mattee2264

1) Even if the trade war does just end up being with China that still is going to be disruptive. USA imports over 10% of its goods from China. US MNCs also get a lot of business from China. Trade substitution doesn't happen overnight. Trade war 1.0 in his first term was also mostly with China but still caused a global slowdown. 2) It is one thing not to retaliate and another to give in. Trump has said 10% for 90 days for countries that didn't retaliate and agree to negotiate. For the 10% tariff rate to stick countries will presumably have to give Trump what he wants in negotiations and his demands are unlikely to be reasonable. He's also weakened his hand by showing that he will cave when markets turn against him. 10% tariffs that stick and some degree of de-escalation with China is probably the best that can be hoped for. At least it gives a degree of certainty. But it still will have a negative impact on inflation and economic growth although a slowdown rather than a recession is far more likely now.

This isn't art of the deal. Trump panicked because bond markets turned ugly. Trade war with China + 10% across the board tariffs + sectoral tariffs still quite a bit of a headwind for markets. But I guess at least we know now that there is a Trump put.

Well I guess we now know where the Trump put is. The 30 year US Treasury rising above 5%. I don't think this is over though. 10% tariffs are still high enough to do some damage and then there is the uncertainty over what happens after 90 days and whether the trade war with China can be resolved amicably.

Yeah there is a lot of talk about basis trades blowing up. So naturally some hedge funds will probably get bailed out by the Fed. Moral hazard once again. But probably bullish.

For the bond experts on here what is going on with 10 year US Treasuries? Usually when a recession and rate cuts are priced in you'd expect it to slide especially with additional buying as investors flee to safe havens. Is it the bond market pricing in the inflationary impact of tariffs? Or is it countries like China selling off US bonds as a retaliation measure?

Memories are short. People forget that the Trump trade war 1.0 caused a global slowdown which would have probably pushed the US economy into recession if it weren't for COVID intervening and ushering in huge fiscal and monetary stimulus. Trump trade war 2.0 is far broader and wider reaching so the damage will be infinitely worse. Especially as a balanced budget is also part of the policy agenda (with the delusion that they can meaningfully cut spending and use tariff revenue to fund tax cuts for the rich) and the Fed is reluctant to act with inflation already above target and an unwillingness to aid and abet irresponsible policy on Trump's part. There also probably isn't a Trump put at least not anytime soon as Trump sees it as a badge of pride that he won't let Wall Street dictate policy and this is necessary medicine and short term pain for long term gain. Also as Trump is clearly in the wrong and being unreasonable this will make it difficult for him to get concessions especially from unfriendly nations like China and powerful trading blocs like the EU. South Korea Vietnam and Japan and small nations might cave but that won't be enough for Trump to claim a win. The announced tariff rate increases clearly aren't set in stone and are open for negotiation. But that is little comfort when the starting point is tariff levels that exceed those in place during the Great Depression (and in many economists' minds were the main cause of the Great Depression). And it is anyone's guess where we will land. Nations who give Trump everything he wants will probably get the 10% that UK got but Trump doesn't seem to know what he wants with even zero for zero offers rejected on the basis that they don't address non tariff barriers and Trump seems to have this delusional idea that the USA should have a trade surplus with every nation and trade deficits are somehow an indication that the USA is being ripped off.

This is a trade war and the problem with any war is that no one knows when or how it will end. What we do know is that trade wars are bad so it is not surprising there has been a negative market reaction. Whether it is an overreaction is impossible to tell as there simply isn't enough information at this point and the range of outcomes is very wide just as it was during COVID in the beginning. With every bear market there are alternative histories but with the benefit of hindsight we get false confidence that we could have timed it. The difference with COVID is that a) it was easy to mobilize a massive almost immediate policy response that dwarfed the response to the GFC to accompany and compensate for the lockdown measures b) the vaccine was a silver bullet and was developed at record time c) we had the technology to work remotely and the owners of that technology made hay and it accelerated adoption and usage of their technologies so they became vastly more valuable companies d) we continued to run the economy hot with massive fiscal stimulus long after the lockdowns had ended and vaccines had been rolled out. This time round it is hard to imagine the Fed riding to the rescue given the inflationary impact of tariffs and a desire not to aid and abet what is clearly a policy mistake on Trump's part. Nor is it likely that there will be a massive fiscal stimulus package with Trump trying to balance the budget and under the delusion that tariff revenue will fund tax cuts for the rich. Also while the impact of COVID and lockdowns on GDP was immediate and incredibly negative with tariffs the damage will take longer to materialize and the Fed is very data dependent. Especially as the extent of the damage will depend on how long tariffs stay in place, the extent to which they are diluted, the reaction of trading partners, and how long the uncertainty continues and how companies and consumers react to all of this. Lockdowns were a temporary policy measure designed to save lives and contain the spread of the virus. Who knows what the plan is with tariffs? I think a lot of market participants continue to think that Trump is bluffing and this is just a short term measure to get a few trade concessions and policy will get quickly reversed once he can claim a win. Or that he'll be forced to back down by the market reaction (the Trump put) or his party. But that seems optimistic. What we do know is that Trump plays by his own rules and has no respect for WTO or the terms of engagement that have been in place for decades with the express objective of trying to avoid trade wars. XI is another loose cannon and knows that on this occasion history is on his side and Trump is in the wrong. As for the EU we saw how long it took them to negotiate things with Britain so talks could drag on. Sure Japan and South Korea and Vietnam might fold quickly but without extracting concessions from China and EU it will be difficult for Trump to claim a win. An analogy I read that seemed apt was it is like expecting a pyromaniac to put out a fire he started.

