To The Moon

When I first came across the post, I was appalled just by the mere mention. (see below) However, casting prejudice aside and reading the post, it really seems like the “perfect” solution. So here I am, sharing this “conspiracy” theory. The thing I learnt is, when it comes to all things Trump - never say never. Based on the available information, the theory that the Trump administration is intentionally engineering a recession appears to be a controversial and speculative idea. However, it is a theory that some Wall Street analysts are taking seriously. Conspiracy theory Below is an analysis of the plausibility. For the Theory (1) Strategic Economic Manipulation: Some analysts, like Nomura's Charlie McElligott, argue that the administration wants a controlled economic slowdown to force the Fed into rate cuts. The goal would be to weaken the dollar, boost exports, and set up a supply-side economic boom. (2) Market Signals: The U.S. dollar index has fallen 4% since January 2025. Recession odds on prediction markets have increased to 37% from 22%. The S&P 500 is down -5% from February 2025 highs. (3) Historical Precedent: There are parallels drawn to the Reagan administration's approach in 1981-82, that involved a short recession followed by a strong recovery. Against the Theory (1) High-Risk Strategy: Deliberately causing a recession is extremely risky politically and economically. The potential for unintended consequences and economic damage is significant. (2) Lack of Direct Evidence: There is no concrete evidence of an intentional plan to cause a recession. Economic policies could be explained by other motivations or miscalculations. (3) Federal Reserve Independence: The strategy heavily relies on the Fed's response, which the administration cannot directly control. Conclusion The coming months will be critical in determining whether the current economic trends are part of a calculated plan or the unintended consequences of other policy decisions Textbook Economics. Going back to economics theory, when a country falls into a recession, the law of economics suggests several steps to stimulate recovery. These measures will involve a combination of : Fiscal policy. Monetary policy. Structural reforms. Below are the key strategies: #1. Expansionary Fiscal Policy Government to use available fiscal tools to increase aggregate demand: Increased spending: Investing in infrastructure, healthcare, and education creates jobs and stimulates demand through the multiplier effect. Tax cuts: Reducing taxes for households and businesses increases disposable income and encourages spending and investment. In his Tuesday speech, he has already pledged to do this. Direct financial support: Providing cash transfers or subsidies to individuals and businesses helps sustain consumption and employment during downturns. #2. Expansionary Monetary Policy Central banks can implement monetary measures to boost liquidity: Lower interest rates: Reducing rates makes borrowing cheaper for businesses and households, encouraging investment and consumption. Quantitative Easing (QE): Central banks purchase financial assets to inject money into the economy, fostering lending and spending. Inflation management: Creating expectations of moderate inflation can discourage saving and encourage spending. By inducing a recession, Trump will not have to lift a finger and the Fed will likely and automatically, re-adopt interest cut and QE - all over again, just like during the covid pandemic. #3. Stabilizing Financial Systems To restore confidence in financial markets: Bank bailouts or Guarantees: Supporting failing banks prevents systemic collapse, as seen during the 2008 financial crisis. Debt restructuring: Reducing household or corporate debt burdens can free up resources for spending. Since the US banking debacle in March 2023, there has been: Improved regulatory oversight with enhanced liquidity and capital requirements. The Federal “readiness” via different stress tests scenarios and commencement of interest cut from September 2024. Risks will always be lurking around but the banking sector as a whole has become more prepared and resilient since March 2023. #4. Employment-Focused Policies Recession often leads to high unemployment, so targeted measures are crucial: Job creation programs: Governments can fund public works projects to directly employ workers. Short-term work schemes: Subsidizing reduced working hours helps retain employees during downturns (e.g., Germany's Kurzarbeit program). Is the intention of DOGE really to trim off all the fats across all government agencies OR is it the necessary prelude to re-hiring these workers back when the US economy is in a state of recession ? #5. Support for Businesses Small and medium enterprises (SMEs) are particularly vulnerable: Low-cost loans or Grants: Providing liquidity