Do it yourself

The script in the US is playing mostly on the expected lines (see here and here).

Department of Government Efficiency (DOGE) – crash landing

Department of Government Efficiency (DOGE) is apparently on its way to crash land, with the pilot (Elon Musk) ejecting himself out shortly after taking off.

DOGE’s actions have faced multiple lawsuits, with critics arguing that Musk and his team have violated federal laws, union agreements, and civil service protections. A federal judge halted parts of USAID’s shutdown, and courts have restricted DOGE’s access to payment systems.

Despite Musk’s goal to cut $2 trillion from the federal budget, 2025 spending is slightly up from 2024, per Brookings Institution data.

Mandatory spending (e.g., Social Security, Medicare) limits achievable cuts. Over two million federal employees were offered buyout deals, with some agencies facing mass layoffs. However, some fired staff have been rehired, indicating implementation challenges.

Though DOGE has made a significant promise, the actual delivery has been materially lower, primarily due to legal, ethical, and practical challenges; mixed public support and limited measurable impact. With Musk virtually leaving the initiative, its future appears uncertain.

Fiscal deficit – continues to rise

The U.S. fiscal deficit is on an upward trajectory, driven by increased spending, rising interest costs, and insufficient revenue growth.

For the first seven months of fiscal year 2025 (through April 2025), the cumulative deficit was $194 billion higher than the same period in the previous year. Total outlays for this period were $4.2 trillion, up $340 billion from the previous year, driven by increases in Social Security ($70 billion), net interest ($65 billion), and Medicare ($41 billion)

The Congressional Budget Office (CBO) projects the federal budget deficit to be $1.9 trillion in fiscal year 2025, equivalent to 6.2% of GDP. By 2034, the deficit is expected to grow to $2.8 trillion (6.9% of GDP) if current policies remain unchanged.

Recent legislative proposals, such as the tax and spending bill passed by the House in May 2025, could add $3.3–$3.8 trillion to the federal debt over the next few years, further exacerbating the deficit. Federal debt held by the public is projected to rise from 100% of GDP in 2025 to 118% by 2035, surpassing the historical high of 106% set in 1946.

The US sovereign credit rating has been cut by Moody’s Aa1 from AAA earlier.

Tariff Tantrums – More pain than gains

The tariff war initiated by the Trump 2.0 administration in February 2025, has mostly been counterproductive so far.

New tariffs have generated a short-term revenue ($16 billion in April alone) but at a significant cost - A 6–8% GDP reduction in the long run as per The Penn Wharton Budget Model (PWBM); 2.3% higher consumer prices; losses to the US households; global trade contraction by 5%; U.S.-China trade nearly collapsing; retaliatory tariffs and supply chain disruptions exacerbating economic strain, particularly for U.S. consumers and export-heavy sectors.

The net effect is a significant economic burden on the U.S., with global ripple effects, though temporary truces (e.g., U.S.-China) and exemptions (e.g., USMCA) mitigate some damage.

Seemingly unconventional approach of the President may be turning the US strategic allies into adversaries. Frequent and unpredictable tariff tantrums of President Trump, have widened the trust deficit between traditional trade partners of the US (e.g., the EU, Britain and Japan), making the relationships purely transactional.

USD weaker, yield higher

The tariff war has imposed significant duties (e.g., 20–145% on Chinese imports, 25% on steel, aluminum, and autos from Canada and Mexico). These tariffs raise the cost of imported goods, increasing inflationary pressures. For example, the two-year breakeven inflation rate rose from 2.54% at the end of 2024 to 3.36% by April 8, 2025, reflecting market expectations of higher short-term inflation.

Rising inflationary expectations, fiscal debt and debt sustainability concerns (rating downgrade) have prompted the bond investors to demand higher yields. As Minneapolis Fed President Neel Kashkari noted, rising yields and a falling U.S. dollar suggest investors may be viewing the U.S. as less attractive due to trade war escalation and fiscal concerns, reducing demand for Treasuries as a safe-haven asset.

The US Fed is also sounding more hawkish in its recent statements, impacting the traders’ and investors’ sentiments.

The U.S. dollar (USD) has also been weakening in 2025, with the Dollar Index (DXY) dropping from 108.2 in late December 2024 to around 100, a decline of approximately 7%. This weakening of the USD is driven by multiple interconnected factors, e.g., the rising U.S. fiscal deficit, the tariff war, rising U.S. Treasury bond yields, and failure of the Department of Government Efficiency (DOGE) to implement material spending cuts.

I still believe that the conventional wisdom will prevail, tempers will cool down and President Trump will eventually return to the path of reconciliation and cooperation. Nonetheless, it is still uncertain how much damage would have already been caused by then.

Also read

“MAGA” – Keeping it simple

The master failing the first test

View from the Mars

View from the Mars - 2

Tariff Tantrums

“Trade” over “War”

“There are events in the womb of time, which shall be delivered in time”. (Othello, William Shakespeare)

Beginning of the current year, I commented that “the trend seen in the past few months is indicating that the conditions might change materially in the next 12-24 months. The macro trends may become ambivalent and unpredictable. Investors may need to make choices; and the return they would earn on their investment portfolios would largely depend on the choices they would make. Making right choices, in my view, would be the central investment challenge for the year 2025.”

Barely one month into the year and it appears that earth already witnessed many seasons. The conditions are becoming more uncertain with each passing day. The 47^th President of the United States (P47), appears in a tremendous hurry to deliver on his promise to Make America Great Again (MAGA). He is using all his negotiating skills to secure good deals for his country. How much success will he achieve with his aggressive approach, we would only know with passage of time. Nonetheless, with his initial actions he has created a fair degree of uncertainty in the minds of his political opponents, trade partners, strategic partners, competitors and markets.

