Did You Have +9.5% on Your Bingo Card?
Markets ripped higher on the back of a 90-day tariff pause, with the S&P logging its biggest gain since the Covid era—finishing the day at 5,456. Apparently, everything announced last week was just a ceiling, and according to Bessent, 75 countries now want to negotiate. It’s all about China—again. The new “clarity” is that the 10% tariffs are the base level and negotiable, with China the real target.
The Bond Market Whispered First
Trump acknowledged they weren’t thrilled with the recent move in yields and it was a factor in his tariff reassessment. Yesterday’s 10Y Treasury Auction showed that foreigners are not the problem in the bond market - it’s the directs, the funds - they were notably tepid, fanning the flames of concern. The direct bid weakness may suggest deeper stress.
Despite the tariff pause, yields rose again: 2Y ended at 3.94%, 10Y at 4.35%. That’s not what “everything’s fine” usually looks like.
Powell Rangers Need To Film A New Episode
FOMC Minutes dropped and—spoiler alert—it’s still a rerun. Solid economy, “somewhat elevated” inflation, “elevated uncertainty,” and the always-popular “proceed cautiously.” Same script, different day. Feels more like "Waiting for Godot" than monetary policy.
I Don’t Know - Nobody Knows
Since I don’t think anyone really knows a whole lot about what to expect in this market, I was thinking of writing about something along my usual line about how often we get detailed answers to questions about the unknowable financial future, rather than the most difficult of all answers “I don’t know”. Thankfully Howard Marks did the writing for me.
Marks has dropped a new memo titled "Nobody Knows (Yet Again)". Reading it feels a bit like déjà vu all over again, or as Marks himself might say, echoing Mark Twain, history often rhymes.
This time around, Marks is looking at the current economic shenanigans and getting a distinct 2008 vibe. Remember Lehman? The dominoes falling? Yeah, he’s getting that feeling again, especially with the way global trade norms have been tossed out the window like a bad reality TV contestant (too soon for an Apprentice reference?).
And like back in '08 or March 2020, Marks argues that most of the time, the world doesn’t end. He invests accordingly.
Just like back in the early days of the Global Financial Crisis and then again during the COVID-19 pandemic (which he titled "Nobody Knows II"), Marks is throwing his hands up and admitting the obvious: nobody really knows what’s going to happen. Trying to "analyze the future," he argues, is about as useful as trying to find a rational take on LinkedIn these days – it's an oxymoron. There are no facts or past experiences to reliably guide us through the potential trade war landscape. So, all those "experts" yapping on TV? Take their predictions with a grain of that tariffed tequila.
What about our pals at the Fed, the Powell Rangers? Well, Marks says nobody knows what they'll do either. Will they cut rates to save us from a recession, or will they keep them high to fight the inflation that tariffs might just stoke? It's a real "choose your own adventure" novel out here. He even points out that the usual rate hikes might not be the magic bullet for inflation caused by slapping tariffs on everything.
In a nutshell, Marks is channeling our inner "I Don't Know" mantra. The future is murky, the experts are guessing, and the Fed's got a tough job. It's all a bit unsettling, but as Marks concludes, echoing his post-Lehman thoughts, we’ve probably got to assume things will eventually sort themselves out.
Maybe CPI Will Tell Us Something. Or Not.
We get CPI and jobless claims today. Will they matter? Only if they already reflect the looming tariff reality. But hey, at least it's data—remember that stuff?
XTODs:
XTOD: Trumps tolerance for market pain is a lot higher than you think. Because there is a plan.
It might not be a good plan. But it is a complex plan that anticipated a crash. Not because they want a crash. Not because they are dumb enough to think equities down -50% is good for the yield curve. Because the only way to coerce a full global decoupling from China is to play max hardball and move quickly. Because the first counter-attack was always going to be financial - because China correctly understands the West is over-financialized - and most people in Washington know China thinks that because Xi has been saying it loudly and proudly for years.
So sequencing matters. Bessant is being rushed to Japan & likely Saudi next to attempt to stabilize the yield curve. That is priority number one. Priority number two? Game theory.
Ensure you provide sufficient incentive for the first big pieces to flip your way. Coerce Japan to agree to put up massive tariffs not just on China imports. But also on imports from countries who in-turn trade with China. Establish a pattern for network effects where if you’re left out of the new sphere you lose out not just on trade with the U.S. but also on trade with the early adopters of the new accords. Again economic coercion alone will be insufficient to cause the desired cascade. Which is why Rubio and Hegseth will be heavily involved and why starting with Japan makes sense. Japan is terrified of what a China-led sphere would entail. Again, not saying it’s a good plan. But more pain has been anticipated and has been embraced. Economic Blitzkrieg. Position accordingly.
XTOD: Where things stand, one week after Liberation Day
• Tariffs on China will go to 125% from 104% on Wednesday and from 20% on Tuesday.
• Tariffs on all other countries (except Russia, North Korea, and Belarus) will be at 10% for the next 90 days
• Tariffs on steel and aluminum are 25%
• Tariffs on imported cars are 25%
• Canada and Mexico face tariffs of 25% on goods that aren't eligible for USMCA
XTOD: Trump is predictable if you understand that he basically insists that his every week resembles a Harvey Specter episode arc.
- Be faced with a problem
- Freak everyone the hell out
- Talk about winning a lot even while he's freaking you out
- Close the deal and win.
XTOD: Annual reminder that no phones at the Masters is the best fan policy in all of sports.
https://x.com/TMTLongShort/status/1909944559037018332
https://x.com/NickTimiraos/status/1910072949153132703
https://x.com/SuitablePolitic/status/1909749560945312015
https://x.com/KylePorterNS/status/1909589100622929941
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