MARCH 2026
IN THIS ISSUE
Psychological pain at the pump
Don’t miss the best days
“Greater fool”s gold?
Subprime Trump Credit Cards
This month, as inflation and cost of living surges with the war in Iran constricting oil supply and inflating prices at the pump, I recalled the Trump Administration’s proposed “Trump cards” in January that would cap interest rates at 10% as relief for American borrowers.
Given the flood of news stories and our ever-shortening attention spans, I find it helpful to systematically revisit news stories and events to support my process with more reliable information processing.
ICYMI:
President Trump called for a one-year, 10% cap on credit card interest rates, claiming he would not allow Americans to be "ripped off". He later clarified he was "asking Congress" to pass this legislation, although Republicans in Congress - not surprisingly as the “party of free markets” - have shown little appetite for socialist price controls.
After significant pushback from the banking industry, National Economic Council Director Kevin Hassett floated a "Trump card". Banks would voluntarily provide 10% interest rate cards to a "sweet spot" of consumers who are both creditworthy but currently underserved.
JPMorgan warned of "catastrophic consequences," although Bank of America and Citigroup have explored these voluntary cards as an olive branch to the Trump administration.
Industry analysts noted that these voluntary cards would probably offer fewer rewards and lower credit limits than credit cards without caps.
The Trump administration has consistently sought to use stock prices as a proxy for its economic policies. Inflation and cost of living are Likely to be midterm election storylines. So the Administration is looking to at least give the appearance of doing something on affordability - lest their other policies like shuttering the Consumer Financial Protection Bureau hinder affordability.
In college I remember attending a conference where a researcher presented a paper on payday lenders, characterizing them as greedy, predatory institutions taking advantage of vulnerable people via high interest rates. We pushed back by asking: “Are those high interest rates really a market failure? If profits were so flush, then why aren’t other competitors entering the market and offering lower rates still at a tidy profit?” The answer, of course, was loan losses. Loans to folks whose best option is a payday lender are at very high risk of default, with many loans being sold to debt collectors for pennies on the dollar. Hence, companies charge those high market-prevailing interest rates because that’s what it takes to be even minimally profitable.
This same market dynamic confronts President Trump’s recent attempt at market manipulation via capping credit card interest rates. Few, if any, banks will cap rates at 10% and eat the loss on loans. They simply will reduce credit to less-creditworthy borrowers whose risk profiles command rates higher than 10% to be profitable.
So then, will President Trump and Republicans fund a new government program to loan money to credit card borrowers at below-market interest rates? Dare I say, a *subprime* taxpayer-funded lending program? Not gonna happen.
Price controls are the wrong solution. A politically popular move in an election year, to be sure, but also a move that reflects a fundamental ignorance of the root causes of high credit card interest rates.
Managers need to parse out which factors deserve which weightings in their investment strategies, including when factors should be disregarded altogether. In my view, caps on credit card interest rates are unLikely to come to fruition, and even if implemented they are unLikely to have a significant economic impact, and therefore should have minimal to no weighting in investment models.
ONE MORE THING…
Psychological pain at the pump. It’s painful watching the pump steadily spending our money. Doesn’t mean those dollars are any different than others we spend. https://www.linkedin.com/posts/danariely_gas-prices-and-the-pain-of-paying-gas-share-7441406465233510400-URCw
Don’t miss the best days. BlackRock’s Larry Fink warns against market timing, says missing best days can halve returns
“Greater fool”s gold? Gold is meant to be a ‘safe haven’ in uncertain times. Why is it crashing amid a war?
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