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You can run up these deficits and debts, but so long as they can be financed and maybe even financed at lower yields that can be accomplished so long as investors have confidence in policy. So I think that you have a situation now where you're getting these large-scale deficits, deficits higher than were previously projected.
Although let's just be clear about this. All of the stimulus that people are talking about is not real stimulus. I mean, they're raising the debt by $3 trillion in the next decade. But 4 trillion of that just comes from not having the 2017 tax cuts expire. So when you benchmark it against the status quo, which is the here and now, there's actually restraint. There's not stimulus. But still the deficit projections are much higher because the CBO was scoring all of this benchmarked against the prospect that the administration was serious in 2017 that these tax cuts on the personal side were going to expire at the end of this year. But obviously kick the can down the road.
The problem is not so much the deficits. It's financing deficits at a time when there is a lack of confidence in the investor base on US economic policy. That's the primary issue. Even if the administration is right that the rest of the world have just been ripoff artists for decades and decades, it has to be remembered that they have been funding these deficits to a large extent and funding other aspects of how corporate America is financed through the debt and equity markets that tends to be forgotten.
So, I would say yes, this is a very complex situation, but financing large-scale deficits at a time when you rely on foreign investors and they are losing confidence, which you're seeing by the way in the behavior of the US dollar. That is a risk for the Treasury market. No doubt about it.
You can't just look at the S&P 500. I mean, it's being held up because of the AI trade, utilities, and consumer staples. If you're taking a look at what's been happening to the home building stocks, the home improvement stocks, the retailing stocks, the transportation stocks, the asset manager stocks, a lot of the areas that are linked to the economy, including real estate, are in official corrections.
I had a client say the other day, "Where's this recession that you've been talking about? It's not evident in the stock market." Well, I got news for you. If you look at the most economically sensitive areas of the S&P 500, they're telling you the same story I'm telling. The AI trade has nothing to do with the business cycle. That is long-term secular growth and utilities and staples. Really, you're going to say to me, "This is a bullish stock market when there are record highs and leading the way. The two areas that you want to own in a recession, despite the fact that the stock market is still flat for the year and has done nothing since the November election, it's just been a meat grinder and a roller coaster ride. That's all we've gotten in the past 6 months in the S&P 500 that everybody and I guess based on your question and I would include you believes that the stock market's doing just fine. It's done nothing for 6 months.
If you're bullish on the stock market, you don't want to be flat. You don't want to be taking equity risk and capital risk and then have a flat market. That's not why you buy equities. You buy equities cuz you think they're going to be going up, but they have not been going up for 6 months now. To me, that's the more important story. The fact that we bounced off an oversold low in April to me is just background noise. and that the most sickly sensitive parts of the market are actually in decline. To me, that's the real story beneath the story.
The US dollar, talk about an important price. I mean, down when you're down 8% in short order, peaked a trough in the DXY and what's usually a very stable unit. I mean, that's like the stock market going down more than 20% risk on risk. That is telling you something. The US dollar going down. And when you think about it, how does that make any economic sense? Normally, what's normal is that the country imposing the tariffs tends to see its currency go up, not down. The country that has the only central bank in the world that is not cutting interest rates, which is the Fed, normally sees it currency going up. And the US dollar is going down and going down against virtually all G10 currencies. So, when something is happening that is bizarre that hardly ever happens, we have to wake up and pay attention as to what the foreign exchange market is telling us. And it's telling us that foreign investors have begun the process of reallocating out of US assets.
We don't know from the tick data exactly where that's coming from. You know, the Treasury market has not been performing great, but it has stabilized of late. The equity market isn't doing great, but you could argue, well, it's stabilized of late. But something's happening because the price is always set by supply and demand and how those curves are shifting. And we know that the Fed is not printing a lot of money. The money supply numbers in the United States, M1 and M2 are running at about a 4% annual rate. They're basically running below or roughly in line with where nominal GDP is. So, it's not that the Fed is printing money and we're seeing the dollar go down. There's something happening on the demand side as far as the dollar is concerned. The question is what sort of leading indicator will that be for other asset classes.
I think that you do want to derisk the portfolio. Point number one, and this is just normal behavior in an environment of elevated and prolonged uncertainty. It's like how maybe one of the best things Jay Powell said, most instructive things was last December after the FOMC meeting during the Q&A when he was asked about why the Fed's standing still and he says, "Well, when you're in this period of uncertainty, it's like being in a dark room with furniture. You don't move." And you take a look at Warren Buffett and why he has a record cash horde. He's not moving either, so maybe we shouldn't be moving. And when I talk about moving, I mean that we should be basically thinking about having a real bulletproof as much of a recessionproof portfolio as possible. And that can be constructed because that's how my own portfolio looks.