ensures businesses can survive until recovery begins. Tax relief for businesses: Temporary reductions in corporate taxes encourage reinvestment and hiring. #6. Structural Reforms Long-term recovery may require addressing underlying issues: Improving productivity: Investing in technology, education, and innovation fosters sustainable growth post-recession. Diversifying the economy: Reducing reliance on specific industries mitigates future risks. To this end, Trump is already taking a bolder move than Biden to fortify US lead in: Artificial intelligence via the $500 billion Stargate project with OpenAI, Softbank, $Oracle(ORCL)$ in the ropes. Semiconductor via exclusive ownership of Ukraine’s rare earth resources and $Taiwan Semiconductor Manufacturing(TSM)$ $100 billion semiconductor expansion project in the US. Energy via the $44 billion Alaskan LNG project with Japan and South Korea as financial backers. Whether these initiatives will bear fruits in the shortest turnaround time or still chuggling along by the time he leaves the oval office - is still left to be seen. US market response: As an investor, I am interested to know how responsive will the US market be to the Fed’s stimulus package. Looking back to what the Fed had undertaken during the covid period, their actions could theoretically benefit the US stock market in certain ways. Outcome as usual would depend on several factors, including: Timing. Scale of policy changes. Investor sentiment. Here's an analysis: Lower Interest Rates & QE Effects. Cheaper borrowing costs: Lower interest rates reduce borrowing costs for businesses, encouraging investment and expansion. This can lead to higher corporate earnings, which typically boost stock prices. Higher equity valuations: Falling interest rates decrease the discount rate used in valuing future cash flows, making stocks more attractive relative to bonds. Increased liquidity: QE injects liquidity into the financial system by purchasing government bonds or other assets, which often leads to higher asset prices, including stocks. Shift from bonds to equities: Lower yields on bonds may push investors toward riskier assets like equities in search of better returns. Potential Risks & Challenges. I think it is still fresh in our minds, the repercussions of an expansionary move by the Fed that includes (and not limited to) : Runaway consumer price index inflation that peaked at 9.1% in June 2022 (remember !) The difficulties the Fed encountered when attempting to exercise Quantitative Tightening (QT) since June 2022 and it is still work-in-progress, although slow the pace to reduce its of balance sheet has slowed considerably, owing to adverse market reaction. A walk down memory lane (S&P 500) is in order to remind ourselves of the 2023 dark ages to be endure ? (see below) Summary When artificial means are deployed in extreme, to manipulate an economy or its stock market, there is always a price to pay when it is time to hold back or reverse engineer. This is because the game master usually is no longer in control but the driving market forces. Stocks To Invest ? If the US slips into a recession, the 3 sectors are expected to be the most resilient based on economic theory and historical trends: 1. Healthcare and Pharmaceutical Healthcare is a necessity, with demand remaining inelastic regardless of economic conditions. eg. $Eli Lilly(LLY)$ People continue to need medical care be it for emergencies, chronic conditions, and preventive treatments. 2. Consumer Staples Essential goods like food, beverages, household products, and hygiene items that consumers cannot eliminate from their budgets. Again inelastic demand for these goods guarantees stable revenue streams for businesses like grocery stores and discount retailers. $Wal-Mart(WMT)$ comes to mind. 3. Utilities Essential utility services such as electricity, water, & gas, which remain critical regardless of economic conditions. Eg. $American Water(AWK)$ They are non-discretionary, ensuring consistent demand even during financial hardship. Apart from that, IT firms involved in Trump’s 3 multi-billions project are possible long term investments as well. Still think it is a conspiracy theory or a plot at play ? Whatever it is, we have to be prepared, no ? Must Read: Click on below titles to access. Repost to share, Like as encouragement ok. Thanks. Another day, Another AI winner [VNET] to bag ! AVGO vs NVDA: Tale of 2 Competing AI Stocks ? BBAI - Buy on eve of Quarterly Earnings ? Do you think BBAI Q4 2024 earnings will exceed market expectations ? Do you think its “better” to invest in BBAI-laced ETFs OR in BBAI itself ? If you find this post interesting, give it wings! ️ Repost and share the insights ? Do consider “Follow me” and get firsthand read of my daily new post. Thank you. @Daily_Discussion @TigerPM @TigerStars @Tiger_SG @TigerEvents