Trump's plan is that if he taxes foreigners via tariffs he can fund tax cuts for wealthy Americans without increasing the budget deficit. And meanwhile through cutting perceived wasteful government spending via DOGE reduce the fiscal deficit and get long term interest rates down. Then there is the longer term aspect of national security and protecting domestic industry and encouraging domestic investment in manufacturing etc. I think it is naive to think that Trump will abandon all of this and scrap his policies completely and even watered down their total impact will be negative for the US economy and stock market and the policy uncertainty is also killer.

Yeah I would be very surprised if the lows were already in. There is a limit to how much you can expect markets to fall in a very short period of time. Forced selling and deleveraging comes to an end. Those with dry powder are attracted to the fact that stocks are selling at 20% or more discounts to prices prevailing only a month or two ago (recency bias). Talking heads and brokerages get the message through that markets always recover and time in the market is the most important thing. And the intensity of the negative news flow eventually peaks or no longer catches investors by surprise. In this case the market panic was caused by a policy shock. Everyone figured Trump would just announce 10% tariffs that would get diluted quickly. Instead he comes out with these crazy and illogical rates which amount to the declaration of a trade war. There will be a short term relief rally because Trump has made it clear everything is open to negotiation and most countries will try to negotiate. But it is difficult to imagine a V shaped recovery without a hard policy reversal which seems unlikely as tariffs are a fundamental part of Trump's policy agenda and he will lose face if he scraps the policy entirely. Even the 10% offered to friendly nations e.g. the UK that might be the eventual end point of most negotiations and end the trade war is significantly higher than rates prevailing before Trump got elected and will have a negative impact on global economic growth. And I don't think we will get there too quickly because Trump will want to extract maximum concessions before he grants those rates to countries and most countries have vested interests that make it difficult for them to offer significant trade concessions. And in the interim period which could stretch for months there will be a lot of uncertainty and many companies and consumers will front wait and postpone buying and investments and where companies cannot do so will try to pass higher prices on to consumers and consumers may cut back on domestic consumption and spending as more of their budget goes on imports and there will be supply chain disruptions and lower consumer and business confidence and all of this is more than enough to push economies into recession and cause bankruptcies and layoffs and once these chain of events are set into motion they are difficult to reverse. And the economic recovery will only come when there is more certainty about the eventual resolution. In the background Trump is also trying to cut spending and the US economy has been buoyed over the last few years by multi-trillion dollar deficits run by Biden. So that is also going to be a negative to corporate earnings as well and it is a fantasy that tariff revenue can fill the gap.

I'm keeping things pretty short because 4% or so is a decent risk-free return and gives me some dry powder. 4% on long term bonds seems barely adequate and there are some risks if deglobalisation and resources shortages and other factors result in average inflation settling in the 3-4% range rather than returning to target. Not to mention the unsustainable path of US government debt. Near term tariffs could be inflationary not just from the price impact but also from supply chain disruptions. It was tempting to lock in 5% long term yields while they were around and I regret a bit not doing so. But I don't think we are returning to ZIRP and there isn't enough of a term premium to push me into long term bonds and betting on a recession is a bit speculative especially as there could be a stagflation scenario.

It is all rather predictable. If countries escalate then USA will escalate. If countries show a willingness to negotiate they will be rewarded with pauses and other concessions. But this all results in more uncertainty as the goalposts will continually move.

Yeah we saw this during the dress rehearsal with Canada and Mexico. Trump will probably give extensions to countries that are willing to come to the negotiating table and reward those that don't escalate. Absolutely the rates he announced are not set in stone and it is standard Trump to ask for the moon and then settle for a lot less. So there will be relief rallies. However a trade war of uncertain duration or magnitude is likely to be very disruptive to business planning and if businesses respond by cutting investments and cutting staff that will in turn have negative multiplier effects and will cause the economy to deteriorate. And unlike previous downturns there isn't a huge amount of dry powder. Fed is taking a wait and see approach worried about the inflationary impact of tariffs. Trump administration is trying to balance the budget and we already have multi-trillion dollar deficits so difficult to add a bunch of fiscal stimulus to the mix. Meanwhile higher for longer interest rates create issues for companies with maturing debt they will have to refinance and there are negative wealth effects from falling asset prices and it is reasonable to expect that there will be a slightly higher risk premium with Trump throwing his weight around and wrecking havoc.

