Month: March 2025

Enjoy the Good Inflation News While You Can Uncertainty over tariffs will still leave the Fed reluctant to cut rates.

US inflation had a positive surprise for a change, with the headline consumer price index rising by 2.8% in the 12 months to February, compared to January’s 3.0% and an expected 2.9%. Once food and energy are excluded, the “core” measure came in at 3.1%, which was similarly below expectation (3.2%) and January’s outcome (3.3%). (…)

Inflation is declining but very slowly because of obdurate services inflation. This is the breakdown of the CPI headline into its four main components, which can be produced using Bloomberg Economic Analysis (ECAN <GO> on the terminal).

The more sophisticated statistical versions of underlying inflation produced by different teams of Fed economists confirm this picture. The trimmed mean (excluding the biggest outliers in either direction and taking the average of the rest) and the median CPI, produced by the Cleveland Fed, are falling slowly but remain above the 3% upper bound of the Fed’s target.

The inflation of goods and services with sticky prices (which take a while to change and in practice only go upward), as measured by the Atlanta Fed, is also falling, but very slowly. It’s still at a level that’s too high for comfort. They’re all above their highs for the years leading up to the pandemic: (…)

Controversy continues to surround the official measure of shelter inflation, which is gauged from the average of all leases currently in force. Exclude shelter, and the rest of the index is inflating at almost exactly 2%: (…)

Zillow’s index signaled serious inflation and subsequent disinflation, and stabilized more than a year ago: (…)

At any rate, in the short term, the market is working on the assumption that inflation is trending up again. One-year inflation breakevens derived from bond prices suggest inflation will touch 4% over the next 12 months, and average 3% over the next 24. If those numbers prove accurate, it would be very difficult for the central bank to cut rates further:

For the immediate future, tariffs remain the most critical variable: How widely will they be applied, and at what rates? That story unwinds and grows more complicated with every day. Bloomberg’s new Global Trade Policy Uncertainty index confirms intuition that confusion is radically higher now even than it was during Trump 1.0: (…)

The other reason why Fed cuts are probably a long way off comes from the asymmetry of its decisions. Like everyone else, central banks often make mistakes. But erring on the side of leniency, and letting inflation take off, probably appears a much more serious error at present than the alternative hawkish error of hiking and needlessly sparking a recession.

The last mistake the Fed made — in the company of other central banks — was to believe that the inflation of 2021 would prove transitory. It was a dovish mistake. That leads to particular reluctance now to cut without some certainty on tariffs, and on inflationary trends. (…)

The Bank of Canada clearly sided on the inflation mandate yesterday (see below).

Also, Mr. Powell and his FOMC pals found their scapegoat last Sunday when Trump acknowledge that his policies (!!!) might cause a recession.

Wage Growth Tracker Was 4.1 Percent in February

The Atlanta Fed’s Wage Growth Tracker was 4.3 percent in February, up slightly from 4.1 percent in January. For people who changed jobs, the Tracker in February held steady at 4.2 percent. For those not changing jobs, the Tracker in February was 4.4 percent, up from 4.1 percent in January. 

Consumer Angst Is Striking All Income Levels Signs of weakness are showing up in spending on everything from basics to luxuries

Pretty much along the lines of my Monday post Danger Zones. This is the WSJ:

American consumers have had a lot to fret about so far this year, between never-ending tariff headlines, stubborn inflation and most recently, fresh fears about a recession. These concerns seem to be hitting spending by both rich and poor, across necessities and luxuries, all at once.

Take low-income consumers: At an interview at the Economic Club of Chicago in late February, Walmart Chief Executive Doug McMillon said “budget-pressured” customers are showing stressed behaviors: They are buying smaller pack sizes at the end of the month because their “money runs out before the month is gone.” McDonald’s said in its most recent earnings call that the fast-food industry has had a “sluggish start” to the year, in part because of weak demand from low-income consumers. Across the U.S. fast-food industry, sales to low-income guests were down by a double-digit percentage in the fourth quarter compared with a year earlier, according to McDonald’s.

Things don’t look much better on the higher end. American consumers’ spending on the luxury market, which includes high-end department stores and online platforms, fell 9.3% in February from a year earlier, worse than the 5.9% decline in January, according to Citi’s analysis of its credit-card transactions data. (…)

Citi’s analysis of its U.S. credit-card data shows that spending has fallen across most retail categories. In the retail quarter to date, spending plunged 12% and 22% on apparel and athletic footwear, respectively, compared with a year earlier. But even less-discretionary categories such as food retail, aftermarket auto parts and pet retail are seeing moderate declines. (…)

But it isn’t all about tariff fears, or even some broader sense of uncertainty. Many also have less cold hard cash on hand. Checking and savings deposit balances across all income levels have declined over the 12-month period through February and are getting closer to inflation-adjusted 2019 levels, according to card data tracked by Bank of America Institute. Wage growth for all income groups has slowed over the past year, per data from the Federal Reserve Bank of Atlanta. Americans’ inflation-adjusted debt balances are starting to surpass prepandemic levels.

What this means is that consumers generally are less able to absorb shocks, just as uncertainty is soaring. It is hard to blame them for turning cautious, even if that means the economy suffers.

From my March 10 post:

But there are more and more indications that even the affluents are looking for ways to save.

