Daily Economic Update: April 11, 2025

Not Another Volatile Day

I just couldn’t bring myself to write about another volatile day.

Yes, the S&P dropped ~3.5% to 5,268. Yes, the CPI report came in weaker than expected. And yes, the 30-year Treasury auction was strong. The 10Y yield settled at 4.35%, and the 2Y at 3.82%.

But rather than dwell on the usual headlines, I’d rather focus on something that doesn’t expire faster than a Bloomberg notification—something timeless. Dare I say, something wise.

The Coachman of the Virtues

Let’s talk about prudence. Not the same thing as caution. Prudence is a cardinal virtue—literally a hinge that other virtues swing on. It’s been dubbed “the coachman of the virtues,” and for good reason.

Prudence isn’t passivity. It’s a creative, thoughtful, grounded process of decision-making. It’s how we act with both intelligence and freedom. The prudent person can see the angles, seeks counsel, avoid being swept up in emotion, and gradually moves toward the good—even if the path isn’t linear.

The prudent person knows what they want, understands tradeoffs, and avoids self-inflicted disasters. Not a bad role model when markets are spinning like a roulette wheel.

Timeless Tools for Volatile Times

Prudence is more timeless than anything I’ve ever written, but to recap a few messages we’ve talked about multiple times this year - areas of “timeless wisdom” that might help you weather extreme market volatility:

• Acknowledge uncertainty: Recognize that predicting short-term market movements is often impossible.

• Maintain a long-term perspective: Focus on your long-term financial goals and avoid making rash decisions based on short-term noise. Real goals aren’t met on a single day’s returns.

• Practice patience: Resist the urge to constantly trade or react to market fluctuations.

• Focus on underlying value: Remember that you are investing in businesses, and their long-term earnings potential is what ultimately matters.

• Manage risk: Be mindful of leverage and understand your risk tolerance. 

• Be aware of emotional biases: Avoid making decisions based on fear or greed.

• Think beyond immediate reactions: Consider the second-order effects of market events. Reaction is easy. Reflection is wiser.

The Secret to Risk Management? Look in the Mirror

The best-kept secret of good risk management? It’s mostly about managing ourselves.

John Coleman wrote it well:

“It’s about managing our ego, our arrogance, our stubbornness, our mistakes. It is not about fancy quantitative techniques but about making good decisions in the face of uncertainty, scanty information, and competing demands.”

Risk management isn’t a spreadsheet problem. It’s a human one.

Coleman references a fantastic passage from Staying Alive in Avalanche Terrain by Bruce Tremper, in a chapter aptly named “The Human Factor”:

“There are two kinds of avalanche accidents. First, an estimated two-thirds of fatalities are caused by simple ignorance... The second kind of accident... is when the victim(s) knew about the hazard but proceeded anyway... Smart people regularly do stupid things.” (p. 279)

Sound familiar? Replace avalanche with some asset class and you’ve got most of financial history.

Want To Get Smarter? Study Stupidity

The good news is we’re not doomed to repeat the same mistakes—if we’re willing to learn.

There’s real value in studying past financial disasters, in listening to the stories markets have already told us. History doesn’t just rhyme—it sometimes yells warnings we’d be wise to hear.

Risk Management Isn’t Just Playing Defense

The second secret of risk management is this: it’s not just about limiting the downside—it’s also about positioning yourself to capitalize on the upside.

We can’t control everything. But we can control our exposure, manage unwanted risks, and stay away from excessive caution. We can tilt toward opportunity, when the odds are good and the crowd is panicking.

Final Thought (and a Toast)

None of this is a recommendation. I don’t know what you should do today. I really don’t.

This is just food for thought while your drink is getting tariffed.

XTODs:

XTOD: “Rare, ugly and worrying”. That is how Krishna Guha, vice-chair at Evercore ISI, described the market moves today. In the last 30 yrs he said there are only four other times that the U.S dollar index depreciated more than 1.5% with the yield on 30-yr Treasuries up more than 10bps.

