The Playbook
- Gustavo A Cano, CFA, FRM
- Mar 8
- 2 min read
Please indulge me with a personal prediction: the attached video will be one of the most important interviews, if not the most important, over the next four years. If you only have 42 min to watch something, this is the one. “There’s going to be a detox period”. Secretary Bessent mentioned there will be a transition period from government spending to private, as the former is unsustainable. The playbook seems to support growth policies (low taxes, deregulation) that will dwarf the debt while cutting spending and bring some additional revenue through tariffs, which he believes may have a short term impact on prices, but not a long term one. Interesting to hear that tariffs are a measure to stop fentanyl illegal imports from the three biggest trade partners (Mexico, Canada and China), which may remind us of the opium war between Britain and China on the 19th century. Leadership in crypto, strong dollar, but not a fictitious one (artificial currency weakening by counterparts) is still in play. Finally, as Treasury seccretary, he needs to refinance $11tn of debt that matures in less than a year, and for that to be budget dilutive, he needs lower yields, particularly on the long end of the curve. The solution: SLR, Supplementary Leverage Ratio, a regulation that requires banks to hold a certain amount of capital against their assets, including U.S. Treasuries. Don’t be surprised if very soon, banks have favored terms to buy treasuries, pushing yields lower, to allow Mr Bessent to rollover the debt at reasonable yields to decrease, or not increase, interest payments. Since the U.S. has a leveraged balance sheet that resembles a Hedge Fund, it would appear that the U.S. has the right guy at the reins.
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