• WMT says that 75% of its market share gains comes from affluent consumers shopping its stores
• Costco membership keeps rising rapidly (+6.8% last quarter) with its parking lots hosting more and more fancy cars (I personally saw a Bentley a few weeks ago).
• Companies of all types are talking of “a more cautious consumer”, including Target, Best Buy Co., Macy’s Inc., Abercrombie & Fitch Co. and Victoria’s Secret & Co.
• “The affluent customer that’s shopping Macy’s is just as uncertain and as confused and concerned by what’s transpiring” in the economy.” (Macy’s CEO)
• The Conference Board survey showed that young consumers — those below the age of 55 — with incomes above $125,000 had the largest declines in confidence, and expectations for the job market fell for the first time since last fall.
• From a recent Wells Fargo Money Study conducted from September 5 to October 4, 2024
  • 67% say they are able to pay their bills but have little left over for “extras”.
  • 50% say they have more debt than they feel comfortable with.
  • 76% of US consumers are reportedly cutting back on spending, up from 67% in 2024.
  • 74% say they have delayed travel plans.
  • 39% say they have put off renovating their homes.
  • 30% have put off buying a home.
  • 87% say now is a good time to save.

The so-called resilient consumer is thus split in 2 camps:

• the less affluents are already squeezed and struggling by the 23% increase in the cost of living since 2019 (food +29%, energy +32% rent +27%),
• and the more affluents who are beginning to feel it and could really retrench if inflation hits hard and/or if equities decline significantly. The wealth effect does work both ways.

CEOs Don’t Plan to Openly Question Trump. Ask Again If the Market Crashes 20%. Behind closed doors, business leaders air plenty of concerns about the administration and its policies

Early on Tuesday, dozens of corporate executives and others assembled at a Yale CEO Caucus not far from the White House just as news emerged that the Trump administration planned to potentially double tariffs on steel and aluminum from Canada. Those in the room responded with a mix of groans and shocked laughter.

“There was universal revulsion against the Trump economic policies,” said Jeffrey Sonnenfeld, a professor at the Yale School of Management, who organized the invite-only summit that included corporate bosses such as JPMorgan Chase’s Jamie Dimon, billionaire Michael Dell and Pfizer’s Albert Bourla. “They’re also especially horrified about Canada.”

That sentiment wasn’t apparent hours later, when many of the same chief executives from the Yale event attended a question-and-answer session with President Trump at the Business Roundtable. There, the exchange was largely cordial and executives didn’t ask the president any pointed questions about his tariff strategy, according to people familiar with the event. (…)

Yet as the stock market enters correction territory and companies rush to stockpile goods and reorder supply chains, few are complaining openly and directly about the president’s trade strategy. That is a departure from the public stances CEOs often took during Trump’s first term, on issues ranging from immigration to climate policy.

In an impromptu poll at the Yale event, the CEOs made it clear that things would have to worsen significantly before they publicly criticized the president. Asked how much the stock market would need to decline for them to speak out collectively, 44% said it would have to fall 20%. Another 22% said stocks would have to fall 30% before they would take a stand.

Plenty want to say nothing under any circumstances: Responding to the same survey question, nearly a quarter of CEOs said they didn’t see it as their role to publicly push back against the administration. On questions about national security, CEOs were more open to critiquing the president. (…)

One reason for the muted critique in this Trump term is that many business leaders welcome Trump’s promises to push deregulation and lower taxes—and hoped the tariff threats would mostly serve as a short-lived bargaining chip, some CEOs say.

Some corporate bosses say they believe they can have more of an impact in talks behind closed doors, rather than in public. They worry public criticism will make them a target of the president’s bully pulpit and prompt him to dig in, not retreat, from his tariff agenda, they say.

“I’ve been struck by how fearful people are and how unwilling they are to speak out. That has just not been true in the past,” said Bill George, a former CEO of medical-device company Medtronic, who remains in touch with executives across industries. “They don’t want to get on the wrong side of the president and his constituents.” (…)

“Trump listens to a chorus, not just one individual,” said Reince Priebus, who served as chief of staff during Trump’s first White House. Priebus was hired this week to be a senior adviser at Centerview Partners to help the boutique investment bank’s clients navigate the new political landscape. (…)

In a survey of more than 300 executives conducted last month, 47% said they were optimistic about the U.S. economy, a 20-point drop from the 67% who voiced optimism in the fourth quarter of 2024, according to the Association of International Certified Professional Accountants, which conducts the quarterly survey. (…)

George, the former Medtronic CEO, said several business leaders he has spoken to in recent weeks say it is nearly impossible to make long-term investments, projections and decisions with so much uncertainty in Washington. Many worry about what could happen to their businesses if Trump and his officials attack them, a reason some companies have considered legal settlements or other moves to win his favor.

BTW, Bloomberg reports:

It would be comforting to report that Trump gave a convincing explanation of his policies when he addressed the Business Roundtable, a group of America’s top CEOs, on Tuesday. But alas we cannot report that — or anything — because the press were unceremoniously kicked out of the meeting.

From my January 6 post Fear:

“Real power is, I don’t even want to use the word, fear.” (Donald J. Trump to Bob Woodward in 2016)

I fear the “word of the year” will be “fear”. (…)

Fear is also a tool in U.S. politics, often used to threaten elected officials performing their civic duties. (…)

Congresspeople must now decide if they vote on the basis of what’s best for the country or what’s best for them personally.