While I continue to maintain that investors would be better off avoiding a macro trade and focusing on individual business stories in the next 12-24 months, the three macro trends worth including in the matrix for identifying and evaluating individual business stories are Deleveraging, Demographics and Deflation.

Deleveraging: The US Fed has contracted its balance sheet by US$2.1trn since the beginning of its monetary tightening (QT) program in April 2022. The total assets held by the US Fed are now lowest since May 2020. It would need to unwind another US$2.7trn to completely undo the Covid related monetary expansion. Besides the US Fed, most other central bankers have shown a tendency to tighten the money supply by reducing their asset holdings. The Bank of England balance sheet is following the same trajectory as the US Fed. BoJ has not expanded its balance sheet in the past couple of years and cut the size of its asset holdings in recent months. Even RBI’s balance sheet has contracted in the past few months.

If we take the plan of P47 at par value, we are staring at one of the biggest fiscal corrections in modern history. Most other major developed and developing countries are also progressing on the path of sustainable fiscal corrections.

This macro deleveraging at the global level might reflect in the corporate and household balance sheets sooner than later. But for a major natural or manmade disaster, we should be factoring in sustainable governments, lower rates and adequate household savings in our investment strategies.

Demographics: One of the most critical trends in a large part of the developed world is deteriorating demographics. Most European and LatAm countries, the US, Canada, Japan, China, South Korea, Thailand, etc. have their total fertility rates fallen below the replacement ratio (implying their population is now on a declining path). The proportion of the working age population in these countries is decreasing fast. The population in China has already peaked and the population in India is expected to peak much ahead of the previous estimates of 2050.

This demographic trend appears structural and irreversible. With deeper and wider integration of technological advancement in social and personal life, the need & space for human interaction is on the decline. Financial and professional constraints are adversely impacting the capability and willingness to commit to personal relationships. Stressed and hectic lifestyles are adversely impacting the fertility of humans. There is nothing to suggest that these trends could change in the foreseeable future.

Obviously, the demographic trends will reflect on the aggregate demand as well as the demand mix.

Deflation: The mix of deleveraging, ageing demographics and superior productivity gains through technological advancements may lead to resumption of the pre-Covid deflationary trend. The supply lines disrupted due to Covid related restrictions and geopolitical developments post 2021 have mostly been restored. Save for a totally unexpected development, the current trend appears that a workable global trade balance may be achieved within the next 12-24 months.

With almost all major global market forces (the US, China, Germany, Japan, South Korea, France and the UK account for ~40% of the global trade) focused on repairing and strengthening their domestic economies, it is more likely a mutually beneficial global trade framework will emerge after the initial aggression of the P47 brings all trade partners to the negotiating table. This framework would, among other things, will certainly dampen the inflationary expectations.

The 45^th President of the United States of America (POTUS), Mr. Donald John Trump (Trump) has assumed office with an onerous promise to “Make America Great Again” (MAGA). In the past two months, POTUS and some of his team members have expressed their intention to implement radical policy changes in a variety of spheres.

A close study of the entire election campaign of Trump, his actions during his previous presidential tenure (2016-2020), his selection of team members for his latest presidential term, and his various utterances since the election results in November 2024, would reveal that as of this morning MAGA is mostly an aspirational slogan lacking a credible conceptual framework. For example—

·         Trump has spoken about strict border controls, tougher immigration rules, and restrictions on the skilled worker visa (H1B) program. Presently, many US corporations which would play a pivotal role in MAGA, have first generation immigrants as their top executives. There is an acute shortage of skilled tech workers in the US. MAGA would require a large number of new infrastructure construction projects requiring cheap labour. There is a sharp decline in the total fertility rate of the white native Americans; hence the demographic balance and stability of the US largely depends on the immigrants. Ironically, there is an abundance of immigrants in the governance team nominated by Trump. In fact, Trump is relying on South Africa born Elon Musk and Vivek Ramaswamy (born to Indian immigrants, and reportedly already considering withdrawing) to marginalize the infamous American Deep State.

·         Trump has been talking about adopting the pre-WW1 doctrine of isolationism (policy to not interfere in the geopolitical affairs of other countries) and making the US a dominant global force in the same breath. He has announced his expansionist agenda with élan. He apparently wants to buy Greenland, acquire Canada, control the Panama Canal and claim the entire Gulf of Mexico. With this intent, he may not only be sanctifying Russian claim on Ukraine and other countries claimed by the president Putin as historical Russian territories; Chinese claim on Taiwan, Northern and North Eastern Indian territories; Israeli claim on Palestine and territories of other neighboring countries; but also pushing the world back into pre-WW1 era of persistent conflicts, and colonialism.

·         Presently, the US derives most of  its power from (i) USD (being a global reserve currency); (ii) technological prowess (largely attained through luring talent from all parts of the world with a promise of great, fair and equal opportunity); (iii) profligate American consumers, largely fed on fiscal support and debt made possible by a huge trade deficit funded by the US trade partners by accepting USD (unsecured US Fed promissory notes) in lieu of their tangible goods and services; and (iv) the promise of the US to protect democracy and human rights, affording the US government a dominant role in the most multilateral agencies, and support of NATO forces in asserting its strategic supremacy. The proposed agenda of Trump directly hits at the core of all the pillars of support of the US.

I am obviously not very enthusiastic or unduly worried about Trump 2.0. I am expecting some disruptions in the next few months, before the tempers cool down, horses are tethered, and business becomes as usual. These disruptions will definitely reflect in the Indian stock prices also. It is for experts to slog and discern this impact. I have the privilege to approach the issue in a rather simple and nonchalant manner. …to continue tomorrow