacap stocks and options. The Moody’s downgrade matters mainly as a signal about fiscal sustainability, not as an immediate forced-selling event.

Data Points: S&P 500 weekly change: down 81 bps to 5,844 - Macro scoreboard as of May 21, 2025 S&P 500 rally from April low: 24% in 45 days - Eric Townsend described the rebound from the April crash low S&P 500 rally from April 21 swing low: 16% in about 30 days without pullbacks - Post-crash technical move in equities U.S. Dollar Index: down 217 bps to 99.68 - Dollar weakening back toward 52-week lows WTI crude oil (July): down 250 bps to 61.57 - Oil rejected key resistance twice RBOB gasoline (July): down 141 bps to 2.10/gal - Energy complex weakness in weekly scoreboard Gold (June): up 392 bps to 3,313 - Primary bull trend intact, consolidating after surge Copper (July): up 43 bps to 4.67 - Modest weekly gain Uranium: down 84 bps to 70.95 - Weekly pullback despite long-term bullish narrative U.S. 10-year Treasury yield: up 6 bps to 4.60% - Bianco called this a material breakout targeting January highs Trueflation estimate: up 60 bps in 18 days - Bianco cited this daily inflation gauge as early tariff pass-through evidence Headline inflation: about 2.3% - Bianco contrasted current inflation with 2022 peak levels Core inflation: about 2.8% - Bianco’s current inflation backdrop estimate 10-year yield in 2022 peak inflation period: 4.22% high in October 2022 - Bianco contrasted it with today’s higher yield despite lower inflation 10-year yield after 2024 Fed cuts: rose from 3.6% in Sept. 2024 to 4.8% in Jan. 2025 - Used as evidence that long rates rise when the market doubts the Fed’s inflation fight Retail sales concentration: 50% of U.S. retail sales are done by the top 10% of income - National Association of Retailers statistic cited by Bianco S&P CAPE ratio: 36 - Bianco used this to argue U.S. equities are very richly valued Bloomberg Aggregate bond yield: about 4.9%-5.0% - Bianco described current bond market coupon/return expectations Fed funds rate: about 4.5%-4.75% - Bianco referenced current policy rate near neutral territory Moody’s downgrade date: May 2025 - Bianco said this aligned Moody’s with Fitch and S&P, which had already downgraded the U.S.

Pivotal Quotes: "We're kind of at the end of the beginning." — Jim Bianco: His thesis on the Trump policy regime: tariffs may be maturing, but broader structural changes are just starting "If prices are going to go up, good luck with your recession. They're not cutting rates. They will not cut if prices go up." — Jim Bianco: On the Fed’s likely response if tariffs feed through into CPI/PCE "The United States has a debt and deficit problem." — Jim Bianco: His summary of why the administration is pursuing new revenue and structural changes

Implications: Expect a more volatile macro regime: tariffs may lift consumer prices, keep the Fed cautious, and push bond yields higher. Equity returns may normalize, while gold/crypto and selective non-U.S. assets may benefit as hedges or alternatives.