“Can you image what the next two years are going to be like if every time that Congress works its will and then there’s a tweet? Or from an individual who has no official portfolio, who threatens members on the Republican side with a primary and they succumb?” Neal said in a fiery floor speech Thursday night.

“This institution has a separate responsibility based on the separation of powers,” he warned. (…)

There are no friends, no allies anymore. Only supreme objectives that must be achieved, any which way, no debating accepted.

Corporate officers need to balance their own personal political/moral inclinations with an objective assessment of what President Trump might do for the country’s economy and for their respective companies in a world where being friends or not can be more consequential than it normally is.

When did we see a similar movie before?

This time, the arms are fear and money. (…)

Amid much uncertainty, investor fear is understandably totally focused on equity valuations, with many indicators flirting with historically high levels while sentiment measures suggest rampant complacency, if not irrational exuberance.

Is the fear of heights justified? (…)

The fear is thus about the amplifier effect a tariff war could have if and when the economy slows. (…)

My word of the year? Caution!

Sentiment reflects itself on valuation.

Since the 2022 lows, the S&P 500 Index forward earnings are up 13% and the forward P/E 47%, from 15.4 to 22.6. In effect, increased valuation is responsible for some 70% of the Index appreciation since the 2022 low. A repeat is doubtful. (…)

The only sure prediction: it won’t be a tranquil year.

Well, that’s foresight, isn’t it!!!

Investors’ fear of heights amid strong turbulence resulted in a quick 10% drop in the S&P 500 forward P/E. But analysts are also getting worried of their elevated earnings growth projections as Ed Yardeni illustrates:

The fear is particularly obvious in the MegaCap-8 P/E ratios, down 16% so far vs 4% for the ex-MegaCap-8 P/E:

Obviously, people are reducing their equity exposure and are thus selling what they own most.

New York Shopping Trips by Canadians Dwindle Over Trump’s Taunts

(…) Vehicle and truck crossings at the US-Canadian border in western New York are down 13% this year as fewer Canadians make the trip, said Mark Poloncarz, who runs Erie County, which includes Buffalo. The county’s initial sales tax receipts have slipped 7% through mid-February, a $4.9 million reduction in revenue. Poloncarz blames the decline at least partly on a drop in Canadian visitors. (…)

The US is poised to lose about 3 million Canadian visitors this year, a 15% drop that will translate into $3.3 billion of lost spending, according to Tourism Economics.

“The setback will be large enough to affect profits and seasonal hiring in destinations that count most heavily on Canadian travelers,” said Adam Sacks, president of Tourism Economics, a unit of Oxford Economics. (…)

In total, about 20 million Canadians visited the US in 2024, spending $20.5 billion and propping up 140,000 jobs, the US Travel Association estimates.

Already this year, Canadian visitors traveling by car fell 23% in February to 1.2 million, the second straight month of year-over-year declines, according to Statistics Canada. Another drag is coming from the Canadian dollar, which has fallen about 6.1% against the US dollar during the past year. (…)

“We are starting to see groups that typically have trips planned saying, ‘You know, we are going to stay in Canada,’” said Fred Ferguson, chief executive officer of the American Bus Association. (…)

In a survey released last month, polling firm Leger found that almost half of Canadian travelers said they were less likely to visit the US in 2025 compared with last year, a response that was particularly prevalent among people over 55 and higher-income households. (…)

In a subsequent poll, Leger found signs of a broader breakdown. According to that survey, most Canadians have reduced their purchases of US goods and 30% said they considered the US an enemy country. By comparison, 31% said they considered the US an ally. (…)

Bank of Canada Cuts Policy Rate to 2.75% as Economy Faces ‘New Crisis’ Central bank must balance the risk of tariff-fueled higher inflation and the damage to growth from U.S. trade policy, Gov. Tiff Macklem says

(…) “We’re now facing a new crisis,” Bank of Canada Gov. Tiff Macklem said at a press conference, after cutting the central bank’s target for the overnight rate to 2.75%, down after seven straight cuts from 5% just nine months ago.

Trade uncertainty is roiling consumers and business executives, he said. Fresh polling by the central bank, conducted from late January to late February, suggest households are fretting over job security and intend to exert caution in spending; and many businesses have scaled back hiring and investment plans. Macklem said the central bank expects domestic demand in the first quarter to be “quite weak.”

Offsetting the case for deeper rate cuts, Macklem said, is the risk that hefty U.S. tariffs on Canadian imports, accompanied by retaliation from Ottawa, fuel an acceleration in inflation. The Bank of Canada sets rates to achieve and maintain 2% inflation. But short-term inflation expectations among businesses and households have climbed, according to polling data, and firms are reporting higher costs attributed to the trade conflict. (…)

“What we don’t want to see is that the first round of price increases [from tariffs] have knock-on effects, causing other prices to go up,” he added. “That becomes generalized and ongoing inflation. That’s what we can’t let happen here.”

