Why the stock market’s enormous surge? It turns out it was because Trump caved. The global fight he alone picked was just too much for him. He was destroying the nation and he knew it, and the evidence of how intensely the destruction flared up is all over the news this morning. Trump burst into flames and crumbled into dust, and that is why the stock market experienced an enormous sigh-of-relief rally. I didn’t get the news of his caving in until after the stock market closed, but now here it is:
“I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” Trump posted on his Truth Social.
And, SHABANG!
About 30 billion shares traded hands, making it the heaviest volume day on Wall Street in history, according to records that go back 18 years.
How badly did he cave? The big talker crumbled into the dust in flames that he had lit by sucking back most of what he’d done. Some try to say that was always the negotiating plan, including Treasury Secretary Scott Bessent, but plenty of evidence and even admissions by Trump insiders say otherwise. The Admin. just put a good face on it.
Treasury Secretary Scott Bessent later clarified that all countries except China would return to the 10% baseline tariff rate, down from the higher rates that previously shocked the markets, as negotiations take place.
China, on the other hand, got boosted, again, to a 125% tariff, effective immediately because they behaved with disrespect to the wishes of the Don.
When questioned about the president’s erratic pivot, Press Secretary Leavitt farcically stated that the press “clearly missed the art of the deal” because they thought the world would turn against the US and toward China:
You tried to say the rest of the world would be moved closer to China when, in fact, we’ve seen the opposite effect. The entire world is calling the United States of America, not China, because they need our markets; they need our consumers, and they need this president in the Oval Office to talk to them.
They have no need to call China, so what a joke. What would calling China accomplish for settling their war with Donald Trump? They are calling the US president because they DO have a huge problem with the US president, not because they are feeling closer to the US than to China. And that is not to mention the fact that she would be the last to know IF they were calling China. For all we know, China was swamped with phone calls by secretaries of commerce begging to do more trade with China. It’s not as if they are going to report to Trump or Leavitt on their calls with Trump’s chief adversary.
It also could still turn out that Trump caved in and the other nations did not. That’s what happened the first two times Trump boldly leaped to brazen rates and nations retaliated. He removed his tariffs, and they kept theirs in place. Each time the US loses more ground by taking and keeping the hits that come to it
Of course, this was a lasting disaster for anyone shorting the market. They just got squeezed and popped like a pimple. However, you can be sure no one in the White House or the Trump family made that mistake, given the high likelihood that they all knew what was coming before it was announced to the general public. Such is the way good-ol’-boy systems and their banana republics work.
Worse in terms of lasting effects, serious damage may have been done to the global bond market that may be made even worse by Trump’s sudden major reversal, which risks destroying US Treasury bonds’ longstanding reputation of enduring stability. I will lay out why that is likely below.
Lucy and the football
Of course, I said with each claim I made about the damage Trump’s Tariff War would do to the US economy that it depends on whether each announcement proved in the end to be just another head fake or if it was actually a new tax policy. I’m sure, of course, everyone else realized that, too. So, the head fake is little surprise, except that I think Trump really intended to go further this time and was simply caught off guard by how horridly it was going once even the mighty US bond market, which dwarfs the stock market, started to shudder and shake.
Then again, we should hardly be surprised if Trump puts some new tariff back on again or this weekend either since he seems to thrive on chaos and negative energy. Might as well play as recklessly as you can with the whole US economy like it’s a toy hammer.
How exhilarating it must be. To have the whole world bending over and puckering up.
What a feeling of power!…
And what a pleasure it must be to jerk them around. You threaten them with tariffs … and then, at the last moment, you ‘pause.’ And then, you single out the world’s biggest exporter for punishment … because he disrespected you! On your own say-so, you introduce the biggest tax increase ever (no need to ask Congress!) on everyone who shops at Walmart.
And you—not the free market, not the citizens themselves, not buyers and sellers—decide who wins and who loses….
We thought we’d seen it all. But there must be more to this story … a sequel … a Part II. After all, in what kind of a story would we see such vaulting pride without a fall that followed?
What kind of dull, predictable world would it be if the bully got his way?
Fortunately for irony, sarcasm and long-odds bettors … there are still plenty of surprises … and many slippery feed-back loops to circle around and bite the Big Man on his big derriere….
And there it is—the snakiest bond market since Adam—a huge beast … nourished by Democrats and Republicans over the last half-century … nearly $37 trillion worth of US notes, bills, and bonds (not including dollars) outstanding.
And of all the prodigious borrowers, none outdid America’s current jefe, Donald Trump. In just four years, he accomplished what took his predecessor—Barack Obama—twice as long, adding $8 trillion to the national debt. Now he’s back. And back at it. Spending is going up….
But there is a wobbly planet in the Trump firmament. The feds can cut off trade with friends and ‘enemies.’ They can pump up the economy with stimmies. They can back the stock market with ‘put options’ and rescue packages. They can reduce unemployment by hiring people … and increase sales by spending money they don’t have.
But they can’t control the value of the money they spend … or control the cost of borrowing it. And when Planet Debt spins out of control, watch out.
—Bill Bonner
And the bond vigilantes I’ve written about from time to time did exactly that, putting the Donald back in his playpen and forcing him to back away from the extraordinary addition to tariffs he had imposed at midnight at the start of that same day.
[As] James Carville famously remarked in 1993:
“I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”
The bond market did what nations couldn’t do and showed the Donald who is the boss.
