Trump's "Big and Beautiful" Law Boosts U.S. Debt by 500 Billion Dollars

The recently enacted "Big and Beautiful" law, championed by Trump, has sparked significant controversy due to its provisions to reduce medical insurance, increase long-term debt, eliminate clean energy incentives, and provide tax cuts for the wealthy and large corporations. The law, signed into effect on July 4, has been criticized for its potential to exacerbate the nation's fiscal challenges.

One prominent voice in the financial community, known for their accurate market predictions, has described the law as creating a "Big and Beautiful Bubble." This analyst noted that the final version of the law, passed by the Senate, raised the U.S. debt ceiling by 500 billion dollars, exceeding the initial House version by 100 billion dollars. This adjustment effectively increased the debt ceiling to 4.1 trillion dollars.

According to the analyst's estimates, by the next U.S. presidential election in 2028, the federal debt is likely to reach 4.3 trillion dollars and surpass 5 trillion dollars before 2032. The actual figure could be even higher, as the analyst anticipates at least one economic downturn, crisis, pandemic, or shock before 2032 that could add an additional 100 billion dollars in unexpected debt.

The analyst's recent report highlights political shifts in fiscal policies across various regions, including Germany and the U.K., indicating that neither voters nor politicians have supported measures to reduce debt or deficits. Currently, government spending as a percentage of GDP is 44% in the U.K. and 41% in the U.S.

This fiscal environment has led asset allocators to avoid long-term bonds, not only in the U.S. but globally. They are reducing their exposure to the dollar and increasing investments in international markets, hard assets, and digital assets. This shift is reflected in the significant changes in the returns of key global assets. For instance, the dollar experienced an 11% decline in the first half of the year, marking the largest semi-annual drop since 1973. In contrast, gold surged by 26%, its best performance since 1979, while global stocks outside the U.S. rose by 16%, the strongest first-half gain since 1993.

The analyst's report also touches on recent changes in fund flows, highlighting two key points related to market turning points. Over the past four weeks, inflows into global stocks and high-yield bonds have been 0.9% of assets under management, slightly below the previous week's near "sell signal" level of 0.99%. However, this is still close to triggering a sell signal. Additionally, according to the global breadth rule, the market is rapidly approaching a sell trigger point. When more than 88% of MSCI Global Index stocks trade above their 50- and 200-day moving averages, it is time to sell. Conversely, when more than 88% trade below these averages, it is time to buy. Currently, approximately 82% of MSCI Global Index components are trading above their 50- and 200-day moving averages.

If the S&P 500 index rises above 6,300 points in July, it could trigger these sell signals. However, the analyst warns that an overbought market can remain overbought for an extended period, as greed is harder to overcome than fear.