A weaker Canadian dollar would also push prices upward, he added. (…)

The gap between the Bank of Canada’s main interest rate and the Federal Reserve’s policy rate is now at its widest level since 1997. One-fifth of Canada’s economic output is tied to exports to the U.S., and the Bank of Canada has previously warned that a prolonged trade conflict with Washington could knock GDP by 3% over a two-year period. (…)

Ahead of the rate decision, economists were also looking for clues on whether the central bank would put more weight on inflation risks or growth risks. Afterward, economists concurred the central bank leaned toward inflation risks.

Rate policy, Macklem warned, “cannot offset the impacts of a trade war. What it can and must do is ensure that higher prices do not lead to ongoing inflation.”

JPMorgan Strategists Say US Stocks Overplay Recession Risk

US equities are pricing in a recession risk much bigger than credit markets, leaving room for a positive surprise, according to JPMorgan Chase & Co. strategists.

Stock volatility and credit spreads typically move in tandem but have started diverging this year as the S&P 500 slides over fears that President Donald Trump’s policies will derail economic growth. The S&P 500 is currently pricing a 33% probability of a US recession while credit is pricing in 9% to 12% odds, strategists including Nikolaos Panigirtzoglou and Mika Inkinen wrote in a note.

“While there is clearly elevated uncertainty in the near term as the Trump Administration has at least initially prioritized more disruptive polices, the risk is that credit markets are proven right,” they said. (…)

Goldman Sachs Group Inc. and Yardeni Research reduced their S&P 500 targets this week. Teams at Citigroup Inc. and HSBC Holdings Plc downgraded their recommendation on US equities while Morgan Stanley’s Michael Wilson expects the benchmark to drop a near 2% more to 5,500 in the first half of the year. (…)

The S&P 500 moved into its fourth week of selling in a decline that has quickly morphed into a flight from all of last year’s winning bets. Mechanical selling flows, deleveraging from hedge funds and a collapse in sentiment saw stocks since struggling to find a floor so far. (…)

“If US equity ETFs continue to see mostly inflows as they have thus far, there is a good chance that most of the current US equity market correction is behind us,” they wrote.

This chart shows that credit spreads have risen in sync with the decline in the S&P 500 Index (inverted):

The Trump Put Is Kaput!

The epicenter of all this vertigo continues to be the White House. More and more economists are increasing their odds of a recession. We raised ours to 35% a week ago. JP Morgan’s economists raised their odds to 40% today.

We didn’t raise our recession odds today, but we did lower our S&P 500 targets for the end of 2025 and 2026 to 6400 and 7200 from 7000 and 8000. We aren’t cutting our earnings outlook yet, but recession fears caused by Trump Turmoil 2.0 are already causing the forward P/E and forward P/S of the S&P 500 to tumble, led by the valuation multiples of the Magnificent-7.

The stock market started the day with a nice boost from a cooler-than-expected CPI inflation rate. The one-month annualized rate was 2.6%, the lowest since August 2024.

Then stock investors were reminded by the latest tariff tiffs that tariffs may soon boost inflation.

Furthermore, the bond yield mostly rose all day, unnerving stock investors. That’s because the Treasury reported that the US budget deficit for the first five months of fiscal 2025 hit a record $1.147 trillion. It is very disconcerting to see outlays continue to rise faster than revenues, which shouldn’t be happening when the economy is expanding.

Meanwhile, a “Go Global” strategy (as measured by the MSCI All Country World Ex US index) continues to outperform “Stay Home” (the MSCI US). Global investors are clearly signaling that they are finding cheaper stocks overseas with happier earnings stories, particularly in China and Europe than in the United States, currently. That could change if the trade war started by President Trump worsens. No wonder gold continues to be one of the best performing assets right now.

The Bull-Bear Ratio compiled by Investors Intelligence fell to 1.3 during the past week. From a contrarian perspective, that’s a buy signal. The only problem is that the President continues to give investors vertigo. Speaking outside the White House on Tuesday, where he was testing out his brand new Tesla car with Elon Musk, Trump called the stock market “a fake economy.” That’s after he said on Sunday, “you can’t really watch the stock market.”

Potential corporate insider “behind the curtain” signs emerge

The Sentimentrader Corporate Insider Velocity indicator shows the velocity of corporate insider buying versus selling. It takes the 4-week rate of change for insider buys and subtracts the 4-week rate of change for insider sales. This measurement, at times, offers a “hidden” look at insider activity that is not necessarily apparent in straight “insider buys” and “insider sells.”

For the record, this indicator is not intended to be used as a standalone trading system. However, it does have a history of offering “early alerts” that few investors see.

The chart below shows our Corporate Insider Velocity indicator, which looks at open market transactions by corporate insiders of the S&P 500 component stocks. The red dots highlight those rare occasions when the indicator value crossed above 30. The most recent signal occurred on 2025-03-10.

The table below summarizes results and shows subsequent S&P 500 performance signal-by-signal performance.

Again, it is important to emphasize that many factors influence the stock market and that a rare signal from a somewhat wonky indicator should not be relied upon solely as a basis for buying stocks. With that caveat and the other regarding minuscule sample sizes in mind, the results are compelling and suggest that investors at least remain open to the bullish case despite recent market weakness. (…)

Does this shift constitute a “buy” signal in and of itself? Not necessarily. But the history – though small in sample size – suggests that investors should be paying attention.