U.S. Treasury yields continued to surge after President Trump’s sweeping duties, including a 104% tariff on Chinese goods, took effect Wednesday and investors raced to pull money out of bonds.
You can be the bully, but you cannot stop everyone from running away from you.
A swift and sharp sell-off in U.S. Treasuries is rattling global financial markets, shaking the foundation of what has long been considered one of the world’s premier safe-haven assets.
Either the Trump Team would be forced to back off. Or, brace yourself for wealth extinction on a planetary level!
That was written early in the day, then back off, they did!
As I’ve said with each Trumpian announcement, you never know when this Lucy is going to jerk the football away again. Based on comments all over the news and on what happened in the bond pits, many investors around the world may be feeling that, at this point, it is best not ever to trust this president on anything again. Major money, as I reported, just fled US Treasuries. Trump’s words and his apparent resolve on the very things he claims are his most important issues are meaningless bluffs, again and again, and so the uncertainty remains, even after he’s recoiled again, as you will read in the articles quoted below from recent news. That’s lasting damage.
Perhaps the new retaliatory tariffs announced by other nations in response to Trump’s latest tariff deluge will also remain as lasting damage just as many retaliatory tariffs remained after Trump’s last jerk of the football away from Charlie Brown’s foot; so, by that ratcheting mechanism, the chaos climbs up to a whole new level of meaningless noise and breakage.
It’s not clear what prompted Trump to change his mind — he appeared to dig in just hours earlier, telling Americans “BE COOL” in a Truth Social post, and he suggested not that long ago that the tariffs could be permanent.
Then, suddenly, the new tariffs went away!
What may be permanent is the damage already done
As economist Wolf Richter comments,
So now we’re down to stock markets spiking or plunging in a huge manner based on what the President says. It’s no longer earnings or revenue growth or AI mania or whatever. But presidential announcements. This is what happens when edgy traders and algos and people thinking all this is a video game react, after the gigantic run-ups of stock prices in recent years to these precariously lofty levels.
The game became presidentially rigged and no longer just Fed rigged. This is what happens when the president appears for all the world to be playing them, knowing they will react to his every word just because he is a new kind of president, exercising czar-like power.
But the huge spike, following the selloff, also evoked further parallels with the Dotcom Bust and the crash of the Financial Crisis, during the middle of which these types of spikes had occurred.
That is where I’ve been saying for months this ends up. In the mainstream financial press, I now read …
“Given how depressed stock prices and sentiment had become, the 90-day pause is sparking a violent rebound, and delaying implementation certainly removes a giant overhang from the market,” said Adam Crisafulli, founder of Vital Knowledge. “But — tariffs are not going away. China’s tariff rate is now in triple digit territory, and who knows what happens in 90 days when this pause concludes….”
That means the damage holds.
In terms of whether this was really all a pre-planned negotiating tactic, Trump’s own stated explanation for his sudden turn seemed to be projecting his own abject fear on others:
In a press conference later in the afternoon, Trump said investors’ fears had gone overboard.
“I thought that people were jumping a little bit out of line. They were getting yippy, you know, they were getting a little bit yippy, a little bit afraid,” said Trump.
What a farce! Sure they were afraid, but we know who became so afraid he suddenly turned tail:
Donald Trump stunned markets Wednesday with another quick pivot on trade, announcing he would authorize a 90-day pause on his reciprocal tariff plans for all countries except China and telling reporters he did so because people were getting “yippy” and “afraid.”
You don’t pivot on massive policy just because “people are getting a little yippee.” But don’t take my word for it:
“This allows for at least a near-term rally, but I would not assume that the bottom has been put in place,” added Sam Stovall, chief investment strategist at CFRA Research. “Fool me once shame on you; fool me five times, shame on me.”
The market experienced an existential change. Take the words of his own supporters as to how shocked they were by Trump’s swing:
‘This Is All So Stupid’: Conservatives Exhale, Then Fume About Trump’s ‘Mercurial’ Tariff Pause
Numerous conservative commentators had been highly critical of Trump’s tariffs since they were unveiled in the Rose Garden last week. The news of the tariff pause led these critics to express relief that Trump was backing down, but still make it clear this mess was the president’s fault and the United States should have never been in this situation at all. Several others pointed out that the post-pause market rally had not recovered all the decline since the initial tariff announcement, and overall this situation was engendering market-shaking instability….
Republicans fume as Trump blindsides them with tariff pause
Many Republicans in Congress were shell shocked Wednesday when President Trump abruptly announced that he was pausing his sweeping reciprocal tariffs for every country except China….
“If they would just communicate with us more on messaging, we would be able to support the president better,” said one House Republican, speaking on the condition of anonymity to criticize the White House.
And if that is how the players on his own team feel, imagine how investors from other nations feel about the US Treasury market and the stock market now.
Fox’s Gasparino Argues Trump Didn’t ‘Outsmart’ the World and Tariff Drop Was ‘Forced’ by Bond Selloff: ‘Those Markets Were Imploding Last Night’….
I want to tell you right now that Donald Trump outsmarted the world. Trust me, I’m an American. I support my president, but that’s not really what happened here. From what I understand—and I know I’ll get pushback—but here’s what it is….
Let’s recall what happened overnight; and from what I understand—and I’m getting this from people that are talking to the White House—what happened in the bond market overnight, the spike in yields on the 30-year and the 10-year bond, which showed that people were dumping our bonds. And who are those people dumping our bonds? Japan, the biggest holder of bonds, was selling bonds. That’s what I’m getting from some very big money managers….