XTOD: Usually when gold moves like this, the BIS steps in to slam it. This time, they aren't even bothering

XTOD: Ignoring the change in stock prices is there an industry group that has experienced an improvement in fundamentals since the January earnings season?

XTOD: Culture is what you allow. Mike Vrabel setting the tone on day 1. The little things matter. 

Culture WINS

https://x.com/colbyLsmith/status/1910423941904056774

https://x.com/zerohedge/status/1910468266465669492

https://x.com/dampedspring/status/1910465881823420822

https://x.com/gb1121/status/1910139766885990749

Daily Economic Update: April 10, 2025

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.

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Daily Economic Update: April 9, 2025

If You Had “Volatility” on Your Bingo Card, Congrats Again

Another day, another 4% intraday move. Stocks rallied briefly on headlines of progress in tariff negotiations—whatever that means in April 2025. But just before 1pm, the party ended. The 3Y Treasury auction landed with a dull thud, sporting a 2.4bp tail—the worst since COVID-era dysfunction. And just like that, the S&P did a reverse victory lap, closing below 5,000 at 4,982.  

Treasuries: From Safe Haven to Hot Potato

The story of the day wasn’t just equities—it was the bond market throwing a tantrum. The 3Y auction showed foreigners (indirect bidders) were still present, but the so-called smart domestic money (directs: pensions, hedge funds, mutual funds) said “pass.”

The 10Y yield surged over 30bps in two days, now hovering at 4.30%. Swap spreads? Negative and getting more so—raising eyebrows and swap market newsletters alike. When Treasuries yield more than SOFR swaps, someone’s balance sheet could be screaming. Repo tightening? Liquidity stress? Maybe. Maybe it’s just Tuesday.

As we’ve seen before—COVID, the 2019 repo spike, even the UK’s LDI wobble—sometimes you don’t know what broke until after it’s already broke. We’re not there yet, but we’re in the narrative-building prelude.

Ahead of today’s 10Y Treasury Auction, 10Y yield is 4.30%, the 2Y is 3.73%.

Batteries vs. Bricks

Elon, never one to resist a Twitter (fine, X) flare-up, labeled Peter Navarro “dumber than a sack of bricks” after Navarro referred to Tesla as a mere “car assembler.”

Polymarket odds of Navarro getting fired this month? 11%. Odds of investors regretting buying the recent dip? Higher?

Midnight Tariff Madness

The new tariffs kick in at midnight, and everyone from CNBC to the meme economy is covering the scramble. Apple reportedly chartered entire fleets of cargo planes to move 6 months’ worth of iPhones from Asia into the U.S. before the curtain falls.

What happens next is anyone’s guess. Post-tariff iPhone prices may finally justify that $1,299 screen repair.

If only the memes of Americans working at factories could be taxed to pay for tariffs.

Too Many Moving Parts, Not Enough Patience

We’re seeing a cocktail of chaos: Treasury indigestion, equity volatility, rising yields, tariff fear, and echoes of leverage-induced panic. And while pundits scramble to assign blame, it’s worth remembering what this blog has said before: patience isn’t just a virtue—it might be the edge.

Patience is the forbearance of what one suffers—the willingness to let things mature, to not rush just because the market is.

In Enough, John Bogle opened each chapter with a reminder: “Too Much…, Not Enough.” He’d likely remind investors there are no black swans in the stock market over the long run—only the efficient (if bumpy) compounding of capital by real businesses.

When tempted to run with the herd, Bogle’s advice was simple, and good:

"Don't just do something. Stand there."

XTODs:

XTOD: Breaking: Sources close to the Trump White House say they are pressing on with their tariff plan based on this calculation: That the tumult in on Wall Street in stock market, while significant, will not be matched by a similar tumult in the Main Street economy. That the negative wealth effect primarily targets non MAGA affluent voters; that jobs will be largely retained because of deregulation and tax relief. And soon trade deals will be cut that lessens the tariff impact, so markets will stabilize. Bottom line: They believe that politically they will be just fine and at least for now they’re pressing on. I’m not saying I agree with this; in fact it’s a gamble IMHO and who knows maybe they do a 180. But that’s the thinking as we reach tariff judgment day and markets continue to rattle.

