This Is The Bottom

I'm going to risk being wrong

I have avoided making specific claims on here for the last couple of weeks and have mostly been on the sidelines observing and learning. I've been studying the historical effects of tariffs, and I've been watching the intensity with which people are disagreeing on these policies.

After carefully weighing the numbers on each side of the argument, I'm now feeling ready to deploy some of the capital I've reserved over the last months of uncertainty. I could be wrong, but I'm willing to take that risk.

I've spent a lot of time hearing from Treasury Secretary Scott Bessent, one of the main architects of the current economic plan. Behind the President's bold public statements is Bessent's nuanced approach as a legendary macro investor known for his common-sense strategies.

What struck me most was his commitment to understanding average Americans. In an interview, he noted that in the summer of 2024, record numbers of Americans took European vacations while simultaneously, food banks saw record usage. Bessent actually went to food banks and discovered these weren't just the unemployed—they were working families who simply couldn't afford a full basket of groceries anymore.

This is what gets lost in the media's obsession with presidential soundbites. The plan is implemented by thoughtful leaders like Bessent. The outward show is how the President communicates it (and I don’t blame anyone for being put off by the way things are communicated by this administration). The crucial details get lost in between.

While visiting those food banks, Scott Bessent wasn't just gathering anecdotes—he was piecing together the economic puzzle that would inform his strategy. And what he's quietly implementing now tells a completely different story than the tariff hysteria dominating headlines.

Think of the economy like a river. When the flow of money (liquidity) slows down, everything downstream suffers—business, jobs, markets. What Bessent understands, as Raoul Pal spotted, is that you can restore that flow by opening three specific floodgates:

First, weaken the dollar. The U.S. Dollar Index has fallen 3.29% in just the past month to 102.64. This isn't random—it's deliberate policy. A softer dollar makes our exports cheaper globally (helping manufacturing) while encouraging foreign money to flow into U.S. assets.

Second, lower borrowing costs. The 10-year Treasury yield dropped from 4.27% to 4.06% in a single week. That's like cutting the interest rate on America's credit card, giving businesses and consumers more breathing room precisely when they need it the most.

Third, ensure energy stays affordable. WTI crude now sits at $61.19, down 13.48% this year. This functions like a massive tax cut for both families and businesses—money not spent at the pump gets spent elsewhere in the economy.

The early results? Our manufacturing sector, after being in recession territory for over two years (26 straight months of contraction), finally crossed back into expansion at 50.20 in March. That's not just a statistical blip—it's the textbook definition of "the bottom."

Add to this the broader money supply increasing by 3.9% year-over-year to $21.56 trillion, personal income jumping by $194.7 billion (0.8%) in February alone, and you start to see Bessent's liquidity strategy working exactly as designed.

I believe the biggest misconception in the current narrative is that tariffs = inflation. Here’s why:

Inflation actually decreased from 3% to 2.8% in February—right when tariffs were being implemented. During the previous round of tariffs in 2018-2020, inflation briefly ticked up from 2.1% to 2.4%, then fell to 1.8% and ultimately 1.2%. So much for that economic "certainty."

What's really happening with prices is far more complex, and the Federal Reserve knows it. They've been playing a delicate balancing act—cutting interest rates from 5.5% to 4.5% in late 2024 to support growth, while simultaneously continuing their "quantitative tightening" program that reduces the money supply.

Think of it like driving with one foot lightly on the gas (rate cuts) and one lightly on the brake (quantitative tightening). They're now holding steady at 4.25-4.5%, watching to see which force wins out.

This careful balancing makes sense when you look at the data. Core inflation (excluding volatile food and energy) still sits at 3.1%, above the Fed's 2% target. Meanwhile, they've slowed their balance sheet reduction from $25 billion monthly to just $5 billion—easing up on that brake pedal as they watch for signs of where the economy is heading.

When you connect these dots—Bessent's three-part liquidity strategy already showing results, inflation behaving differently than the tariff alarmists predicted, and the Fed navigating a middle path—you start to see why I believe this is the bottom.

Yes, there are genuine risks. Global growth is slowing. We have massive government debt to refinance. Manufacturing's new orders component still shows weakness at 48.6%. Oil volatility could spike with a Middle East flare-up and there are serious geopolitical conflicts to keep an eye on.

But the biggest risk isn't in the data—it's in the narrative. When everyone fixates on tariffs while missing the liquidity story, they create exactly the kind of market disconnect that presents buying opportunities.

I've kept powder dry for precisely this moment. The noisy headlines have created the perfect storm of fear, while the underlying data tells a different story of a carefully orchestrated liquidity recovery that's already beginning to work.

Despite these risks, the data convinces me we're at a bottom. The liquidity measures being implemented are historically powerful drivers of asset prices, capable of overwhelming tariff-related headwinds.

This week, I'm putting my money where my analysis is. The worst-case scenario isn't that I'm wrong about the timing—it's that I miss the opportunity entirely by following the crowd.

It's easy for the Treasury to stick to the status quo, keep artificially pumping up the economy, printing money, and pretending everything is fine. Taking steps toward better economic fundamentals is the harder path. Similarly, it's easy for investors like me to get sucked into the overwhelming fear and uncertainty in headlines.

Remember, all of this is just my opinion based on the data I'm seeing—not financial advice. I'm choosing to follow what the numbers tell me while keeping my eyes wide open to the risks.

Sometimes you have to risk being wrong to have a chance at being right.

If you disagree, leave a comment—I like to see where my blind spots are.

VL