It was a sudden fire sale on US Treasuries from other central banks that made the president wet his pants and run from his own actions to the shock of his own team members!
If you have a mass sale of bonds, that means people are losing confidence in the US economy, on the ability to do deals with us; and from what I understand, this is what forced the hand of this 90-day reprieve. Now, is it a good thing? Are people coming to the table? Yeah, but if, you know, if you read between the lines and not even what what Scott Bessent said, we have no deals, right? There’s nobody that is really there saying, “This is what we’re gonna do,” and they paused it anyway….
It’s the bond market and the sort of lending markets that’s the plumbing of the economy; and those markets were imploding last night. And that’s why we have a 90-day freeze.
Says another:
This is a big deal. It is the sharpest sell-off in the US bond market since the pandemic. Back then, investors also rushed into bonds before dumping them and the motivations, on one level, are similar.
And another …
So much for giving Trump’s brilliant tariffs time to work out. All part of the plan, I am assured. (Jeff Blehar *BOX OFFICE POISON*)
and another:
Now would be a good moment for Congress to take back its absolute power over tariffs.
One thing I genuinely like about Trump is that he always pulls the rug out from under his sycophants. (Charles C. W. Cooke, Editor National Review)
BREAKING: US President Donald Trump blinks first. (Javier Blas, Energy and commodities columnist at Bloomberg)
MAGA: “Ha! Now don’t all you people panicking about the tariffs feel dumb?”
Are they joking?…
“Look at all these people panicking because Trump was threatening to nuke New York… but Trump didn’t nuke New York, so they were panicking over nothing!…”
I’m willing to pretend Trump negotiated a brilliant deal if we just go back to exactly how things were early last week. (Frank J. Fleming, The Babylon Bee)
But they didn’t go back to where they were even after the Trump reversal and the responding stock reversal. Not even close. The market pulled a head fake of its own—a classic “bull trap.”
But I’ll bet some insiders got rich!
So glad I bought stock yesterday..@realDonaldTrump (Michael Reagan)
When Trump posted, “Now is a good time to buy,” I assumed he meant generally at this time in history, not necessarily at this very hour. (Marlene @CatsOnTheRight)
However …
Today’s market won’t measure the long-term damage Trump has done to the U.S. economy by destroying global trust in America that took generations to build. (Sarah Longwell, Founder and Publisher, TheBulwark.com)
That is THE point I want to make here.
Still, we have to also ask …
Is the president gaming markets?
Suddenly many are asking.
The latest reversal and the way the president seemed to play it left many, even in Congress, asking if the president is intentionally gaming the market, perhaps abusing his power for personal benefit.
President Trump also urged investors that now was “a great time to buy” shortly after the market open in a post on Truth Social.
Was he pleading with them—begging them to make a deal—because he felt desperately worried about how his beloved stock market was crashing headlong over the cliff -or- was he giving a veiled message to his supporters that now was the time to jump in and get rich off the next play? Some in Congress saw it that way.
Trump’s trade rep got grilled in Congress over the switcharoo as members wondered who knew what and when before the big trade came into play that made fortunes for some. At first, it started off as a complaint about the capricious way the nation was being run:
U.S. Trade Representative Jamieson Greer sat before the House Ways and Means Committee, where he’d been testifying for nearly four hours in defense of Trump’s “reciprocal tariff” policy, when the president announced the pause.
Democratic Representative Steven Horsford was the first to question Greer about the pause….
“So did you know that this was ‘under discussion,’ and why did you not include this in your opening remarks?” Horsford said….
“So the trade representative hasn’t spoken to the president of the United States about a global reordering of trade? And yet he’s—but yet he announced it on a tweet!” Horsford said above Greer’s protests. “WTF! Who’s in charge?!”
“The president of the United States is in charge,” Greer replied.
“And what do you know about those details? It looks like your boss just pulled out the rug from under you and paused the tariff—the taxes on the American people,” Horsford said. “There is no strategy! You just found out three seconds ago, sitting there; we saw you!”
The Nevada Democrat continued to press Greer on his failure to disclose Trump’s plan at any point during the lengthy hearing. “If you came here knowing that these tariffs were going to be turned off, why didn’t you include that in your opening statement, why didn’t you reference that as part of your testimony?”
“This is amateur hour, and it needs to stop! What does this even mean for your negotiating strategy? How are you in charge of negotiation if the president is tweeting about this, wherever the hell he is?…”
“There was no strategy, there was no plan. The president chose to take actions that he didn’t have the authority to take. He has put our economy in near collapse,” Horsford said.
And then the tone shifted to deeper underlying suspicions of what would be crimes if they weren’t being done by a president that we have all been told has absolute immunity for anything done as an official act:
He then asked Greer about the issue on everyone’s mind. Earlier Wednesday, amid a roiling stock market, Trump had advised his followers on Truth Social that it was a “great time to buy.” After announcing the 90-day pause on tariffs, the market shot back up.
“Is this market manipulation?” Horsford asked.
“No,” Greer replied.
“Why not? If it was a plan, if it was always the plan, how is this not market manipulation?” Horsford asked….
“So, if it’s not market manipulation, what is it? Who’s benefiting? What billionaire just got richer?”
