Well, the world is still here after two of the craziest weeks in recent memory. However, we are neither out of the woods nor doing well. If the largest total tax hikes in 50 years don’t piss you off how about having your currency also fall 10%. David Lynch writes for the Washington Post, “The dollar has lost almost 10 percent of its value since Inauguration Day, with more than half of that decline coming this month after the president’s decision to lift taxes on imported goods to their highest level since 1909. The weaker dollar — now near a three-year low against the euro — is bad news for Americans traveling abroad and could also aggravate inflation by making foreign goods more expensive. U.S. exporters, however, should gain.
The drop is especially striking because countries that impose tariffs usually see their currency rise. But the wobbly rollout of Trump’s tariff plans — with the president and his aides contradicting themselves about key details — left investors doubting the administration’s competence.
“The administration’s approach to policy and its lack of transparency in terms of motivations have all led to a distinct sense of unease in financial markets,” said David Page, head of macro research for Axa Investment Managers in London, which manages $1 trillion in investments. “It doesn’t look like what we have been used to in terms of well-thought-out policy.” Those concerns last week sent investors fleeing from the dollar and U.S. government securities, historically a haven during financial crises. In the hours before Trump’s latest tariffs took effect April 9, long-term government securities behaved abnormally.
Investors typically rush to buy ultrasafe Treasurys during a crisis, pushing their prices up and yields (which move opposite bond prices) down. Instead, at one point Friday, the rate on the 30-year bond approached 5 percent, up from 4.4 percent one week earlier. At the same time, the dollar also dropped, confounding traditional patterns and triggering talk of a historic break by observers including Lawrence Summers, a former treasury secretary.”
All in all, the 10-year Treasury yield had the largest one week jump since 1982. That will not help the housing market. That will not help the refinancing of the debt. It will not help Jerome Powell cut rates, which is what everyone seems to want. This is what a debt-soaked economy looks like. The federal government, states, local and even burrito borrowers on a layaway plan, we have tried to cover them all right here.
Last week Trump was telling Americans to hold tight and then he pivoted like a figure skater doing a double salchow in Disney on Ice. He really had no choice. This is what Ahmad Austin Jr. wrote for Media Ite, “Fox Business senior correspondent Charles Gasparino made the case that President Donald Trump’s tariff pause was largely motivated by alarming activity in the bond market.
Trump on Wednesday afternoon announced a 90-day pause on steep reciprocal tariffs for the 75 countries he said have been willing to negotiate with the United States. While the reciprocal tariffs were removed, the baseline tariff rate of 10% — as well as the 25% tariff on cars — remained. What’s more, Trump announced that he would be raising the tariff on China to 125%.
While Trump officials hailed the reversal as a savvy maneuver, Gasparino wasn’t as convinced. Appearing on Fox News program America Reports, he said: First off, we should point out that one of the good things about this is that Scott Bessent is finally in the White House. He’s finally leading this. I mean, up until a couple of days ago, it was [Howard Lutnick], it was Peter Navarro, the commerce secretary, the trade adviser — very much hawks. Now it’s Scott Bessent, who believes in cutting deals as opposed to, you know, just putting these tariffs out there and let’s be a mercantilistic economy. That’s number one.
But number two, let’s recall what happened overnight; and from what I understand — and I’m getting this from people that are talking to the White House — what happened in the bond market overnight, the spike in yields on the 30-year and the 10-year bond, which showed that people were dumping our bonds. And who are those people dumping our bonds? Japan, the biggest holder of bonds, was selling bonds. That’s what I’m getting from some very big money managers. China, maybe to some extent, but it was largely Japan and others.”
I think the case is being made everywhere that Lutnick is a clown and that Bessent is the most trusted figure in this administration. I concur. It has now been a week, and the market has stabilized, but just a bit. Trump had to do more moonwalking when the moon was out on Saturday. Here is Faisal Islam of the BBC, “Well, well, well. In a US customs messaging note quietly slipped out in the early hours of Saturday, a series of numbers were listed as exempt from the 125% tariff on goods entering the country from China. The code “8517.13.00.00” means very little to most of the world, but in the US customs list it represents smartphones. The inclusion meant the number one Chinese export to America by value last year was exempted from the import taxes, alongside other electronic devices and components, including semiconductors, solar cells and memory cards.
In the context of the US Commerce Secretary Howard Lutnick just days ago announcing that part of the point of escalating tariffs on China was to bring back iPhone production to the US, this was a stunning about-turn… According to Counterpoint, a global technology market research firm, as much as 80% of Apple’s iPhones intended for US sale are made in China.
The tech giant’s manufacturing profit margins are estimated to be between 40-60%. Typical iPhone prices might have moved closer to $2,000 (£1,528) than $1,000. The other option for Apple could have been to spread the cost across all of its global prices, but would the rest of the world accept paying a Trump tariff tax?
A very public repricing of iPhones has been avoided, but still may occur if, as the White House has said, the previously imposed 20% tariffs on China related to the powerful opioid fentanyl, remain in place.
