....the world these days is all about Trump, unfortunate but unavoidable
....because his actions to reset the global power and trading order is generation change and could structurally affect markets
....and this thread, in its attempt to keep you abreast of forward dangers, is trying to work out Trump's long term agenda and its ramifications for markets.
...as I've told you before Trump is not bluffing with his tariffs and the market initially read it wrong to want to believe it was all negotiating. He knows what he does has real consequences for the US economy and markets but intends to press on for what he believes to be long term good for his country.
....I would give him the benefit of the doubt in his quest to wean America out of its addiction to debt-fueled spending to address its debts but his approach at that would IMO end up making America a lame economic power, unless he undertakes a territorial expansion ambition (which as I covered last night isn't totally out of the question).
...America's Brexit would likely have the same unintended consequences as UK's Brexit: reduced trade and investment due to fractured relations and a lower standard of living for its citizens. Think of US health service going down the path of NHS, higher cost of living amidst lower employment opportunities.
For Team Trump To Get 10-Year Rates Down, Stocks Will Need To Fall
March 9, 2025
I’m sure this week will be interesting, given the CPI and PPI reports. I’m sure the administration will have plenty of on-again and off-again policy statements about something. The one thing that seemed clear by the end of last week is that Trump and his team only care about one thing right now, and that is getting 10-year rates lower. By definition, that means pushing the stock market lower.
I know everyone in the media and on social media has said Trump won’t let the market go down, but Bessent and Lutnick have said the opposite for some time. It became clear that there was no Trump put when Bessent said there was no put, just a call on the upside. Unfortunately, if the desire is to get the 10-year rate lower, then the economy will need to slow to get to the Fed to cut. That means financial conditions will need to tigthen, which means credit spreads need to widen, and the stock market needs to fall. It is really that simple.
While the Fed says that policy is tight, we all know that policy is not tight. Financial conditions are east, credit spreads are narrow, inflation is running at 3%, and inflation expectations are breaking free, which is why the 10-year rate is elevated. But more recently, we have seen financial conditions tighten as credit spreads and the earnings yield of the S&P 500 widen. These are really the first signs that Trump’s policy is working and transmitting through the economy.
I know the view will be that monetary policy’s long and lasting lags are finally catching up to the economy, but we all know what train left the station a long time ago. If monetary policy is transmitted through financial conditions, the long-lasting lags finish in November 2023. Apparently, Fiscal policy can also be transmitted through the economy by financial conditions, and one just needs to jawbone the market in place, which the administration appears to be able to do at present.
The question is how far this goes, and that seems hard to figure out. Unfortunately, looking at charts really isn’t going to help here. I know we can use charts for direction and trends, but relying solely on that is becoming increasingly difficult.
The other problem is that the market is in negative gamma, which is making for very wild price swings. Based on where we closed on Friday, we should remain in negative gamma to start the week.
I think that anyone expecting the market to rally to new highs is not listening to what is being said, and for now, what is being said is that 10-year rates need to come down. Whether they come down is another story, but by saying they want 10-year rates to come down, they are saying they want growth to slow, and the best way to get growth to slow is to bring the stock market down and tigthen financial conditions.
-Mike
Trump declines to rule out recession as tariffs roil markets
Michael Birnbaum, Mariana Alfaro and Yeganeh Torbati
Mar 10, 2025 – 6.16am
West Palm Beach, Florida | President Donald Trump declined to rule out a recession this year as the economy stutters from his efforts to impose tariffs and rebuild the US manufacturing sector, acknowledging in an interview broadcast on Sunday (Monday AEDT) that “it takes a little time” before Americans will see a payoff from his policies.
Trump’s recognition of the turbulence in the US economy was a reversal from previous cheering that his policies would deliver quick victories to voters and businesses, and it stood in contrast to reassurances from his own advisers on Sunday that no recession was in sight. Trump also downplayed the dropping stock market despite years in which he has claimed credit for its rise, saying in the Fox News interview that “you have to do what’s right” even if markets don’t like it. The recognition of the economic disruption was notable given that Trump swept into office in part because of voter discontent about years of inflation under former president Joe Biden. But that inflation had slowed in Biden’s final year in office, and most economists say that Trump inherited a fairly strong and stable economy.