That is something I thought I’d like to know, too. How many people in the White House and in Trump’s family got the news of his reversal in time to trade the news for the obvious impact it would have on a market overstressed to the limit by tariffs when the lid was suddenly pulled of the pressurized pot?
Horsford noted that all the Republican members of the committee had left “because they don’t want to defend this!”
I wonder if Trump’s family leaped in and bought the market up just ahead of the announcement. Adam “Pencil Neck” Schiff is asking, but, then, one would expect him to stick his neck into it. Still, the facts for some elite people are …
Trump’s morning ‘buy’ call nets huge returns for those who listened.
So, next time Trump gives what sounds like insider information and urges people to “buy,” then buy! Because that appears to be code to his constituents for, “I’m going to reverse myself today and send the market into hyperdrive. So, buy low now before I make the big announcement.”
Investors who followed President Donald Trump’s blunt advice to buy stocks on Wednesday morning received a windfall when the president hours later rolled back some of his market-roiling tariffs.
Some likely did somewhere, especially if anyone in the White House knew Trump was going to reverse something he had just said could be permanent tax policy. We all know now that the president cannot be taken to court for official actions made in the course of duty because he has “absolute immunity.” It needs to be pointed out that absolute immunity translates into absolute power because you can use the enormous global power of the presidential office to commit any crime you want so long as you find a way to make it part of something you can defend as being an official action, such as is very easy to argue in the case of steering trade negotiations with “the art of the deal.” And absolute power corrupts absolutely.
We also know that everyone in the White House knows that the president, who cannot be taken to court over decisions made as part of the course of carrying out his duty, also has the power of the pardon. That means he can and would pardon anyone in his family who did decide to trade on inside information that he was about to swing 180 degrees in a major market-changing decision, and we saw how extremely and immediately impactful that decision was—one of the biggest trading swings in the history of the US stock market.
Theoretically, for anyone who bought into the market that minute on Trump’s urging, they netted a big return. Stocks shot up in a historic reversal in afternoon trading after Trump announced a walkback.
What a tempting trade inside knowledge of that major policy reversal would have provided. Trump’s own corporate stock leaped 22%! So, interestingly, did Tesla stock! If Trump and the Mighty Musk were smart, they sold a lot of bonds over the previous 24 hours to turn them into cash and then bought a ton of their own stocks at the new fire-sale price before Trump turned the market over and sent those stocks flying.
If they had just used their bonds as collateral for leveraged trade, the value of their collateral would have collapsed, but if they bought stocks with cash, they were solid and knew it. So, they could have played both markets, buying bonds after they swung low in price due to Trump’s trade policy, selling them when they swung back up a couple of days later, making money in bonds, and then sending that money over to stocks. If you could know the timing in advance and had billionaire money to play with, a vast fortune could have been made in less than a week! Pencil Neck is right, in spite of himself: it is worth checking into after all.
Multiple posters on Reddit’s WallStreetBets page certainly called the move insider trading.
Ah well, Trump told us he was untouchable, even before the Supreme Court made that clear. Remember? He said he can shoot someone in broad daylight in plain sight in Manhattan and no one can do a thing about it. Now the Supremes have told us that is absolutely true so long as he does it as an official action. This is what crime rule gets you:
“Can you imagine the insider trading?,” another user wrote. “Like if you are inside the white house and don’t come out of this a brazillionai[r]e you are literally the dumbest person on the planet.”
That’s for sure, given the new certainty of absolute immunity for the president and of a presidential pardon for any family member or loyal friend who played this information.
What about the lasting damage to the US as the new banana republic in town?
President Donald Trump’s tariff policy continued having a dizzying effect on global markets Wednesday, causing U.S. government borrowing costs to surge while stocks saw choppy trading as China ratcheted up retaliatory tariffs….
While investors’ recent focus had been on the massive sell-off in stocks since Trump’s shock tariffs announcement a week ago, trouble in the market for government debt raised the prospect of more serious financial instability.
As the tariffs went into place just after midnight, the yield, or interest rate, demanded by investors to lend to the U.S. government began to climb swiftly….
So, for the third time, Lucy pulled the football within 24 hours of the Trump Tariffs actually going into effect. What a play!
Because of that erratic action, new cracks in US financial markets emerged all over the world, not just in the US, as Trump ring-fenced his nation with his own tariffs. Whether he was gaming stock and bond markets or not, he tried to put a good face on the troubles that became obvious even to him. What else could he do?
Trump said he backed off the larger tariffs, which went into effect 12:01 a.m. Eastern Wednesday, because his administration received calls to negotiate from more than 75 countries while China retaliated. No deals have been struck.
Others said shortly after I wrote the same thing that the ructions in the bond market were great enough that they would require the Fed to step back into QE as the only way to save the US bond market if Trump continued to hold his tariffs in place:
“If recent disruption in the US Treasury market continues we see no other option for the Fed but to step in with emergency purchases of US Treasuries to stabilize the bond market,” George Saravelos, the global head of FX strategy at Deutsche Bank, wrote in a note.
I think Trump caved because other nations retaliated harder than he thought they would but mostly because US stock and bond markets started crumbling together. It rapidly became a universal, multi-market meltdown around the world. Even more importantly, as I also wrote, the US was turning into a pariah state along with its beloved dollar:
“Long-term interest rates are gapping up, even as the stock market moves sharply downwards…. This highly unusual pattern suggests a generalized aversion to US assets in global financial markets. We are being treated by global financial markets like a problematic emerging market.”