XTOD: The bond selloff is all China. I would bet my left nut.

XTOD: Lots of rumors (best I can tell without strong supporting evidence) of China selling the 10y (and more implausibly, the 30y).   A few observations.

XTOD: "My strong, unwavering belief is that Pax Americana is a damn good deal for the United States AND the world" Somebody's been reading their Kindleberger!

XTOD: American Oil: a $57 handle.

https://x.com/TripleNetInvest/status/1909728248294166684

https://x.com/dailydirtnap/status/1909723908195987799

https://x.com/Brad_Setser/status/1909740555837522318

https://x.com/PMehrling/status/1909703475199369566

https://x.com/tomkeene/status/1909769301357195587

Daily Economic Update: April 8, 2025

Almost The Same Industry

Financial news media continued running its favorite genre: sell-off porn. We even got pieces on circuit breakers - always a vibe when CNBC & Bloomberg starts quoting the SEC & FINRA like it’s gospel. You already know the reason: the “t” word.  

Markets opened in freefall, reversed losses after a headline about a 90-day tariff pause, then got whipsawed again when that headline got promptly body-slammed by reality. When the dust settled: Dow down, S&P lower (5,062), Nasdaq somehow green. Volatile and confusing sum it up.

I Thought The Goal Was Tik-Tok, Not Tit-for-Tat?

China pledges to stimulate their economy while slapping 34% tariffs on the U.S.  The Trump administration fired back with threats of another 50% tariff on Chinese exports. At some point, China might just need to ship over consumer goods and include a check for the U.S. shopper. 

Not the Flight To Quality You Ordered

Speaking of China - are they dumping Treasuries? Someone’s selling. The 10-year yield spike by 20bps to 4.22% , which isn’t exactly the behavior you’d expect in a flight to quality. If it’s not China hitting the bid, maybe it’s leveraged players forced to sell what they can, not what they want, to meet margin calls.

We talked about the Treasury conundrum back on Friday - still relevant. File it under second order thinking and don’t get too comfortable.

Leverage In Focus: Echoes of Explosions Of The Past

Whenever volatility picks up and the word "deleveraging" gets tossed around, someone usually ends up face down in the punch bowl. Remember Archegos? That 2021 moment when one firm, running a giant levered book, detonated after banks—plural—forgot to ask how many IOUs they'd handed out. Just ask Credit Suisse. Or whatever’s left of them. (Hi UBS).

Let’s not forget what Howard Marks wrote back on May 9, 2024 when Marks reminded us about ‘The Impact of Debt’: 

 “But levered portfolios face a downside risk to which there isn’t a corresponding upside: the risk of ruin….“never forget the six-foot-tall person who drowned crossing the stream that was five feet deep on average.” To survive, you have to get through the low points, and the more leverage you carry (everything else being equal), the less likely you are to do so.”

So what’s the impact of leverage today? No one knows. But if this ride keeps going, it seems likely we’ll find out who was swimming naked in that stream.

Tariffs: Symptom, Not Cause?

We talked yesterday about the potential for changing the global monetary order - a Bretton Woods III.  Apparently, Ray Dalio was thinking the same thing. (We assume he’s a loyal reader.)

He argues that tariffs are just a surface-level reaction to deeper structural problems: too much debt, not enough trust, and a financial system propped up on increasingly shaky scaffolding. He might be right. Or he might just be angling for another LinkedIn carousel post.

When Everyone's Guessing, Maybe Sit Still

Here’s the thing: chaos is always loud. Long-term investing is mostly quiet. And patience never trends on X.

We’ve said it before, but it’s worth repeating when the VIX spikes and headlines scream—discipline wins over drama. While the crowd fixates on the next 90-day tariff pause or Treasury yield spike, smart money is thinking in decades, not trading sessions.

