Incentives move markets. Coercion distorts them.
In the Trump era of “easy way or hard way” politics, we find ourselves watching both forces collide in real time — whether in media, central banking, or the mortgage market.
Your task as an investor is to parse which is which, because carrots make you money, while sticks only break things.
Kimmel’s Cautionary Tale
Disney’s ABC suspended Jimmy Kimmel’s late-night show after his monologue about Charlie Kirk’s assassination triggered outrage in Washington.
FCC chair Brendan Carr warned networks, “We can do this the easy way or the hard way,” suggesting the agency could pull broadcast licenses if companies didn’t “take action” on their own.
Ari Cohn of the Foundation for Individual Rights and Expression warned: “We cannot be a country where late-night talk show hosts serve at the pleasure of the president.”
But that’s precisely what it looks like.
The precedent is dangerous not because Kimmel was funny — he hasn’t been in years — but because the stick of government coercion replaced the carrot of market demand.
We didn’t like it when, in 2022, the Biden administration’s Department of Homeland Security (DHS) attempted to establish the Disinformation Governance Board. We can’t turn around and pretend like threats from the FCC against ABC are somehow justified.
Unless, of course, you believe in the German concept of schadenfreude, the market’s cruel way of shoving fake morality down your throat. Better known in English as “what comes around goes around.”
Investors should note: when corporate boards manage risk by placating regulators rather than pleasing customers, the market’s signaling mechanism is warped.
That same distortion now shows up everywhere, from IPO pricing to interest rates.
Fed’s Risk Management Cut
Yesterday the Fed gave Wall Street what it wanted: a quarter-point cut, with two more likely before year’s end. Jerome Powell called it a “risk management cut,” shifting the Fed’s focus from inflation to the labor market. The Dow rose on the news, though the S&P and Nasdaq dipped.
The Fed’s decision was no surprise after August saw only 22,000 new jobs. But the politics around it were extraordinary.
A federal appeals court blocked Trump’s attempt to fire Fed Governor Lisa Cook two days before the meeting, while Trump’s new appointee, Stephen Miran cast the lone dissent, saying he wanted a half-point cut. Trump himself has said rates are “at least” 3% too high.
KPMG’s Diane Swonk quipped that Powell “corralled the cats” to hold the committee together. But as Bloomberg put it, “The real test is whether the Fed’s independence can survive Donald Trump.”
Mortgage Mania Returns
For homeowners, the carrot came quickly. Mortgage rates dipped to 6.13%, their lowest since 2022. Refinance applications surged 58% last week, and the Mortgage Bankers Association says refinancing now makes up nearly 60% of all applications. “Homeowners with the biggest loans rushed to redo their contracts,” MBA chief economist Mike Fratantoni told CNBC.
And yet, U.S. homebuilder sentiment remains mired at 32, among its lowest in years. Below 50 means more builders see conditions as poor than good. Lower rates are thawing refinancing, but the housing market remains structurally frozen — too few homes, too much demand, and still too expensive for first-time buyers.
Here lies the tension: rate cuts are meant as a carrot to stimulate housing, but the structural sticks — zoning, labor shortages, materials costs — still weigh down the market.
Nvidia in the Crossfire
Nvidia, the world’s most valuable company, got slapped again by Beijing. China ordered firms to stop buying its RTX Pro 6000D chip, designed specifically to sidestep U.S. export restrictions. CEO Jensen Huang admitted: “We can only serve a market if a country wants us.”
At the same time, Nvidia agreed to take a $5 billion stake in struggling Intel, a move analysts called a “strategic hedge” as the U.S. and China weaponize semiconductors.
As the Financial Times noted, “Computer chips have become the engines of both economic growth and geopolitical conflict.”
Investors in tech now face not just earnings risk, but policy risk on two continents.
StubHub Stumbles, Lyft Catches a Ride
StubHub’s IPO was supposed to be a hot ticket. Instead, it was priced at $23.50, opened at $25.35, and then slumped 6% to $22, below the issue price.
After a summer of blockbuster debuts (Klarna, Gemini, Figma), the flop is a reminder: carrots don’t always appear on cue. Market enthusiasm is fickle, and not every debutant gets a hero’s welcome.
Lyft shares rose after the company announced a deal with Alphabet’s Waymo to roll out robotaxis in Nashville next year. If they succeed, the carrot is obvious: a cheaper cost base and a potential edge in the driverless future.
But the stick is looming, too: regulation, liability, and consumer trust. As with housing, incentives point one way, politics the other.
Today’s Immediate Takeaway
Incentives grow markets. Regulation stunts their fragile bones.
The Fed’s rate cuts are carrots. Markets are feasting on them. Over in the Grey Swan Trading Fraternity, Portfolio Director Andrew Packer added a long trade in the commodity market – in a small-cap player, producing a commodity domestically.
As a cherry on top, it might be the next MP Materials or Intel and get explicit government backing, which could really cause shares to take off.
Trump’s threats to the Fed, or the FCC’s jawboning of broadcasters, are sticks. Investors must decide which matters more.
As one market veteran told The Wall Street Journal: “Cheaper money is a carrot. But the bigger question is whether trust in our institutions can hold. Without that, the carrots won’t matter.”
~Addison
P.S.: Join us on Grey Swan Live! with Adam O’Dell at 2 p.m. today. We’ll discuss where the real incentives lie — and how to navigate markets when the line between carrots and sticks is growing dangerously thin.
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