And that is the damage that is likely to endure because the sudden switch by Trump midday to recover from the disruptions his new tariffs and the retaliation against them suddenly brought on only underscored how unsteady US financial governance now is—how guided by a single person’s daily mood swings. As I put it, Trump was turning the US into a third-world banana republic in mere days to where even the Russians were dancing and laughing on television over the wreckage.
That, no doubt, was where the real fear that cracked through Trump’s brazen ego—nations began to rapidly flee US Treasuries, putting the entire monstrous national debt and the dollar in serious peril. That is a fact of what was rapidly developing. We were likely only one or two days short of a Lehman moment.
Look at how silly the reversal suddenly made Trump’s own arguments sound as to why he was doing all of this:
“This is a GREAT time to move your COMPANY into the United States of America, like Apple, and so many others, in record numbers, are doing. ZERO TARIFFS, and almost immediate Electrical/Energy hook ups and approvals. No Environmental Delays. DON’T WAIT, DO IT NOW!”
Seriously? Zero tariffs? There were retaliatory tariffs everywhere. The only zero tariffs would be for things they made and sold solely within the US. But here is the part that makes his appeal to do it now insane: Why would the board of any company or its CEO decide to invest BILLIONS of dollars into moving manufacturing to the US when US tariffs are constantly on and off, have no rhyme or reason for why they hit the rates they do, sound big and ended limp that very day? Why would they move into an unstable nation like that and spend billions of dollars doing it, knowing it takes years to make all of that happen? You don’t entice businesses to relocate with extreme instability.
Apple announced its move that Trump boasted about because it was already in planning before Trump even took office.
Treasury Secretary Bessent was his usual blithering self, too, in commenting about the sudden heated retaliation that came from China when they did NOT beg Trump for a deal but begged, instead, for a fight:
“So they can raise their tariffs, but so what?”
Well, for starters, I thought you and Trump both said they were desperate to deal. Instead, they’re keeping their tariffs raised, and they have been our largest trading partner and cheapest source of goods for decades; so, this is certainly going to drive inflation up by taking away the entirety of our cheapest source of goods because at the new 100%+ level, virtually nothing is going to trade from China.
China, also, may not be the only nation to keep its retaliation in place. Others did last time and may this time in order to keep the pressure on Trump since he already caved for the next ninety days. Some of those nations may, of course, have agreed over the phone to not follow through with their retaliation if Trump gave the reprieve. We have no idea what the supposed 75 nations who called Trump had to say.
Trump additionally floated an idea Wednesday afternoon that he might consider exempting some US companies from the tariffs, saying those decisions would be made “instinctively….”
How indecisive and made-up on the fly is all of this? Instinctively, rather than thoughtfully with careful planning, says it all. It seems to be how all of this has been figured from the beginning—by nothing more than gut feelings of what will work, just like the DOGE labor cuts.
It was another chaotic move in Trump’s ever-shifting tariff plans and came less than an hour after Treasury Secretary Scott Bessent told reporters that the president’s decision had nothing to do with the turmoil in both the stock and bond markets of the past week, saying that “this was his strategy all along.“
Uh-huh. His instinctive strategy all along.
Trump was pressed on the apparent contradiction and how many aides had previously said this was not a negotiation by saying “sometimes it’s not a negotiation until it is.”
Sometimes it’s not a negotiation until you desperately need an out because you didn’t get a deal, and the whole market just blew up all over your face. Sometimes one needs “alternative facts” to replace the real facts that are not working well, as we recall from the mouth of Kellyanne Conway in the days of Trump 1.0. Trump clearly got a fight he didn’t expect. China didn’t run to the phone to make a deal, as he said they wanted to do (but apparently didn’t know how to dial a phone and get the White House). Bullies pick fights and then run from them when they get their own noses bloodied.
One can say Bessent’s lame response begs the following question: If “this was the strategy all along to do this as a negotiation tactic and then make a sudden reversal when all those 75 calls came in, how were tariffs ever going to be the new tax to replace income tax?
But Trump seemed to acknowledge the market reaction was part of his calculus for announcing the pause, saying he noticed last night in the bond market that “people were getting a little queasy” and “you have to be flexible.”
Yes, that was it. Putting a good face on how you say it is what all the rest is. Those who support him, of course, will believe him, though they would never believe the same thing if Biden had done all of this.
Now, here’s the important part
No matter what you think of Trump’s bluffing game … even if you’re thrilled that you had his timing figured out to “T” for “Trump” so you made bank on stock trades by shorting and buying with perfect timing as the entire Trump family likely did, knowing Daddy owns the power of the pardon and Daddy has absolute immunity, the nation is still badly damaged by all of this if only for one single reason:
US Treasuries have for decades been the safest-haven asset in the world. Now people in other nations (and probably a good many in our own) will be loathe to invest in them because you never know when Lucy will snatch the football and turn the investment you made sour in a heartbeat. Trump has made US Treasuries as unreliable looking as any banana republic’s bonds.
Just like a president can lose political capital, a nation can lose both financial capital and political capital at the same time. For a long time, the US for all its faults was regarded as highly reliable financially and as an ally. As it played with sanctions under Bush, Obama, and Biden, it became a little less so, but only if you were on the wrong side of the nation in some very violent ways that got you designated terrorists or sponsors of terror.
