Fantasy football and the macroeconomy
I used to play fantasy football. I had my little ritual: I would wake up early on Sunday morning before the family, do my "research" and review the week's games, then set my lineup, watch football and hope for victory. Other people in my league knew a lot more about football than I did -- I actually had no idea how they knew so much. I made it to the championship game one year out of about 10 that I played. Looking back, it was pure luck.
During the years I played, Thursday night games would not start on the schedule until around November. This meant fantasy football for most of the season could be managed during my Sunday morning ritual. Toward the end of my fantasy football career, Thursday night games started hitting the schedule earlier and earlier in the season. This year, the first Thursday night game is in early September. Thursday night games completely shifted the timing of fantasy team management -- the team had to be managed between the end of the Monday night game and the start of the Thursday night game each week. My ritual was disrupted, and fantasy football became very stressful. I am no longer in the game.
This feeling of fantasy team management stress during Thursday night game weeks is exactly how I am feeling about the macro-economic environment driving headlines and markets right now. There is just too much going on, seemingly all at once, with no time to absorb and contemplate information as it comes in. The pace of change is too rapid. Nearly all of this disruption involves the Federal government and the Federal Reserve. I will try to summarize, and provide some guidance on how to interpret headlines -- some of which are bound to be politically charged or propaganda based -- and sort out just what is likely to play out by the end of the year.
The Federal government is borrowing a lot of money this year. Not only is it funding record structural deficits, based mostly on Social Security, Medicare and Medicaid spending, but it is also paying a record amount of interest on the existing $37 trillion national debt, and it is refinancing $9.2 trillion of bonds maturing in 2025. All in all, the Federal government needs to borrow about $11 trillion this year.
All attempts at controlling Federal spending appear to be failing right now. Whether you loved the idea or hated the idea, the savings and austerity attempted by DOGE never materialized. The swamp monster which is Washington DC resisted reform, and prevailed. The government will spend -- this is no longer a debate. There is no longer any need to be distracted by hope.
$11 trillion however is a lot of money, even by Federal government terms, and the U.S. Treasury is in desperate need of lower interest rates. Even a 0.25% reduction in short term interest rates could save the government nearly $30 billion in interest costs in the next year. The numbers we are talking about here are insane.
In an effort to achieve lower interest rates, the Trump administration has been what can only be described as "pounding" on the Federal Reserve, particularly Chairman Jerome Powell, attempting to influence the Fed's decision making as it sets short term interest rate policy. Not only has the President been very vocal in the press about this intention, but President Trump recently fired Lisa Cook, one of the members of the Board of Governors, and intends to have Presidential control over the makeup of the Board tested in the courts. With the recent firing, and as a result of a different Board member resignation and appointment of Stephen Miran earlier this year, the President is close to having appointed the majority of this seven-member board.
The action, however, is not being limited to the Fed's Board of Governors. Congress, in conjunction with the administration's agenda, is also considering legislation aimed at altering the Fed's policy of paying banks interest to keep money on deposit at the Federal Reserve. The Fed has been paying interest on reserves since 2008, currently at 4.4%, which makes it very attractive for banks to maintain higher reserve balances with the Fed. The logic behind this legislation is if the Fed is no longer paying interest on bank reserve deposits, the banks will look for returns elsewhere, and likely some of these deposits will seek U.S. Treasury securities as an alternative. As demand increases for U.S. Treasury securities, theoretically yields will drop, enabling the government to borrow at lower interest costs.
Finally, as we discussed a few weeks ago, with passage of the GENIUS Act which codified regulations for stable cryptocurrency tokens, the expectation is the demand for U.S. Treasuries as collateral for stable crypto currency could also drive yields lower, helping achieve the Treasury's goals.
It's all a lot to unpack, and much of these material macro items will play out by the end of the year. Just how these issues will impact financial markets remains to be seen, but it's surely going to be a very interesting football season.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