I think you want to have cash because cash is giving you a 4.4% yield. This is not 4 years ago when it was zero and it gives you optionality. So you want to have some cash. I do think that 4.5% 10-year Treasury yield, 5% long bond. I think that at a minimum that is fair value. I like yields where they are. So therefore, in the stock market, I like bond proxies. I like bonds and drag. I like utilities, fat yield, nice payout ratio, dividend growth. That's an area that I would be long of. Stables, they tend to at least preserve your capital when things get tough on the economy. So that would be otherwise food products, dare I say tobacco, and of course talk about fat yields, not good for your health, but I think tobacco would be good for your wealth.
Aerospace defense, not just in the United States, but globally, a global aerospace ETF. Absolutely. Because there you have visibility. Every single fiscal budget around the world is seeing expansion in their defense budgets. Even in former pacifist countries like Germany where of course they've broken the fiscal tourniquet there and even in Japan military spending is going up and I wouldn't limit it just to the United States. I would be involved in global aerospace defense. That's a very good place to be.
You know I'm looking at AI as a gamecher. It is not really that sensitive to the shift in the business cycle. The valuations are stretched. I would agree with that. But if you have a real long-term view, AI is going to be changing the world. And it looks as though the spending is not going to really be slowing down. I mean, when you're taking a look, for example, at those GDP numbers in the first quarter, you know, we had minus.2% annualized GDP growth. But when you're taking a look at the data center impact and the derivatives of that, you think about software and intellectual products and so on and so forth. That added alone about one and a half percentage points to GDP growth. We would have had actually much greater positive GDP number. If we just take a look at that sector alone, it was the leading indicator and it's been doing that for the better part of the past couple of years.
So, I'm not unremittently bearish. I would just be out of the most cyclical stocks, that's for sure. Consumer discretionary, I don't want to touch outside a space defense. I don't want to touch industrials. I don't think I want to touch materials. The most growth and you could talk about, I guess, cloud AI. I guess that you want to put that longerterm slice in your portfolio and just leave it there. And I don't mind that at all.
And if you're looking towards geographic allocation, I could tell you that Europe is looking better and better. The US market in its entirety is trading at a 21 multiple and you got Europe trading at a below 15 multiple. The multiple is rising because long-term earnings visibility in Europe is also rising. So I would have a contingent of European stocks in the portfolio as well.
So I would add on to that further gold, the gold mining stocks. Silver's playing catch-up. Silver mining stocks. So you see I just mentioned probably 10 things that you should have in your portfolio. Low beta, low cyclicality, a nice front running yield, capital preservation characteristics. If you have the same portfolio today that you had 2 or 3 years ago, you're not doing yourself or your clients any service because we are at a different point of the economic cycle. We at a different point of the interest rate cycle, you know. So I am being very selective. I've been pruning and culling the portfolio. I have it done down to best ideas. And normally, you know, in a raging bull market, you could just buy the S&P. You could have a real wide range of securities. But when things the clouds come in, you want to call the portfolio and get it down to your highest conviction themes and ideas. And that's what I'm doing. But just to reiterate, capital preservation is the key. And the preservation of cash flows is also the key. Low cyclicality, dividend growth, dividend payout. Of course, you want to have a contingent of areas that have the earnings visibility that will not be harmed by a recession. That's why I like aerospace defense. A recession is not going to hurt that sector. That is in secular growth mode right now. And gold and I would add silver, but gold and the gold mining stocks make perfect sense in an environment where the US dollar has entered either a correction or bare market. And gold is 100% correlated with uncertainty. And it looks as though this trade and tariff war and especially as it pertains to the bilateral relationship with China is not going away anytime soon.
So there you have it. The one message is to play it safe. That it requires a lot of discipline and resolve to not chase these intermittent rallies. And I would suggest use the rallies to cleanse your portfolio of undue risk and cyclical exposure and to just think of what Walter Murphy who is my technical strategist and was the legendary Bob Ferrell's right-hand man for decades at Miral Lynch and I was getting inundated with questions about how is the stock market surging. The stock market went up 18% from those April lows. There's only two outcomes here and this is really for your long only equity investors who are still balls to the wall bullish on the S&P 500. Walter said that this is either the last gasp of the old bull market or the first rally of the new bare market. So pick your poison.
So I would not recommend buying the index. I would recommend thinking about thematic ideas, convictions, looking more towards Europe and I would say even Asia. Diversify out of the US and take advantage of safe yield where you could get it and you can get it now in the Treasury market where it's priced right now and to focus on those bonds and drag, the dividend yield, dividend growth payout ratio segments of the stock market, which is why utilities is ranking so highly in our work. And that's my main message.