Under Trump, the US reputation has devolved further in terms of financial instability and trustworthiness to a personal level where it is totally unreliable if you are simply on the wrong side of the president. Its financial stability depends on the trick Trump plans to play that day. It’s run like a banana republic by a drug lord now. No drugs in his trades, but similar M.O. minus the hit jobs.
Calvin Yeoh, portfolio manager at hedge fund Blue Edge Advisors Pte, told Bloomberg: “This is a fire-sale of Treasuries. I haven’t seen moves or volatility of this size since the chaos of the pandemic in 2020.”
British economist and former chief adviser to the Bank of England Charles Goodhart told Newsweek: “The longer-term structural problem is that the tariffs will raise U.S. inflation significantly, at a time when the administration wants to cut taxation sharply, is overestimating revenue from tariffs, and is trying to put pressure on the Fed to cut interest rates.
“In addition, what foreigners are likely to want to buy T[reasury] bonds now? So, the underlying structural condition looks to be one of increasing potential unsustainability of the U.S. fiscal position with a significant danger of accelerating inflation.
“Under these circumstances, U.S. T bonds will look increasingly risky over the medium to longer term….
And, in another headline explaining a big part of the dangerous action in US Treasuries …
Hedge funds drive US Treasury selloff amid broad deleveraging and flight to cash
US government bonds came under sharp pressure on Monday, as hedge funds aggressively unwound risk and investors sought the safety of cash, triggering one of the steepest selloffs in Treasuries since the height of the Covid-19 crisis, according to a report by the Financial Times.
The rout, which follows a $5tn plunge in global equities late last week, underscores the mounting pressure across markets in the wake of US President Donald Trump’s aggressive new tariffs targeting dozens of trading partners.
He dang near blew the system up, and he knows it! Bessent certainly knows it as the US Treasury Secretary, and you can be sure he informed Trump of the huge risks that exploded exponentially in the financial market:
Monday’s price action showed risk aversion spreading even into the most defensive corners of the market.
Market participants point to a wave of deleveraging by hedge funds – particularly those involved in US Treasury basis trades
Hedge funds are a segment of the financial industry where we have seen major blowouts from the highly leveraged risks they have taken before. We learn nothing and keep allowing those leveraged risks to build up to the point of becoming the weak section of the boiler that blows out.
“Hedge funds have been liquidating US Treasury basis trades furiously,” said one hedge fund manager, describing widespread unwinds across fixed income. “The scale of the selling is destroying liquidity not just in Treasuries but across high-grade credit and agency MBS.”
Oh, yay! Mortgage-Backed Securities! Remember those from the Great Financial Crisis?
Gennadiy Goldberg, head of US rates strategy at TD Securities, called it an “everything, everywhere, all at once” type of move. “Multi-sector funds are trying to deleverage, which leads to a ‘sell everything’ trade,” he said.
Sell everything! I warned about that. I’ve posted a video about the explosion of danger from hedge funds that was brought about this week and hit a peak due to Trump’s surprise expansion of tariffs early on, which is why he had to backpedal in a huge hurry later that same day. That didn’t last long!
The video also lays out indications that the Fed is already rushing toward a rescue behind the scenes—as always it seems to happen—in case the sudden backpedaling by the brilliant Team Trump doesn’t work because the team didn’t know that, when you put major things like the entire US economy into extreme risk, including Treasuries which see far less demand when international trade seizes up, you might create extreme disruptions in the safest parts of finance—US Treasuries. The video at the top of the latest headlines explains the hedge blow-out well.
It was a rush away from the safest financial instruments in the world in order to find safety!
The liquidity crunch isn’t limited to hedge funds. Traditional asset managers and institutional investors are also moving defensively, offloading fixed income positions to raise cash.
Others agree completely with my assessment about the new danger coming from what the US is becoming under strongman management:
Paul De Grauwe, professor of political economy at the London School of Economics, told Newsweek: “If there is no quick reversal of economic policies, the U.S. Treasuries will indeed lose their safe-haven status. It will not come back soon, as the U.S. government is seen as unreliable much in the same way as governments of banana republics are.“
“The Trump tariffs are one of the most spectacular self-harm decisions a government has made in history,” he added. “It will lead to further negative effects for the U.S. economy. The sell-out of Treasuries is just one in a series of further self-inflicted economic negative events. A recession is now inevitable.”
Investors got the quick reversal they needed; but, even with Trump’s snap retreat barely half a day after his new tariffs went into effect, the damage done by so many major gyrations causing deep distrust of US financial leadership in the world is likely to have a lasting impact.
The simplest explanation is investors selling what they can and hunkering down,” said Ed Al-Hussainy, senior rates strategist at Columbia Threadneedle Investments. “Selling equities now will lock in losses, so the lowest-hanging fruit is to raise cash by selling Treasuries.”
While Treasuries typically offer safe-haven protection in times of market stress, the current bout of volatility is forcing a broader rethink about risk management and portfolio construction — especially as hedge funds face margin pressures and growing redemption risk.
“There’s massive deleveraging going on — any source of liquidity is being tapped,” said the hedge fund manager.
That’s a true fire sale in what was the safest market in the world! Don’t think for a minute that ended with Trump’s ninety-day reprieve because that still keeps the threat of a do-over alive. Thus, unsurprisingly, the 10YR is climbing back toward 4.5%.
“This period of instability will continue for the next couple of weeks,” said Tsutomu Soma, a bond trader at Monex Inc. in Tokyo. “No one knows what shape these tariffs are ultimately going to take and everyone’s looking at US yields to trade — so brace for more chaos ahead….”