XTODs:

XTOD: Chinese memes on American re-industrialization rolling in. lol the music. https://x.com/i/status/1909348105675211192

XTOD: Steve Miran’s Hudson Institute speech represents one of the most concise and clearest articulations of the Trump admin’s worldview, which is often either lost or confusing in Trump’s own rendering. As far as I can tell, they think of the Pax Americana global order as a club membership, for which the US has under-charged for the past few decades. Reasonable people can debate whether the US undercharged but important thing is that the current admin thinks so. So much so that the current admin believes the current system has been made unsustainable and made the US economy at a severe competitive disadvantage and sections of its population in dire economic straits. Again, debatable but that’s the claim.  

So to make the system work, as far as I can tell, basically they want to charge a membership fee to pay for the global order system. And the fee is per usage, the more a member country practically uses club’s facilities and the valuable amenities provided by the US, the more they ought to pay the US through tariffs if not directly in wire payments. Again debatable whether tariffs are really the best means of collecting such a membership fee, since tariffs are at least in part borne by American consumers and create frictions in global trade hence making the whole system less efficient.

That is the philosophical rationale behind the tariff table we saw, which honestly may not have been Miran/CEA’s best possible work as much as something that was just a quick hack. Based on this, I suspect a lot of the severe tariff rates on some of the poorest countries in the world were likely indeed mistakes and will likely need to be revised downwards.

This is a massive change to the global order, but if there’s some silver lining it’s that like it sounds like it’s more a radical reform than a total abandonment of Pax Americana and at least as per this speech not a total decoupling either, which I think is more consistent with Trump’s ideology or lack thereof.  https://whitehouse.gov/briefings-statements/2025/04/cea-chairman-steve-miran-hudson-institute-event-remarks/

XTOD: The Foreign Minister of Iran, Abbas Araghchi has confirmed via a post on X that representatives from the United States and Iran will meet in Oman on Saturday for “indirect high-level talks” claiming that the “ball is in America’s court.”

XTOD: Educate yourself. No one is ever going to teach you enough or hand it to you on a platter. Books and articles, and ask questions—an endless amount of them.

https://x.com/gaborgurbacs/status/1909348105675211192

https://x.com/stevehou0/status/1909344035418079455

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Daily Economic Update: April 7, 2025

The 4 Most Dangerous Words: “This Time Is Different”

A 10% drop in two days — the worst since March 2020. Back then, the world was on fire and buying the dip worked (for now). Will it work again? Who knows. But as the old saying goes, “the four most dangerous words in investing are: ‘this time is different.’” 

The S&P 500 now stands at 5,074.  The 10Y treasury yield has retreated to 4.00%, which is still some 40bps above the September 2024 lows of 3.60%.  The 2Y yield has moved down to 3.66%, which is near their September 2024 lows of 3.50%.  Remember back then? All the talk was about China’s economy, strikes in the U.S. and the war in the Middle East.  Today’s tariff tantrum may prove stickier — and bonds aren't sure whether to price inflation or slowdown

The Ratliff Family Jinx

Speaking of losses - Duke.  Hard not to wonder if their tournament run was cursed by White Lotus. A suicidal Timothy Ratliff in Duke gear? That’ll do it.

Recession Odds Climb

As for the fate of the economy, JPM puts recession odds at 60%.  The jobs data on Friday didn’t scream trouble - NFP came in at +228K and the unemployment rate to a rounded 4.2%.

And the Powell Rangers?

As of Friday it didn’t seem Powell was ready to come to the rescue - the FOMC “does not need to be in a hurry” to adjust policy according to him. 

Will this be a repeat of Powell in October 2018 when he quipped that “we’re a long way from neutral” at the time indicating more hikes were on the come despite Trump 1.0’s trade war with China.  Fast forward to December 2018 and the S&P was down 20% feeling the impact of tighter financial conditions and concerns over a global growth slowdown.  It took a little bit of time but by mid-2019 Powell had initiated “mid-cycle adjustment” rate cuts.

