Cole Smead on US Debt, European Resilience, and Tariff Impacts

European Economic Resilience

• 🇪🇺 Europe is demonstrating resilience, following trends seen throughout the year, with banks showing strong performance.
• 🇩🇪 Increased spending is evident in Germany, with discussions about striking deeper into Russia through Ukraine.
• 💡 Europe appears to be on the "front foot," adopting a proactive stance.

US Economic Challenges and Debt

• 🇺🇸 The United States is operating under the notion of American exceptionalism, but this is currently fueled by borrowed money.
• ⚖️ A critical dilemma exists: allowing the 30-year bond yield to rise to 5-6% or confronting the reality of excessive national debt.
• 📉 This contrasts sharply with Europe's current economic position.

Federal Reserve's Historical Behavior

• 🕰️ Historically, the Federal Reserve has a pattern of "blinking" or yielding under pressure, balancing interest rates against economic performance.
• 📈 The Fed's mandate includes managing inflation and full employment, but high inflation is linked to significant borrowing.
• ⚠️ Unlike post-WWII, where spending was tightened after wars, current policy aims to "grow our way out" of debt, which is a slow process.

Impact of Tariffs

• 😟 The "liberation day" in April heightened economic concerns, though asset markets haven't drastically repriced based on a 5% 30-year yield.
• 🗣️ Tariffs are perceived as a significant concern primarily for business owners and asset holders, not the general public.
• 📊 While the economy has performed adequately, this is largely supported by government spending.