“The big fear is an undercutting of confidence in the US bond market,” said Leonard Kwan, a money manager at T. Rowe Price in Hong Kong. “So much of what we do, so much of global financial markets historically, is dependent on the Treasury market as their benchmark….”
The US-China tariff escalation is moving the global financial system into “unchartered territory,” and could cause “outright financial war,” George Saravelos, Deutsche Bank’s global head of foreign exchange research, has warned.
The US worked diligently for decades to build the sterling reputation of iron-clad trustworthiness in its bonds. That got diminished in recent years with the mountainous pileup of debt but just exploded due to Trump’s cavorting with disaster via his huge dictatorial moves.
“We are witnessing a simultaneous collapse in the price of all US assets, including equities, the dollar versus alternative reserve FX and the bond market. We are entering unchartered territory in the global financial system,” he wrote.
This is what had the Russians singing and dancing on television. But it is, as I laid out in the last two days, far from being just risky hedge funds that are tipping things over in their flight to find cash to cover their bets. The whole world of former safe finance is turning over:
Treasury Secretary Scott Bessent has said large leveraged players are being forced to cut their positions. Another theory is that central banks are cutting their holdings of Treasury bonds….
And THAT, the Russians really love! Trump has been a godsend for them! Take it from the Russian press where some of these last quotes came from:
The global market is rapidly de-dollarizing faster than previously anticipated, and it remains unclear “how orderly this process can remain,” Saravelos warned. The current situation appears to be different from a “typical crisis environment,” when the market “would be hoarding dollar liquidity to secure funding for its underlying US asset base,” he noted.
And, as I say, the 90-day reprieve does not end the problem, though it does remove a little heat from under the boiler:
Dynamics here seem to be very different: the market has lost faith in US assets, so that instead of closing the asset-liability mismatch by hoarding dollar liquidity it is actively selling down the US assets themselves,” Saravelos wrote, adding that the actions of the administration of US President Donald Trump have been “encouraging the sell-off in US Treasuries.”
But whatever the ultimate cause, market participants say volatility in the world’s biggest bond market is far from over. Trump’s 90-day pause on his biggest tariffs for most countries — with China being a notable exception — means traders are bracing themselves for a period of prolonged negotiations that could weigh on markets for months.
It’s not over until is all over. That means the ninety days don’t end the ructions. It extends them for, at least, ninety days in which no one knows what will happen with tariffs and, therefore, US Treasuries, which are not much needed if there is no trade with America due to scorching-hot tariffs, are becoming the pariah of financial investments.
Now, if China were to offload all of its US Treasuries, it could blow the boiler up, but doing so would be a suicide mission for them, too, as the value of their own sovereign wealth fund, held in Treasuries, would be badly damaged as they sell off. However …
“The next phase risks being an outright financial war involving Chinese ownership of US assets, both on the official and private sector front. It is important to note there can be no winner to such a war: it will damage both the owner (China) and the producer (US) of those assets. The loser will be the global economy,” he wrote.
If things go badly enough for China as they remain the sole nation under the worst of the tariffs, they might just make such a desperate suicide-bomber/kamikaze move in order to bring the US government down to their own level of suffering by hugely spiking interest rates on the overwhelming US debt that Trump helped heap into a higher mountain during 1.0.
The Russians are hoping.
In the meantime, the world’s most stable and safe investment is now behaving more like a speculative trade than a safe haven.
“The volatility is here to stay,” said Charu Chanana, chief investment strategist at Saxo Markets. “In fact, it will only get more pronounced as we get through a series of negotiations now.”
Some negotiations will go poorly, some will go well, and so things will bounce accordingly, always shaking a little more stability away from US markets. Even with the 90-day tariff vacation suddenly imposed, global bonds traded spasmodically and reactively overnight as the aftershocks rippled around the world:
Bonds from Australia to Japan swung in the wake of a chaotic day in the US Treasuries market, forcing traders to confront the possibility that volatility from trade war jitters is only just beginning.
The ninety days didn’t stop that!
Australia’s three-year bond yields surged on Thursday by the most since September 2022, reflecting the turnaround in Treasuries after US President Donald Trump’s surprise pause on most tariffs. New Zealand’s two-year yields jumped nine basis points (bps), while those on benchmark 10-year Japan yields rose 13bps to 1.40%.
Turmoil in Treasuries, the world’s biggest bond market, can lead to volatility across the world, as traders shift bets on other asset classes and reprice risk.
A swift and sharp sell-off in U.S. Treasuries is rattling global financial markets, shaking the foundation of what has long been considered one of the world’s premier safe-haven assets.
The U.S. Treasury market, valued at nearly $29 trillion, underpins everything from global reserves to corporate borrowing costs. Its stability is central to the functioning of the global financial system. A severe disruption in this market, like the current sell-off, could severely tighten financial conditions worldwide.
In the meantime, the shakeup has also caused a shakedown on Team Trump. Navarro and Lutnick have been sidelined.
Trump is playing with fire, and the damage may be done in spite of Trump’s sudden retreat from his worst actions in his own war and his sudden rearranging of the team. In fact, it is hard to say if that reversal didn’t make things worse by its proof of total unpredictability (other than the fact that the one thing that one can predict from Trump is chaos):
If confidence in Treasuries continues to erode, the U.S. may find itself paying more to finance its debt, exacerbating fiscal pressures at a time of persistent deficits and geopolitical tension….
