Ex-Treasury official says Trump's economic policies set to pay off this year

Former Treasury deputy Michael Faulkender forecasts that the Trump administration’s 2025 tax package (the 'Big Beautiful Bill Act') and rollbacks of Biden-era energy restrictions will drive stronger economic performance into 2026, citing large tax refunds due in February–March and the administration’s second- and third-quarter strength. He notes oil at roughly $57/barrel (about 28% below the January 2025 high of $78.70) and U.S. inflation at 2.7% in November (year low 2.3% in April, peak 3% in September) as factors that have not yet fully fed through the economy; Faulkender left his deputy Treasury role in August after serving earlier as acting IRS commissioner.

Analysis

Market structure: The near-term winners are low-cost onshore US E&P and service names (EOG, PXD, XOP) and refiners (VLO, PSX) as federal-land production and deregulatory moves lower marginal cost and feedstock prices; marginal producers with break-evens >$60 suffer. Deregulation + tax refunds (Feb–Mar) boosts household discretionary cash flow by an estimated few hundred dollars per household, favoring retail and travel demand into Q1–Q2 2026. Cross-asset: lower oil toward the $50–$60 band should be disinflationary—supporting long-duration Treasuries (TLT) and compressing real yields, while pressuring oil-linked FX (CAD, NOK) and volatility in energy options.

Risk assessment: Tail risks include an OPEC+ surprise cut or Middle East shock sending Brent >$80 within weeks, or fiscal stimulus reigniting CPI >3.5% prompting Fed hikes and steepening term premium. Time horizons matter: oil/inventory shocks play out in days–weeks; tax-refund driven consumption is a concentrated Q1 effect; structural deficit/term-premium impacts unfold over 12–36 months. Hidden dependencies: state permitting, local infrastructure (pipelines/rail) and capex discipline among independents could flip supply dynamics quickly. Key catalysts: weekly EIA stocks, OPEC meeting dates, Fed dot plots, and Treasury issuance calendar.

Trade implications: Favor tactically overweight Energy (2–4% active overweight) with 6–12 month horizon: buy EOG (3%) or XOP (2–3%) and refiners VLO/PSX (1–2% each). Hedge with 1–2% TLT long as disinflation insurance. Options: buy 6–9 month call spreads on EOG (buy a near-the-money, sell ~25% OTM) to cap cost while capturing a $15–30/bbl rebound scenario; sell iron-condors on WTI futures if inventory prints show rangebound $48–68.

Contrarian angles: Consensus assumes tax cuts + energy supply = sustained growth without inflation; missing are one-off timing (refunds concentrated in Q1) and higher deficits driving term premiums over 12–36 months, which would hurt growth multiple expansion. The market may underprice a future supply crunch if capex stays subdued—a regime that would send oil >$75 in 2027; conversely, an immediate price collapse to <$45 would stress high-yield energy credits. Monitor EIA stocks, Fed PCE prints, and Treasury issuance as 3 concrete triggers to add/trim positions.

Key Decisions for Investors

• Establish a 3% long position in EOG Resources (EOG) with a 6–12 month horizon; complement with a 6–9 month call spread (buy ATM, sell ~25% OTM) to limit premium outlay while capturing upside if Brent re-tests $65–75.
• Allocate 2% to an energy ETF (XOP) and 2% split between refiners Valero (VLO) and Phillips 66 (PSX) to capture refining margin tailwinds if crude stays in $50–65; trim positions if Brent closes >$75 on monthly basis.
• Buy 2% TLT as a hedge against disinflation expectations through H1 2026; increase to 4% if core PCE falls below 2.2% on consecutive monthly prints or inflation breakevens compress >25 bps.
• Initiate a pair trade: long XOP (1.5%) and short TAN (global solar ETF, 1.5%) for 6–12 months to play fossil-fuel competitiveness if federal land production expands; close if oil price falls below $48 for 10 trading days.
• Use tactical volatility trades: sell a 60–70 day iron-condor on WTI futures centered on $48–68 if EIA builds show 3 consecutive weeks of inventory increases; exit if single-week draw >5m barrels or Brent spikes >10% intraday.