Hello, my friends. Today is May 24th, and this is Market's Weekly. So this week, I'm on the road. I'm at the Rebel Capitalist Conference in Orlando, and it was a pleasure to meet many of you. So today is going to be a bit brief, and I'm not going to add any media contact. But this past week, I think, was pretty eventful when it came to markets. And as you all know, I believe that policy is the biggest driver of price action, and this week we got a lot of big policy moves.
First, let's start with the big, beautiful bill. So there was really no doubt that the House would pass the big, beautiful bill. As we discussed last week, of course, President Trump basically is the leader of the Republican Party. Everyone looks to him for guidance, and if he, when he wants something done, he will get it done. So I think it was a little surprise. Again, sometimes they have these headlines and makes, makes for good news, but there's a little, little doubt that this would ultimately pass.
I think the big disappointment to me, and I think to many people as well, is that this shows that the goal of actually having some fiscal discipline that many aspire to at the beginning of the year is not going to happen. At the beginning of the year, we had Elon with Doge. We had Howard Lednick talking about, you know, Tara Frebeniu raising money with Golden Beasers and so forth. There were at least many people on Team Maga that were really concerned about the fiscal deficit. And there seemed to be, I think, for, I don't know, I haven't seen before some serious effort to get it under control. But, you know, it doesn't look like Doge was super successful.
我觉得让我感到非常失望的是,也许很多人都有同感,就是这表明年初许多人所希望的财政纪律目标并没有实现。年初的时候,我们看到了马斯克与狗狗币的热潮,还有霍华德·莱德尼克谈论的内容,比如Tara Frebeniu通过Golden Beasers筹集资金等。至少有很多“Make America Great Again”团队的人对财政赤字非常担忧,我觉得至少有一些以前没有见过的认真努力来控制这个问题。但看起来,狗狗币并没有取得很大的成功。
And, well, the tariff stuff is going to raise revenue, but really, it doesn't, we don't really know it's going to be used to pay down the debt, or maybe that revenue is just going to be spent on other projects. So looking at the bill, the big, beautiful bill, it's not official yet. It has to go to the Senate and the Senate will do something about it. And then there'll be a reconciliation process. But from what I understand, listening to people who understand this process, the Senate is not going to make it smaller, right?
So at the end of the day, the Senate shares one stuff, reposts house people one stuff, and since it's other people's money, you know, everyone gets what they want and it just gets even bigger. So looking at these estimates for the big, beautiful bill, it's going to increase the fiscal deficit over the next few years by a few hundred billion. Now, some people quibble with this because, you know, if you're saying increasing the deficit by a few hundred billion, what's the baseline? Now, this is where I think they have a point, but it's not really that.
It's kind of not really the main point. So the CBL, the Congressional Budget Office, when they do these deficit estimates, they can only make them according to current law. So the way that legislation is written, so you write a bill, and you want to make it look like it's not adding a lot to the deficit. So a lot of the goodies in the bill, you make it so that they sunset. So they expire in a few years. And that's what Trump did during the Trump tax cuts in his first term.
He gave tax cuts to every income group, and then he made it so that they, those tax cuts would expire in 2026. So that made the bill, you know, the deficit impact of the bill look a bit smaller. But in practice, though, now that we're in 2025, nobody wants to go in, you know, pass legislation that will raise taxes on the American people. So although in the beginning, those tax cuts were written that they would sunset, in practice, though, they get renewed.
So based on the tax cuts sunsetting, the CBO sketched in, let's say, 1.7, 2 trillion fiscal deficit for the next few years, each year. Now, if you never believed that the tax cuts would sunset, then you would say that, yeah, yeah, yeah, yeah. So we renewed the tax cuts, but, you know, no one ever really believed that baseline as well. So at the end of the day, the deficit next year was always going to be 2.2, 2.3 trillion, so forth.
Now, I think that's fair, but this tax bill also did increase additional tax cuts, specifically when it comes to depreciation. For example, not if you are a manufacturer, and you want to build something in America, you can not only apply depreciation, bonus depreciation on your, your tools, but even on the real property, the real estate, the manufacturing real estate as well. And that's a pretty big difference.
And of course, there are other small giveaways sprinkled in as well. And if you apply the same logic that when these things are set to expire in 2028, which of course conveniently is a presidential election year, then maybe they'll just get renewed in 2029 by the new Congress. So I think this bill does meaningfully expand the fiscal deficit, even especially since you just assumed that all the stuff that's supposed to sunset in a few years will just get renewed.
Now, here's the thing that, now here's the thing when it comes to the market impact. So if you've been following me for the past few years, I had a hypothesis called crash up that I talked about a couple years ago. And I believe that at the time I was writing about it, the S&P 500 was below 5,000, everyone was talking about recession, but I was like, no, look at the fiscal deficit. We are going to crash up and we searched over 6,000 on the S&P 500. So writing about the impact of the fiscal deficit on the economy, on financial assets, this is something that I've been doing for years. However, in markets, it's there are no laws, right? It's always context and judgment. There's never a equation.