It leads me to wonder what moves may be forthcoming from credit agencies once they wait a little to see how the dust settles in global bond markets.
“U.S. government bonds were the safe-haven investment for the world’s investors because they were seen as the rock in a turbulent world,” said Paul De Grauwe, a professor in European political economy at the London School of Economics.
“Now the U.S. government is the preeminent source of turbulence and unpredictability. No wonder investors are looking for another rock.“
They may be looking for a rock to hide under. A sudden shift back as the bond market started to rumble and roar badly earlier doesn’t mean the nation is suddenly going to be seen as stable again. On the contrary, it may mean it is seen as even more unpredictable, making its bond market even more of a speculative third-world trade.
Central banks and sovereign-wealth funds and major investors may just say, “The US is too unpredictable now, too mercurial, too based on one man’s temperament. I don’t feel stable there as I did for decades past.”
Credit agencies might say the same thing.
Trump is turning the United States from a bastion of stability into something that looks like a gang-lord banana republic where a strongman makes the rules based on what his orange-hot head tells him on any given day and calibrated based on who he is most mad at. US Treasuries are becoming a speculative vehicle for risk-takers only.
And the world is asking, “Was it really method or is it madness,” and Trump’s hand has been weakened by the backdown, so the argument presented by Leavitt that it was the art of the deal didn’t work:
After Tariff Climbdown, World Asks: Is it Method or Madness?
Deciphering the reasons for the swift climbdown and how much it was premeditated or imposed by the market convulsions of the past few days could be key in determining how world leaders approach the White House in the coming negotiations. Better knowledge of where Trump’s pain threshold lies could lead some leaders to put smaller concessions on the table when negotiations start in earnest.
The president tried to put a good face on caving in, but the world is seeing right through it, and he’s lost negotiating strength because they smell his desperation.
“Everyone will likely conclude that his credibility as a negotiator has diminished,” said Moritz Schularick, head of the Kiel Institute for the World Economy, an independent think tank. “Next time, people will believe him even less and will consider at what point he might buckle again. It certainly hasn’t become easier for the U.S. to negotiate.”
“The origin of the shock was the inept rollout of the trade regime,” said Joseph Brusuelas, chief economist at tax consultancy RSM. “There’s been a loss of credibility and confidence in the US regime and behavior across financial markets reflects that.”
Market insiders attribute the bond market blowup, with higher yields both reflecting fear and leading to dislocations on a number of fronts, to a number of factors: the unwinding of a complicated but popular trade involving interest rate-based products; the fiscal train wreck in Washington that is sapping investor confidence; and the need for hedge funds to raise cash for operating income and to cover margin calls.
As Trump gets schooled on how trade wars work and how bluffing destroys priceless markets by making them hugely insecure and unstable, the damage already done to those markets remains.
“What happened yesterday was the market cheered that the ‘Trump put’ was back,” said Ed Yardeni, head of Yardeni Research. “If he wasn’t paying attention to the stock market, now we know he’s paying attention to the bond market….”
The message was that the tumultuous and inscrutable rollout of the Trump tariffs had instilled far more uncertainty than fixed income investors were willing to tolerate. In turn, some of those investors turned into “bond vigilantes,” demanding higher yields as compensation for the risks they were being asked to take in the normally risk-free highly liquid U.S. Treasury market.
But the Trump put didn’t hold, because, as I said, the stock market’s rocket ride was nothing but a “bull trap.”
“While there has been understandable relief as evidence of a Trump put reemerged following the extreme market conditions that we highlighted yesterday morning, the genie is still out of the bottle on policy unpredictability,” a group of Deutsche Bank Research’s economists and strategists said in a note Thursday….
“The market is reacting too optimistically today, unless Trump announces further tariff reduction and credibly refrains from future retaliatory increases,” Caldwell said in a note Thursday.
“The average tariff rate as of today still stands at around 20%, with the tariff rate on China at around 125% constituting a de facto embargo,” he said, saying there would be some tweaks to the economic forecast, but adding that he was still expecting “a major rise in inflation” and an economic slowdown….
″Even if the tariffs are permanently suspended, damage has been done to the economy via a permanent sense of unpredictability in policy….
“More structurally, the events of the last few weeks will resonate amongst global economic partners during the upcoming negotiations on trade and indeed for many years to come. The desire to build greater strategic independence from the US across all fronts will be here to stay.”
That is a loud chorus of voices all declaring the same outcome. Trump blew it! So, unsurprisingly to readers here anyway, stocks plunged again recently, experiencing no lasting relief, and proving the huge surge was nothing but a monster bear-market relief rally—the kind of bloated overreaction that only happens during the most savage bear markets, which tells you what this ride is going to be.
After President Donald Trump’s tariff pledge last week sent stock prices plunging, pro-Trump influencer Benny Johnson offered his 3 million followers a rosy perspective on the news. “Losing money costs you nothing,” he said on his podcast. “In fact, it builds quite a bit of character.”
Have fun with that! It should be quite a character-building ride. The Dow is down 1900 points again this morning! WEE! That didn’t take long! (Ending the day down over 1000 points with the NASDAQ down 4%.)
Wow! What a ride at the new burn-it-all-down, sell-everything Trump theme park!
There was another free Deeper Dive, essentially, for everyone in order to explain the complexity of all the convolutions that just happened, but from now on people will have to pay to get a deeper analysis.
Read the full article here