Tim Cook, the chief executive of Apple, is a key player here. He can walk into a meeting with both US President Donald Trump and Chinese President Xi Jinping. It is not an outlandish prediction to suggest that, if it comes, any peace in the US-China trade war could be brokered by Mr Cook. That’s based on his deep fundamental role in connecting the two economies. He was hand-selected by Apple’s co-founder Steve Jobs for his unrivalled expertise in just-in-time supply logistics… The White House has gone from clearly suggesting there would be no negotiation on the baseline 10% tariffs to offering exemptions to the very products causing the deficit the entire policy was supposed to solve.
This is a lot more than a “row back”. Some have called it the “Art of the Repeal”. The 4D chess has been replaced by someone playing one dimensional checkers, but unable to tell the difference between opposing pieces. The US is now negotiating with the bond markets, and itself.”
What I wrote last week was that there would be a Jan.6 incident in the White House by Sunday, well it turns out that half the country has an Iphone and their leader just walked into the oval office, kicked his feet up on the resolute desk and said, how do you want this? Taking off 125% of the tariffs on Iphones was not part of Trump’s plan two weeks ago and the only one backpedaling is him and not China. China removed even more rare earth minerals from being able to be exported to the US. Now he wants them to come to the table. They want him to kiss the ring. He is getting on a knee. That took a week. Truly stunning how fragile our economy is because China is not in great condition. What does Trump do now? The whole retarded 4th grade math project, tariff project, has no teeth as the whole world got a reprieve on tariffs, China got their semiconductors and iPhones back in the US thanks to Tim Cook and American’s obsession with their phones. Seriously, people were crying over TikTok, take away their cell phones and people would lose their minds.
So, what is Trump to do now? Most of the tariff money is gone, Musk came out and said instead of $1T, Doge might get $150 billion instead. No kidding, we said that 3 months ago. Now the rumor is Musk is about to leave and go back to his companies. The 10-year yield is higher so refinancing looks bleak and this from The Economic Times, “The US economy is set to lose billions of dollars in revenue in 2025 from a pullback in foreign tourism and boycotts of American products, adding to a growing list of headwinds keeping recession risk elevated.
Arrivals of non-citizens to the US by plane dropped almost 10% in March from a year earlier, according to data published Monday by the International Trade Administration. Goldman Sachs Group Inc. estimates in a worst-case scenario, the hit this year from reduced travel and boycotts could total 0.3% of gross domestic product, which would amount to almost $90 billion. Canadian flight reservations to the US are down 70% through September versus the same period last year, according to a report by OAG Aviation Worldwide. Meanwhile US summer bookings are also down 25% among European tourists at Accor SA hotels — which Chief Executive Officer Sébastien Bazin said could be attributed to border detentions creating a “bad buzz” and diverting tourists to other destinations.
“US tariff announcements and a more aggressive stance toward historical allies have hurt global opinions about the US,” Goldman Sachs economists Joseph Briggs and Megan Peters said in a March 31 report.
“This headwind provides another reason — in addition to the more direct negative impacts of tariffs and drag on exports from foreign retaliation that are already built into our US GDP forecast — why US GDP growth will likely underperform consensus expectations in 2025,” they said.”
I think it is safe to take those GDP expectations down now. The manufacturing jobs aren’t coming back now that Trump bailed on tariffs, and now the hospitality sector is going to take a hit. Housing will be frozen again as foreclosures are spiking with mortgage rates again over 7%. There are two things that are good for Trump, unless you are in the energy business. One, oil prices have dropped which should soon mean lower gas prices for the consumer which is one of the things Trump stumped on. That means trouble for long-term production as the fracking industry isn’t profitable at much below $50 a barrel and barely there with inflation still raising input prices. Inflation hasn’t gone away as we are still a long way from our 2% target. Trump will get his official recession in a month or two and if unemployment goes up, perhaps Powell will lower interest rates. I am not sure that will lower rates on the long end of the yield curve, but even lowering the front end of the yield curve will help the deficit because that is where most of the debt is currently being financed anyway.
We also have another debt ceiling showdown happening in a couple months as the TGA or Treasury General Account is being reduced or drawn down as the spending is still out of control. Remember our old friend the reverse repo account? The account of $2.5 trillion that flowed back into the economy over the last two years. That account, once relied upon for stability, has gone from $2.5 trillion to less than $100 billion. We are running out of places to find money to push into the market and the economy to keep these spinning plates in the air. Even now the powers in Washington are starting to talk about loosening the banking regulations in particular the SLR, the supplemental leverage ratio. This is what the Bank Policy Institute wrote, “Within the Treasury market, we should always be looking for ways to improve efficiency, resilience, and overall functionality. This includes looking at the [supplementary] leverage ratio, SLR, to make sure that the intermediaries are not disincentivized to hold low-risk assets like Treasuries.” That was Acting Chairman Travis Hill of the Federal Deposit Insurance Corporation. A little organization I am sure you have heard of that bails people out when their banks fail. We are having trouble finding people to buy the bonds, make it easier for the banks to buy the bonds. Low risk assets… that’s cute Travis. The world isn’t buying it. And…neither…are…we..
Sincerely Yours,
C Thomas Printer
Also born on this date… the master of the skyhook, Kareem Abdul Jabbar.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.