Trump pushed Biden on the stock market, inflation and the overall economy - all issues on which he is now telling voters to look the other way.
Asked by Fox News anchor Maria Bartiromo whether he was expecting a recession this year, Trump said: “I hate to predict things like that. There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing. And there are always periods of, it takes a little time. It takes a little time, but I think it should be great for us.”
The S&P 500 index is down 3.8 per cent since Trump was inaugurated January 20, and down 6 per cent from its all-time high on February 19. Consumer sentiment is at a 15-month low as worries compound about layoffs and rising prices.
“If you look at China, they have a 100-year perspective. We have a quarter. We go by quarters, and you can’t go by that. You have to do what’s right,” Trump said about the stock market. “What we’re doing is we’re building a tremendous foundation for the future.”
He said that businesses always say they want “clarity” about tariffs, but that’s “almost a sound bite”. He added that tariffs “may go up. I don’t think we’ll go down.”
The president has repeatedly postponed tariffs against Canada and Mexico but said in the interview that April 2 was the final deadline. Separate 25 per cent tariffs on steel and aluminum imports are set to go into effect on Wednesday.
Inflation has hit Americans in other ways that Trump has sought to downplay. As avian influenza has driven egg prices, which started to rise under Biden, even higher under Trump, the president has also started to tell Americans not to focus on them. Trump on Saturday reposted an article by the conservative activist Charlie Kirk, whose headline was “Shut Up About Egg Prices - Trump Is Saving Consumers Millions”.
Trump and his top aides have started to try to shift the discussion around inflation after hammering Biden and former vice president Kamala Harris about it for years, as they say their “America First” economic policies are focused more on building jobs and opportunities inside US borders than prioritising low prices for consumers.
“Access to cheap goods is not the essence of the American Dream. The American Dream is rooted in the concept that any citizen can achieve prosperity, upward mobility and economic security,” Treasury Secretary Scott Bessent told the New York Economic Club on Thursday. “For too long, the designers of multilateral trade deals have lost sight of this. International economic relations that do not work for the American people must be reexamined.”
Commerce Secretary Howard Lutnick told NBC’s Meet the Press on Sunday that there were no plans to change the steel and aluminum tariffs – and unlike his boss, he dismissed concerns about a recession.
The Federal Reserve Bank of Atlanta is now forecasting that US economic output will decline 2.8 per cent in the first quarter of 2025 after nearly three years of growth. Economists define a recession as two successive quarters of decline.
Economists repeatedly warned about a looming recession during Biden’s four years in office, but it never materialised.
Americans should “absolutely not” brace for a recession, Lutnick said on the program.
Trump is “going to win for the American people. That’s just the way it’s going to be. There’s going to be no recession in America,” he said. “What there’s going to be is global tariffs are going to come down because President Trump has said, ‘You want to charge us 100 per cent? We’re going to charge you 100 per cent’.”
Lutnick added: “I would never bet on recession. No chance.” Made in the USA
Trump and his advisers have argued that the result of his policies will be that prices for US-made goods are lower while foreign-made ones are higher, and that the health of the overall economy will be better once their policies are allowed time to take effect, with a lower deficit and lower interest rates.
They point to decisions by Taiwan Semiconductor Manufacturing, which announced plans for a $US100 billion ($158 billion) investment in Arizona, and similar announcements from other major companies as evidence that their efforts are already working.
Many economists disagree with their assessment, saying that tariffs will significantly increase prices, posing a challenge to efforts to lower interest rates. Rebuilding the US manufacturing sector will be far more complex than reimposing trade barriers, some of them say, noting that US manufacturing jobs have been declining for generations because of a complex cocktail of automation, trade policies, the rise of China and shifts in corporate behaviour.
And Trump’s vow not to touch the politically popular programs that are the major elements of federal spending - Social Security and Medicare - will make cutting the deficit nearly impossible, economists say, especially as Trump proposes new tax cuts.
“It’s important for people to realise we run $US2 trillion deficits and Donald Trump is going to try to balance the budgets of the United States of America,” Lutnick said. “We’re going to bring manufacturing back, that’s where we’re going. Will there be distortions? Of course. Foreign goods may get a little more expensive, but American goods are going to get cheap.”
