Monday, April 14, 2025

Still Meddling With Primal Forces

He really doesn’t know what he’s doing. Not without Congress he won’t. And invading a NATO member? Even the House GOP won’t allow that. Consequences are consequences.
Scoop: There is significant division inside the @WhiteHouse over @howardlutnick ’s comments on the temporary nature of the tariff exemptions, an apparent 180 from where the world thought the trade negotiations were going, sources tell me. Of course the only opinion that really matters in the president’s but I am told plenty of people really believe he is “off message” of trying to create a trade regime that involves negotiations even with China and actions that don’t roil the markets including the all important bond market. This story is developing
There is certainly significant confusion in the White House. It emanates from Trump, who only understands press coverage. This really isn’t going anywhere but down.
BREAKING: The exemptions just handed out to @Apple and tech companies should spark, as one tech investor just told me, “a rally for the ages” at least in the Nasdaq and at least on Monday. This is not a prediction but what I’m hearing from him and others. There are things that could counter the move to the downside, of course. BUT as the investor put it: “a Black Swan event has been taken off table.” What he means is that the tariff plan as rolled out would have crushed @Apple and all of big tech — some of our biggest companies— because of how they produce their products and source them in China. What’s remarkable is that the plan as described by @howardlutnick etc was largely aimed at tech ie to bring back all tech manufacturing to the US from China and Asia. They literally just threw in the towel on most of their tariff plan. Every CEO and investor I speak to says with this 180 the administration losses credibility by keeping Lutnick and @RealPNavarro as spokesmen for the plan going forward given their past statements. Trump’s famous loyalty will be put to the test
Still meddling with primal forces. With no idea what to do about it. And we have no idea when Congress will say “Enough!” 

A week ago, the yield on the 10-year Treasury was 4.01%. On Friday, the yield shot as high as 4.58% before sliding back to around 4.50%. That’s a major swing for the bond market, which measures moves by the hundredths of a percentage point.

Among the possible knockoff effects is a big hit to ordinary Americans in the form of higher interest rates on mortgages and car financing and other loans.

“As yields move higher, you’ll see your borrowing rates move higher, too,” said Brian Rehling, head of fixed income strategy at Wells Fargo Investment Institute. “And every corporation uses these funding markets. If they get more expensive, they’re going to have to pass along those costs customers or cut costs by cutting jobs.”
So there's that, apart from what tariffs are going to do.
Bonds are supposed to move in the opposite direction as stocks, rising when stocks are falling. In this way, they act like shock absorbers to 401(k)s and other portfolios in stock market meltdowns, compensating somewhat for the losses.

“This is Econ 101,” said Jack McIntyre, portfolio manager for Brandywine Global, adding about the bond sell-off now, “It’s left people scratching their heads.”

The latest trigger for bond yields to go up was Friday’s worse-than-expected reading on sentiment among U.S. consumers, including expectations for much higher inflation ahead. But the unusual bond yield spike this week also reflects deeper worries as Trump’s tariffs threats have made America seem hostile and unstable even to longtime allies.

...

The instinctual rush into U.S. debt is so ingrained in investors it even happens when you’d least expect.

People poured money into U.S. Treasury bonds during 2009 Financial Crisis, for instance, even though U.S. was the source of the problem, specifically its housing market.

But to Wall Street pros it made sense: U.S. Treasurys are liquid, stable in price and you can buy and sell them with ease even during a panic, so of course businesses and traders would rush into them to wait out the storm.

Yields on U.S bonds quickly fell during that crisis, which had a benefit beyond cushioning personal financial portfolios. It also lowered borrowing costs, which helped businesses and consumers recover.

This time that natural corrective isn’t kicking in.
So, what?
Another explanation is that a favored strategy of some hedge funds involving U.S. debt and lots of borrowing — called the basis trade — is going against them. That means their lenders are asking to get repaid and they need to raise cash.

“They are selling Treasurys and that is pushing up yields — that’s part of it,” said Mike Arone, chief investment strategist at State Street Global Advisors. “But the other part is that U.S. has become a less reliable global partner.”

Wells Fargo’s Rehling said he’s worried about a hit to confidence in the U.S., too, but that it’s way too early to be sure and that the sell-off may stop soon, anyway.

“If Treasurys are no longer the place to park your cash, where do you go?,” he said. “Is there another bond out there that is more liquid? I don’t think so.”
And if you need a bit more information from someone in government who does know what she’s talking about (which sets her apart from anyone in the administration):
Warren: So understand this about treasuries. Whenever there’s a crisis anywhere in the world—terrible things happen—and investors, people who have money they can afford to invest in different places, you know what they do? They go to U.S. government treasuries. It’s called a flight to safety. In other words, when there’s economic danger in the world—a war has broken out, there have been massive earthquakes that will disrupt the economy—what happens? Investors go to the United States government treasuries, because damn, it just doesn’t get any safer than that.

Except with Donald Trump as president.

And what we watched happen on Wednesday was that investors around the world, for the first time, really, started easing back—right in the middle of the chaos—saying they weren’t so sure they wanted their money in the United States or held by the U.S. government.

That is not just a flashing red light. That one—you can hear the sirens going off, and you can feel things taking a really sharp dive down. That’s part of the cost of the Trump chaos from the tariffs—and it really is a reminder: he’s driving this economy over a cliff.
So maybe the bond market doesn’t implode. It’s still going to be bad. We’re still gonna pay a helluva price for voting the incumbent out for the cheaper eggs we still don’t know have.
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