Trump Takes On Ireland Over Trade at St. Patrick’s Day Event

The Irish prime minister went to the White House Wednesday with a crystal bowl overflowing with green shamrock—and a mission to protect his country’s American-fueled economic boom from President Trump’s tariff onslaught.

Trump’s response: We want our companies back. (…)

Ireland is seen as among the most vulnerable to the next phases of Trump’s tariffs plan, which could see all European Union goods hit with levies.

Ireland’s goods trade deficit with the U.S. has soared and is now the largest in Europe. The tiny nation with deep connections to the U.S. has been making a fortune off low-tax plays by American companies such as Pfizer and Apple. (…)

“This beautiful island of five million people has got the entire U.S. pharmaceutical industry in its grips,” said Trump on Wednesday. “There’s a massive deficit that we have with Ireland. We want to even that out.” (…)

“April 2 is going to be a very big day,” he said, referring to the day he has said more tariffs could begin. “The United States of America is going to take back a lot of what was stolen from it by other countries.” (…)

The U.S. trade deficit in goods with Ireland jumped to a record $87 billion last year, according to U.S. Census Bureau data, overtaking Germany, the EU’s traditional export powerhouse. That is despite Ireland having a population of 5.4 million, versus Germany’s nearly 85 million. Only China, Mexico and Vietnam have larger goods-trade imbalances with the U.S.

A surge in pharmaceutical imports is driving the deficit. U.S. companies are likely producing drugs including popular weight-loss treatments at Irish factories and sending them back home, said Brad Setser, a senior fellow at the Council on Foreign Relations.

Ireland’s pharmaceutical exports to the U.S. rose 42% last year to $50 billion, according to U.S. trade data. That’s roughly equal to U.S. passenger vehicle imports from Mexico. (…)

Trump has singled out pharmaceuticals as a potential target for sectoral tariffs. Alexander Valentin, senior economist at Oxford Economics, calculated Ireland’s pharmaceutical output would drop by 12% if tariffs are levied on the sector at 25%.

Many large U.S. pharmaceutical companies report owing little to no tax on their U.S. operations despite making the bulk of their revenue there, according to Setser, thanks to tax setups in Ireland and places such as Singapore.

A tax overhaul by Trump in his first term, meant to discourage tax dodging by U.S. companies, unintentionally renewed the flight of companies to Ireland. Trump cut the U.S. domestic corporate tax rate to 21% and imposed a minimum 10.5% rate on worldwide profits. But the lower rate on income from abroad, along with favorable Irish rules around intellectual property, encouraged some companies to move even more business to Ireland.

The shifting of IP has caused huge distortions to Ireland’s economic data, a phenomenon known as “Leprechaun economics.” It also leads to quirks in the U.S. data: The largest trade partner of Indiana—where drugmaker Eli Lilly is based—is Ireland.

The activity isn’t all on paper. U.S. companies directly employ 211,000 people in Ireland, according to the American Chamber of Commerce Ireland. (…)

In recent years, foreign-owned companies have contributed more than 80% of Ireland’s corporate tax take, according to the government’s revenue department.

Tariffs or a further cut in the U.S. tax rate could encourage U.S. companies to book more of their profits in America, a blow to the Irish treasury, said Gerard Brady, chief economist at the Irish business lobby group Ibec. But he doesn’t expect U.S. companies to abandon the Irish operations they have spent years building.

“Those sites take 10 years to build and get regulated and up and running. They wouldn’t be easy to move,” he said. “And without them being here, you wouldn’t have the level of profitability which feeds back to U.S. shareholders.” (…)

BTW:

Judge Halts Trump Order Targeting Law Firm Perkins Coie Administration improperly targeted the firm based on its clients’ political positions, according to a court ruling

A federal judge blocked most of a White House executive order punishing Perkins Coie, saying the administration had put itself at odds with the First Amendment by targeting the law firm based on President Trump’s dislike of its work for his political opponents.

U.S. District Judge Beryl Howell in Washington, D.C., issued her decision in lengthy remarks at the end of a Wednesday hearing, excoriating the administration for an order that she said likely violated the Constitution on multiple fronts and threatened to undermine bedrock principles of the U.S. legal system, namely that even the unpopular or politically disfavored are entitled to protection and representation under the law.

Howell, who was nominated by President Barack Obama, issued a restraining order that prevents Trump from blocking the firm’s access to federal buildings and stripping its clients’ government contracts.

She said Trump’s order had the potential to ripple through the legal industry, sending the message that law firms represent the president’s enemies “at their own peril.”

“I’m sure many in the legal industry are watching in horror what Perkins Coie is going through here,” Howell said.

Law firms have been in the president’s crosshairs since he took office, and Trump recently pledged to target several firms. He has issued a narrower order aimed at another large firm, Covington & Burling, which has provided legal services to a former special counsel, Jack Smith.

Trump’s March 6 order said Perkins Coie had engaged in “dishonest and dangerous activity,” citing the firm’s work for Hillary Clinton in her failed presidential bid, including its role in working with an opposition-research firm that compiled a discredited dossier against Trump. The president also criticized the firm for working with liberal donor George Soros and adopting internal diversity initiatives.

In Wednesday’s hearing, the Justice Department said the president has the power to decide who is a national security risk, a determination that led to the executive order. “We absolutely believe he has that power,” said Chad Mizelle, Attorney General Pam Bondi’s chief of staff.

