The World I’m Watching
Last week was hectic. The blender announcements of tarriffs in combination with wild market gryations reactions left us all scratching our heads, and feeling a little concerned about the future of our coutry. When such radical measures are undertaken to address a looming $36T debt problem and $2T per year fiscal spending issue, it’s understandable that things could go haywire.
Here’s what I’m watching and wondering about:
What will the Fed do? Fed Chairman Powell is at odds with President Trump over rate policy direction. There’s even been talked of a “shadow chairman” who will be the chairman-elect inserted ahead of Powell’s inevitable departure and will be the voice of the administration, effectively undermining Powell’s policy for his remaining term. That’s one way to get around trying to fire someone… With CPI at 2.4% in March ‘25 (down 3.2% in Feb ‘25) and elevated concern over tarriff-related inflation, caution abounds as reflected by the current neutral stance. If global trade comes to a screeching halt and inflation falls with it, will Powell have enough political cover to drop rates without appearing to cave to Trump’s demands?
What will the 10Y do? From 4.0 % to 4.5% and back down to 4.3% in a week, we just witness 40-year historical movements. The $800B Bond Basis Trade evaporated with these suddent market movements. Massive liquidity literally disappeared overnight. The The “stock market put” turned into a “bond market put” last week when President Trump announced a 90-day tarriff pause which immediately settled bond markets. However, compared to where the week started, a 30 bps higher settling level underscores ongoing market jitters and a newfound fear in the stabilty of the once-impenetrable US bond market.
Where will stock markets settle? The S&P is currently up 5% YOY and down 14% from the previous highs. YOY performance is the better indicator for potential recession risk. Forward earnings visibilty has all but disappeared. Expect earnings sandbag reports from here on out until the tariff neogitations settle. Even then, expect tariffs to take the blame for any all and problems experienced by corporate America in the near future.
Both China and the US need to claim victory in the current tarriff battle. What does a mutually-beneficial victory look like?
How will US consumers and businesses respond to ongoing tariff uncertainty? Stop buying completely admist uncertainty? Accelerate purchasing now in anticipation of higher tarriff pricing? No change? In the menatime, global trade is rapidly slowing until the current uncertainty is resolved. The recent drops in consumer confidence and spike in recession probabilities paint the picture of sentiment shifts on Main Street and academia. Will these sentiment swings become self-fulfilling prophecies as the current global economic order is aggressivley dismanteled by Trump’s administration?
Gold is going to the moon. It’s turned into a global risk-off allocation for sovereign funds, government reserves and individual investors. How far will this trade go beyond the current $3,341 levels? Gold is up 40% in the past year. Many say it will go higher. Will BTC soon follow as the other main global financial asset outside of the reach of gov’t policy?