Now, in this current context, though, as I wrote to my subscribers last week, I'm thinking that this big fiscal deficit is going to be a big problem for asset prices. And you think we see such inklings of that at the past week. So again, we have that big, we have the moody sound grade, we have the big, beautiful bill passing, and predictively, of course, Bonnual's rose, right? If you have big fiscal scanning, Bonnual's rise. But what was telling, though, was that the equity market sold off and most importantly, the dollar sold off. Now, that tells you that there are more and more people in the market worried about the fiscal trajectory of the United States. And I think that is a very, very big warning sign for what lies ahead. And that's what I'm going to write about this week. So I think there's a very clear regime change in how the market is treating this.
Now, the other theme this week, of course, was the, just not just rice in US Bonnual's, we have the 30-year Bonnual's just exploding higher above 5%, but this is also global. Now, it's hard to kind of, you know, pulse out the drivers of this because at the end of the day, when the US Treasury yields rise, that's going to drag everyone up. And I don't see vice versa as well. So Bonn markets are connected globally through global investors who can basically move the money around. So even when GGB yields rise, that's going to have some upward pressure on Treasury yields as well. So it's really hard to have a, you know, pulse out a distinct driver, but I think it's pretty obvious the US fiscal situation plays a role. But there are other factors as well looking to Japan.
For example, it looks like Japanese CPI keeps surprising to the upside. And it's been above their 2% target for quite some time. And that seems to be putting upward pressure on GGB yields. And now, you know, that could be some, some, something there as well. And of course, looking across your land, we all know they have their fiscal story and that could be driving up yields there as well. But in any case, global bond yields are rising. And I think usually that's not that great for the equity market. So we'll see what happens there. Now, the second thing that I thought was pretty interesting when it comes to policy is that we have tariff man returning. So a President Trump on Friday tweeted out that he's going to tariff Europe of 50%.
Now, I think the markets didn't like this, but immediately I think a lot of people were fading it, shrugging it off. Because unfortunately for Trump, he set a precedent with a China negotiations such that not just the market, but many people, many other countries think that, you know, maybe if we just stand tough, maybe President Trump will just cave like he did in the case of China. So I mean, there's a few ways to look at this. One is that markets have recovered. Or there are losses in April. So maybe the person feels emboldened that he can, you know, just play top again with tariffs. But on the other hand, it doesn't seem like the negotiation position the US has over Europe.
Well, it seems like the US is not as super dependent upon European imports as it is upon Chinese imports. So maybe that's another reason as well. What seems to be the case according to reporting is that the Europeans are really upset about the auto tariffs since Europe's exports lots of autos to the US. Now, this is something that President Trump doesn't really want to let go of because a big part of his campaign is to bring back manufacturing to the US and he wants that to mean cars. And also he wants the support of all the auto unions and blue color workers. This particular issue is especially important because right now there's also negotiate engines with Japan and Korea as well for also major car exporters.
And so I think it's hard for President Trump to cave on this because if they cave on this issue, then Japan and Korea are going to want the same treatment. So we'll see what happens. The deadline that Trump is giving is the end of the month. So next weekend. So there's still, it's still possible for something to happen. This is just a big, you know, stare down and eventually someone will cave and will come to a last minute deal that's happened before.
But also note though that Europe has also prepared a set of counter sanctions on the US and they might be willing to deploy that. Now, European policymakers looking at their record don't seem to be doing a very good job. And I think many of them don't have business experience. So they're going to be approaching this in a different way than Trump. I think it's possible that they just really just might escalate to see if Trump will stand down.
Now, one other thing that I'll add is that in the upcoming big beautiful bill, there's something called section 899. And what that does is that it gives United States the power to levy taxes on foreign entities. So foreign individuals or foreign corporations in the US by raising their withholding tax if the US thinks that the foreign country is treating the US unfairly. For example, let's say that France has a digital services tax that it's living on Amazon and other US companies.
And the US decides that this is just unfair competition. So what I want to do is I want to tax all the French investors and French companies doing business in the US. So this kind of extra taxing power that is in the upcoming legislation is going to strengthen the US's hand when it comes to future negotiations. And I think at the end of the day that's going to make the US a less attractive destination for foreign investors.
After all, let's say that you are a French investor investing money in the US. Now, something happens that's beyond your control. And suddenly, all the returns that you thought you were getting from your US investments, well, they're less because they're higher taxes on it. So this is something that looks like it's escalating.
Now, I'm kind of surprised by what's happening with the chair of sub-I thought the administration touched the stove. We realized that it was hot and maybe wouldn't want to do it as much. But it looks like they feel emboldened or at least at the moment with the markets where they are. I feel like there's no little price to pay.
So look for more tech excitement in the coming weeks. And well, so that's all I prepared for today. Thanks so much for tuning in. Next week, remember, next week, Monday's Memorial Day. So we'll not post on that day. And that's a holiday. So everyone, hope you enjoyed your holidays. Talk to you all next week.