Perkins’ attorney, Dane Butswinkas, said the order had put his client in financial peril. “It will spell the end of the law firm,” he said.

Trump’s order directed government agencies to require that contractors disclose any business they do with Perkins Coie. The president also instructed agencies to terminate any government contract “for which Perkins Coie has been hired to perform any service.”

The firm said agencies already have asked its clients to disclose whether they have relationships with the firm. Perkins said it has lost several major clients within a matter of days and is at risk of losing others, many of whom compete for government contracts.

Mizelle said that Perkins Coie was only speculating on potential harms and that clients may choose to leave for reasons other than the order, including because there is a new administration.

Major law firms have been reluctant to challenge Trump publicly, but a coalition of 20 state attorneys general filed a brief supporting Perkins, saying the executive order sent a “menacing message to attorneys nationwide.”

Fear is the word!

Job Openings Stabilize in January, but Likely Short-Lived

The first Job Opening and Labor Turnover Survey for 2025 showed the labor market maintained solid momentum heading into the year. Job openings rose slightly to 7.7 million, and the ratio of jobs-per-unemployed worker ticked modestly higher to 1.13. Layoffs and discharges remained historically depressed at just 1.0% of total employment, and the recent sideways trends in the hiring rate and quits rate are welcome compared to the downward slides that punctuated most of last year.

Yet while today’s JOLTS report offers further evidence that the jobs market started the year in decent shape, headwinds have emerged more recently. The low rate of hiring leaves the jobs market in a vulnerable position to a renewed deceleration in labor demand.

The more up-to-date Indeed Job Postings point to much lower JOLTS number in March/April. With this low hiring rate…

How Do You Like the Trade War Now? Trump is furious that Canada won’t take his tariffs lying down.

The WSJ Editorial Board:

President Trump wanted a trade war with the world, and Americans are getting it, good and hard. (…)

North Americans awakened Monday to the news that Ontario premier Doug Ford said he was raising the price of his province’s electricity exports to the U.S. by 25% in response to Mr. Trump’s on-and-off 25% tariffs on Canada. That’s a hit to consumers in the U.S. Midwest and Northeast.

Mr. Trump went ballistic, even by his standards. (…)

The U.S. sources about two-thirds of its primary aluminum and 60% of scrap aluminum imports from Canada. Both are used by secondary U.S. aluminum manufacturers and fabricators, which oppose Mr. Trump’s tariffs. They have a hard enough time competing against lower-cost producers in China and Turkey.

Canada makes up a smaller share of U.S. steel consumption (about 6%). But Mr. Trump’s tariffs will still raise costs for steel users that depend on Canadian supplies. Hot-rolled coil steel prices are up a third since Mr. Trump took office because U.S. manufacturers like Cleveland-Cliffs and Nucor have raised prices in anticipation of tariffs.

Commerce Secretary Howard Lutnick said over the weekend that the President’s tariffs would make some foreign products more expensive but “American products will get cheaper.” Huh? Companies that use foreign components will have to raise prices or swallow narrower profit margins. Does Mr. Lutnick understand, well, commerce?

Domestic manufacturers that compete with foreign goods will raise their prices to take advantage of the protectionism to increase their margins. A study in the American Economic Review found that consumers paid $817,000 for each new manufacturing job created by Mr. Trump’s washing machine tariffs in his first term.

And Mr. Trump is only getting started as he prepares to take his trade war global. He promised Tuesday to “substantially increase” tariffs on cars on April 2, which he said would “essentially, permanently shut down the automobile manufacturing business in Canada.” So first he whacks U.S. auto makers with tariffs that raise their production costs, then he tries to shield them from foreign competition by whacking American consumers.

Ontario’s Mr. Ford at least showed some maturity late Tuesday, saying he’ll suspend his 25% tax on electricity pending talks. He and Mr. Lutnick plan to meet Thursday about renewing the USMCA trade agreement, which comes up for review next year. Stocks pared some of their losses after the news.

The trouble with trade wars is that once they begin they can quickly escalate and get out of control. All the more so when politicians are nearing an election campaign, as Canada now is. Or when Mr. Trump behaves as if his manhood is implicated because a foreign nation won’t take his nasty border taxes lying down.

We said from the beginning that this North American trade war is the dumbest in history, and we were being kind.

• Is Trump Throwing It Away? His tariff circus undermines U.S. standing just when it would be most useful.

(…) A few short weeks have seen Mr. Trump, to continue his favorite metaphor, scattering his best card to the winds. The U.S. has been the best-functioning, most innovative economy in the world at a time when its rivals and partners are all struggling for different reasons.

He’s throwing it away with his tariff policy.

Canada was about to elect a more Trump-minded government until Mr. Trump revived its Liberals with his trade warfare. Germany just elected its most promising government in a generation, yet Mr. Trump is attacking Europe and NATO’s joint prosperity at the very moment Europe is becoming a partner worth having again.