Will this time be different?

Paging Belgium?

Robert Triffin, a Belgian economist, theorized the “Triffin dilemma”; in a Bretton Woods system, with fixed exchange rates and the ability of central banks to convert dollars to gold on demand, the world wasn’t going to be able to satisfy the demand for reserve assets with gold, so dollars would act as a substitute. As Paul Volcker discusses the Triffin dilemma in his memoir: 

• “But to maintain growth in those dollar reserves, the United States would be required to print more and keep running balance of payments deficits, inexorably producing inflation and undermining the dollar’s ability to be converted to gold on demand at a fixed $35 price.”

• Triffin’s point as echoed by others was that this ‘exorbitant privilege’ ascribed to the U.S. dollar might lead to a dollar that was chronically overvalued and that it would be virtually impossible to maintain a system based on convertibility between gold and a single reserve currency in a world of expanding trade and growth. 

• “Eventually the sense of trust upon which the currency rests will be eroded if its use is overextended.”

Of course this convertibility of dollars to gold collapsed back in 1971 with the “Nixon Shock” and we moved to a new “dollar standard” or a system some call “Bretton Woods II”.

The Triffin dilemma is still relevant - just transformed. The U.S. still supplies the world with liquidity - now through U.S. treasuries which creates its own set of imbalances, especially the U.S. running a persistent trade deficit. A system some say leads to lower interest rates and an overvalued dollar that encourages an unsustainable build up of debt.  Or as some describe a system where export driven economies lend money to the U.S. consumers to keep the system afloat artificially.

Not everyone sees the current system as a problem or even a dilemma.

Tariffs and the Dollar Order

The exact views of the Trump Administration around the Triffin dilemma aren’t entirely clear, but it is clear their policies are aimed at addressing perceived trade imbalances and perceived negative impact of such imbalances.

Whether the future is playing out in a way that former Credit Suisse economist Zoltan Poszar termed “Bretton Woods III” - a multi-polar world with commodities anchoring reserves and a decline in the dollars ‘exorbitant privilege’ may still be premature, but for the time being last week’s tariffs announcements have raised questions around the future of the global monetary order.

The Week Ahead: Data for Show, Tariffs for Dough

Monday: Nothing but NCAA Madness

Tuesday: 3Y Note Auction

Wednesday: Inventories, 10Y Note Auction, FOMC Minutes

Thursday: CPI, jobless claims and Fedspeak

Friday: PPI, UofM

XTODs:

XTOD: Breaking: Big Wall Street trading desks will be manned in time for tonight’s futures open. They are preparing for more selling, intense selling. But you also hear talk about “value” and how some really good stocks are “over sold.” But bearishness is clearly the overwhelming sentiment. This is not totally uncharted territory for markets (not analogous to the economy). In fact it reminds me of 2008 and the whipsawing sales amid the bank failures etc. The question is: Will the Fed intervene and go to war with Trump if this persists. Developing

XTOD: Stanley Druckenmiller thinks tariffs are the lesser of two evils.  We have to do something given the current situation the United States finds itself in.

XTOD: How does the media strike fear in investors?   Here’s an example from my feed this morning implying that tariffs could lead to a long and deep depression and the rise of another Adolf Hitler:  “The Smoot-Hawley tariffs of 1930 helped lengthen and deepen the Great Depression and led to the collapse of global trade, which hit German exports. That in turn contributed to the downturn that helped Adolf Hitler recover from a false start in German politics, as William Shirer documents in The Rise and Fall of the Third Reich.”

XTOD: You can, simultaneously: 

- Dollar cost average, remain long-term optimistic. 

- Not panic. 

- Enjoy the outdoors, kids, good food, etc. 

- Realize how unbelievably destructive and unnecessary this is.

https://x.com/CGasparino/status/1908929935294480588

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https://x.com/Rick_Ferri/status/1908854259824906479

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