Trump's demands are unreasonable. The tariff math doesn't add up. It is all based on a gut feeling that America is being ripped off by the rest of the world and an arrogant belief that the USA can win any trade war and extract significant concessions from its trading partners. It is usual for Trump to start by asking for the moon but the rates he has set are more likely to encourage retaliation or inaction rather than bringing trading partners to the negotiating table.

I think the near term selling will start to slow. Partly it reflects forced liquidations and weak hands as a lot of retail investors joined late in the party and are inexperienced. But also I think the market is throwing a tantrum and hoping that Trump will back down or Powell will push through an emergency rate cut. It is also a reflection that things will likely get a lot worse as the trade war escalates through retaliation until countries start to back down and try to negotiate a solution. A lot of market investors have been conditioned by previous bear markets where there was either a rescue (Fed pivot, government stimulus) or some exogenous event which restored confidence (e.g. Chat GPT release) or some data points that could help investors see light at the end of the tunnel (e.g. COVID case rates or CPI data). Problem this time is that we are already down 20% and likely good news (i.e. Trump and other countries eventually backing down) is likely to be months away and there is going to be a slew of bad economic and earnings data in the pipeline not least because a lot of countries front-ran tariffs and stocked up over the last few quarters and when a recession starts it can build its own momentum as layoffs and bankruptcies and defaults cause a chain reaction. I don't see how we avoid recession this time round. There is little dry powder as we're already running multi-trillion dollar deficits and these will worsen as automatic stabilizers kick in. The uncertainty alone is enough to cause layoffs and decreased corporate investment. Fed is taking a wait and see approach and in any case monetary policy operates with a lag when it comes to the real economy even if it can buoy stock markets. And there are negative wealth effects from stock market declines which exacerbate everything. And this isn't a recession that can be called off by reopening the economy like the COVID recession. So with no easy rescue I think markets probably will overshoot on the downside which takes SPY closer to 3000 then 4000 (which is probably around fair value). And that will play out (with the usual bear market rallies) over the next year or so. Then green shoots will start to emerge in the form of constructive trade talks, Trump claiming a win because interest rates are down and government debt has been refinanced and using that as an excuse to dilute tariffs massively, and Fed will also be forced to respond at some point because of their dual mandate.

https://www.theguardian.com/us-news/2025/apr/03/senators-bipartisan-bill-trump-tariffs How likely are initiatives like the above to succeed? I am not too familiar with US politics but as I understand Trump is using emergency powers to push through unpopular tariff hikes. So there are political mechanisms that could be used to revoke the use of those powers and force him to U-turn. After all DOGE has shown that most politicians are filthy rich so they are going to be feeling a massive hit to their wealth and that should test their blind loyalty to Trump.

The motive seems to be a gut-feeling that other countries have been ripping the USA off. So they are being punished in a childish tit-for-tat approach which is on brand for Trump. https://www.politico.eu/article/donald-trump-us-trade-tariff-math-is-crazy-wisdom-of-crowds-author/ The above article sets out the so called tariff math which is bizarre to say the least. He also seems to have this naïve belief that by taxing foreigners he can reduce taxes for Americans without worsening the government deficit which again fits in with the America first philosophy. The problem is that if Trump backs down and returns to the old status quo without extracting significant trade concessions then it will be obvious to everyone that he has lost the trade war and needlessly crashed the stock market and the economy in the process. And if it becomes obvious that Trump is under internal pressure to back down then countries have far less incentive to give Trump the unreasonable trade concessions he wants so what it probably means is that we are going to get a trade war and it will drag on. Markets are probably doing their usual temper tantrum and are trying to feel out the Trump (and/or Powell) put and expecting a rescue. I imagine there will be some occasional rallies as Trump encourages the idea that everything is negotiable and some countries will make early concessions. But absent a major reversal or certainty that Trump has given up on using tariffs as an economic weapon the economic pain will build and could end up being greater and longer lasting than the initial market reaction has priced in. After all we've just erased a year of gains and a year ago everything seemed rosy with exciting new technologies, full employment, moderate inflation, and an expectation that the Fed would eventually cut interest rates as inflation eventually fell back towards target.