Mr. Trump’s program of noisy, chaotic gestures has always raised the question: Is there anything coherent behind it? (…)

• Trump’s Economic Messaging Is Spooking Some of His Own Advisers President’s team receives flood of calls from business executives concerned about the mixed messaging on tariffs

Senior officials, including White House chief of staff Susie Wiles, have received panicked calls from chief executives and lobbyists, who have urged the administration to calm jittery markets by outlining a more predictable tariff agenda, according to people familiar with the discussions. Many in the business community have abandoned efforts to get the president to reverse course on trade, instead pleading with the White House for clarity on his approach, the people said. (…)

The mixed messages from the president and his advisers have raised concerns among some Republicans that Trump lacks a cohesive economic plan. (…)

Trump’s aggressive approach to tariffs has unnerved some Trump administration economic officials, including staff on the National Economic Council, who are concerned that tariffs and uncertainty over trade policy are tanking the stock market and fueling price increases on everything from energy to construction materials, people familiar with the matter said. The president’s economic advisers have warned him that tariffs could hurt the market and economic growth, but he has largely been undeterred, the people said. (…)

The spate of tariff proclamations and the resulting economic convulsions have brought to the surface long-simmering tensions among members of Trump’s economic team. (…)

In one instance last week, Lutnick went on Fox News and announced that Canada and Mexico could soon strike a deal with the U.S. to avoid some of the 25% tariffs Trump had imposed over fentanyl trafficking. That surprised Greer and CEA staff, leaving them rushing to come up with a solution, eventually persuading Trump to grant a one-month pause on tariffs for goods that comply with a U.S.-Mexico-Canada trade agreement, according to people familiar with the matter. (…)

On CBS News on Tuesday night, Lutnick defended the administration’s rollout of its trade policy, saying: “It is not chaotic, and the only one who thinks it’s chaotic is someone who’s being silly.” (…)

In Trump’s first term, he watched the markets almost hourly, and even a temporary dip could lead to a change in policy, former senior administration officials said. This time, he is still interested in the markets, but is less inclined to abandon his tariff plans, though he has delayed the implementation of some duties, an administration official said. (…)

“We don’t know what this is gonna look like tomorrow,” said Sen. Mike Rounds (R., S.D.), adding that he is “very frustrated” by the uncertainty that the tariff agenda is foisting on farmers and businesses in his state. (…)

“Swinging from one extreme to another is not the right policy approach,” Chevron CEO Mike Wirth told an energy conference in Houston on Monday. “We have allocated capital that’s out there for decades, and so we really need consistent and durable policy.” (…)

Funny he did not also say “sensible”…

Walmart Faces Heat From Beijing After Demand for Price Cuts

Chinese authorities summoned Walmart Inc. executives on Tuesday over reports it asked suppliers to bear rising costs incurred by increased US tariffs.

Several Chinese authorities, including the Ministry of Commerce, have met with the US retailer to learn about its negotiations over price cuts with suppliers in China, according to a post by Yuyuantantian, a Weibo account affiliated with state-run China Central Television that regularly signals Beijing’s thinking about trade.

The post said such demands risk fracturing the global supply chain and hurting the interests of both US and Chinese companies and of American consumers. It also hinted that Walmart could expect more actions from Beijing if it continues to do so. (…)

Bloomberg reported last week that Walmart asked some suppliers for major price reductions as a way to insulate American consumers from higher levies on Chinese goods. (…)

The stakes are high for Walmart. Unlike many global retail brands that have lost their historical dominance in China to local competition, Walmart has defied the country’s consumption slump with robust growth for its membership store Sam’s Club through the sale of premium cuts of meat and other high quality foods increasingly favored by China’s middle class. (…)

The CCTV-affiliated post said Walmart sourced around 60% of products from China and warned that being condescending to Chinese suppliers could prompt local consumers to seek out alternatives.

“Chinese consumers know how to look for the suppliers that make Walmart’s products and purchase directly from them,” the post said.

Any demands on suppliers, if true, would be bad for Walmart’s operations and developments in China, the post said. (…)

Chinese exporters are resisting any moves to cut their prices further as they already have razor-thin margins due to Walmart’s strategy of sourcing goods at a low price to stay competitive. (…)

China Says US Owes ‘Big Thank You’ on Fentanyl, Calls for Talks

China said it has forcefully cracked down on the fentanyl trade and condemned President Donald Trump’s tariffs, as the world’s two largest economies remain at odds over the conditions for any talks to cool tensions.

Officials from China’s Foreign Ministry and the Ministry of Public Security said in a briefing on Wednesday the country has achieved success in controlling the drugs and done all it can for the US. The officials asked not to be identified discussing sensitive matters.

A Foreign Ministry official said Beijing has done the US a favor and Washington should have said a “big thank you” instead of slapping levies on Chinese imports. He also called on the Trump administration to return to dialogue and expressed willingness to continue working with the US.

Talks between the US and China on trade and other issues are stuck at lower levels, with both sides failing to agree on the best way to proceed. (…)

Is Trump Taking a ‘Liquidationist’ Approach to the Economy? The administration’s view that damaging the economy now could help it later comes with little upside for investors

During President Trump’s first term, stocks rode high on the belief that he would always pull back on policies that led to a selloff. Now, the administration is making a much tougher pitch: that even if tariffs and budget cuts cause a period of havoc, there are unexpected gains to be made on the other side.

