Some interesting and truly unorthodox perspectives, excerpted from the latest report from iconic Wall Street strategist Dominic Konstam (currently head of macro at Mizuho, previously at DB) who lays out a provocative scenario: for Trump's economic transition - whether by means of stagnation or stagflationary shock - to work out, it requires front-loaded max pain (full pdf available to pro subs in the usual place).
Necessities of Trump’s economic transition imply either a festering stagnation or a stagflation shock with the latter increasingly likely: bad for risk assets; bad for the dollar and more curve steepening.
Let’s start on an optimistic note: Trump’s economic transition might work in the sense that the structural trade and budget deficits might improve and be consistent with a generational extension of the US’s global economic and political power. On a more salutary note, the economic transition should be far from easy as it requires at least a temporary loss of economic activity via heightened inflation risk. Politically, Trump will blame previous Administrations. The risk he runs is that it backfires so that, by the 2026 mid-terms, the would-be transition is short-circuited. The emphasis is and should therefore be, from Trump’s perspective, front-loaded max pain.