The gameplan seems fairly clearcut. Trump and his team are mercantilists and they believe they can win the trade war and get concessions from their trading partners. You just need to look at the way the tariff rates were set. It is just tit-for-tat. And early in Trump's term they are prepared to endure a bit of pain confident they will emerge victorious and with better terms of trade. Another motive for protectionism is that USA wants to on-shore strategic industries such as semiconductors and AI and through on-shoring try to create jobs for Americans. And Trump will probably be encouraged by some offsetting benefits such as lower oil prices and lower 10 year yields. While economic theory argues that tariffs reduce the overall size of the pie there are redistributive effects so winners and losers and therefore to expect that reason will prevail and tariff increases will get completely reversed is naïve. So there is likely to be an enduring shift away from free trade and that will have a negative impact on the global economy that will probably persist so long as Trump remains in power. Also Trump isn't going to unilaterally reverse the tariff increases it will require other countries to lower their pre-existing tariff rates on American goods so Trump can claim a win. I can't see countries doing that easily or quickly not least because if they do Trump will push it and demand even more but also because there are political reasons why countries have tariffs on US goods such as lobby groups and other vested interests and that will make it difficult to give Trump the extent of concessions he probably wants. So I think this could drag on longer than people think.

If there is any truth to this then can't be good for NVIDIA as indicates chips may no longer be a limiting factor and a second hand market will soon develop as early start-ups with hugely expensive NVDIA GPU inventories may collapse unable to generate a sufficient return on their early investments, and latecomers have the advantage because they can buy cheaper and fewer chips and target niches. Monopolistic competition seems to be emerging and there will be a multitude of differentiated LLMs that make money in the short run but don't make any money in the long run. Just like autos and airlines.

I was talking about the US economic outperformance not the US stock market outperformance (which I agree can mostly be explained by cloud/AI). When manufacturing is in recession and consumers are feeling the pinch then its been massively helpful to the US economy that the government is able to run multi-trillion fiscal deficits and helped the US avoid a post-COVID hangover and more than offset the contractionary effect of Fed monetary tightening. Trump clearly wants to run the US economy hot with the expectation that the AI revolution will increase productivity and increase the sustainable US growth rate.

There was a London Standard article on precisely that. The argument was that ceremony reveals where the power lies and the tech oligarchs were front and centre at the inauguration ceremony and are very much kingmakers. There were some signs the Biden administration were going to take some antitrust measures. But I imagine that Trump figures that national security is much more important than monopoly abuse and will do little to curtail Big Tech's dominance so long as they continue to spend hundreds of billions on AI.

So Trump adding fuel to the fire by promising deregulation and announcing the $500B Stargate initiative to expand data center capacity. Surely all of this adds a lot more fuel to the fire? Especially as the Trump administration isn't going to want the bubble to burst on their watch when they are now actively promoting it and supporting it. And so long as new money keeps coming in (whether that it capex or stock market inflows) then that continues to breathe air into the bubble.

A big factor in the US outperformance in the post-COVID period has been the USA's ability to run multi-trillion dollar fiscal deficits. I am not convinced that is an entirely sustainable driver of exceptionalism. Although it is likely to continue for the foreseeable future. Open borders under Biden may have also helped offset the inflationary impact of such spending. The big pitch seems to be that AI will trigger a new industrial revolution and America will be at the forefront and cementing the Big Tech oligopoly is therefore a necessary evil not least if it helps us stay one step ahead of China's AI efforts. And so long as there is huge investment spend on AI every year that is going to keep the US economy booming the same way it did in the late 90s. Although there has been some scepticism about the much anticipated productivity benefits from AI e.g. the paper by Acemoglu the famous economist and Goldman Sachs also did a paper on that and so did Sequioa Capital. Although that doesn't really matter during the build-out/boom phase.

Trump's spent a good chunk of his career plastering his name over hotels, casinos, resi blocks, so hardly surprising he figured out he could make hay by doing the same with a memecoin. But it is absolutely shocking he's not even been inaugurated and already made $7BN from the coin after paving the way for another crypo bubble with his pro-crypto stance and promised financial deregulation. Public office becoming so ridiculously lucrative is yet another sign America is turning into a 3rd world country.

Lower taxes and lower interest rates will probably keep earnings going up. And so long as the likes of Microsoft, Amazon, Meta, Google continue to invest their prodigious cashflows into AI that will pump up semiconductor stocks and keep the AI story alive. No idea how long all of this can continue but probably longer than most people think. Aside from the AI bubble bursting the main risk is that the Trump administration economic policies backfire. He had a very pro-growth agenda in 2017 but it ran out of steam pretty quickly, a trade war was underway, and even before COVID hit the economy was slowing down considerably. And while in business cutting waste and restructuring pays off when it comes to government while beneficial in the long term in the short term it is going to hurt GDP.

Trump is a populist. And it is far easier to pump up the bitcoin price than the stock market. And easy for the US government to find some pretext to purchase a few million bitcoin.