The problem is there isn’t much evidence to make investors believe that. Indeed, such views edge close to the “liquidationist” approach historically espoused by laissez-faire economists, and most infamously associated with former President Herbert Hoover’s Treasury secretary who advised him to let the economy fall. (…)

Treasury Secretary Scott Bessent has spoken about the need for the economy to undergo a “detox period” from fiscal stimulus. (…)

The moves mark a clear break with Trump’s tariffs eight years ago, which were rolled out slowly and only after aggressive tax cuts that had spurred growth. During that period Trump was also seen as eager to strike a deal with China to diffuse trade tensions that had led to market declines. (…)

Bessent said that equity investors must stop thinking about a “Trump put” and embrace a “Trump call” instead. That is, a bet that stocks will see a surge once economic misallocation is purged out of the system.

The theory does have some backers on Wall Street: In a research note sent to clients Monday, economists at Morgan Stanley argued that short-term pain for stock markets could be offset by a longer-term gain by the end of this year and into next year, as the shift from public to private spending stokes a broad-based rally that is less reliant on a few technology megacorporations. (…)

Could the Trump administration feasibly engineer a more sustained domestic-investment boom through its efforts to reshore production, particularly if the U.S.’s wide trade deficit narrows? Possibly, but its erratic tariff policies so far are a poor instrument for doing so, only blunting incentives for investment by raising uncertainty. (…)

Currently, however, it is Trump’s tariffs that risk stoking inflation, making it harder for the Federal Reserve to cushion any blows by lowering interest rates.

Investors are clearly unimpressed with the liquidationist turn in policy. They can be forgiven for thinking that the Trump administration’s call option will expire worthless.

Ed Yardeni:

Uncertainty typically increases in advance of a presidential election then decreases once the new president’s policy goals are clearer. If uncertainty lingers, then consumers may pull back on spending and companies might be reluctant to invest, ultimately hurting the jobs market. The stock market is increasingly discounting this scenario, pushing the Nasdaq into correction territory with the S&P 500 heading in the same direction.

Consumers are getting anxious. According to the New York Fed’s February consumer survey, more households were expecting their financial situation to deteriorate over the coming year. Following the November election, they were the most optimistic about their financial situations since just before the pandemic. Positive financial expectations tend to inversely track consumers’ inflation expectations, which are creeping higher probably reflecting the likelihood that tariffs will raise prices.

We are still betting on the resilience of the US economy, but we’ve clearly warned that prolonged tariff turmoil could dim the economic outlook and cause a bear market in stocks. For now, the labor market still looks to be in good shape, which will continue so long as US companies are able to continue growing their earnings and feel confident enough to invest. The percentage of small business owners saying its a good time to expand remains elevated, but near-term capital spending plans dropped sharply last month.

Credit markets have also become angsty in recent weeks: spreads widened along with declining equities (inversed) while T10 yields dropped 60 bps. Widespread uncertainty and worries.

• Employee confidence — as measured by workers’ confidence in their employer’s business outlook — fell to a record low in February, according to new data from workplace review platform Glassdoor.

The eroding confidence extends beyond DOGE anxiety. Employee confidence increased in fewer than half (10) of the 24 sectors tracked by Glassdoor in February, including health care, which has been responsible for a significant share of job gains in recent months. (Axios)

Data: Glassdoor. Note: Index based on monthly average of 50,000 to 60,000 ratings. Chart: Axios Visuals

FYI:

On Tuesday, Citi analysts said U.S. exceptionalism has paused under the Donald Trump administration. While downgrading U.S. equities, the firm upgraded China stocks to overweight, citing the DeepSeek AI breakthrough, government support for the technology sector and attractive valuations.

On Monday, an analyst highlighted a shifting trend in China after robust February EV deliveries. Battery electric vehicles (BEV) are outpacing plug-in hybrid vehicles (PHEV) in a reversal of recent trends, RBC Capital Markets analyst Tom Narayan said.

BYD (BYDDF), which makes both BEVs and PHEVs, saw a 164% sales boom last month. Its startup rivals, including Li Auto, also grew February EV deliveries, while Tesla‘s (TSLA) sales fell to the lowest level since July 2022. (…)

Trade Wars Won’t Make American Farming Great Again The US trade war will hurt food exports and increase the agricultural trade deficit.

Across the US grain belt, the vast majority voted for President Donald Trump last year, embracing his “Make America Great Again” slogan even more enthusiastically than other demographic groups did. Yet, there isn’t anything great about the American farming industry — and Trump is to blame for a lot of its recent decline.

The deterioration is clear on many measures, but one stands out. For decades, the US exported more foodstuff than it imported. It was, to borrow the slogan of one of the country’s top commodity traders, a “supermarket to the world.” Not anymore. (…) America hasn’t seen three straight years of agricultural deficits since Dwight Eisenhower was in the White House.

With Trump’s second term, those agricultural deficits are likely to become permanent. Trade wars are bad for the US agricultural sector. And the White House should know it; or probably knows, but it doesn’t care. Every time the government has embarked on one, the US has lost market share in global agricultural markets. (…)

Presidents Barack Obama and Joseph Biden at least didn’t hurt the sector. In between, President Trump not only neglected it, but hurt it via his original trade war with China. Beijing responded to Trump’s tariffs by targeting its imports of American foodstuffs — suggesting the Communist Party, previously nervous about stoking inflation, is confident it can feed its nation from elsewehere.

Now, Trump is causing more harm. Not only he is fighting a trade war against China, currently the third-largest buyer of US agricultural commodities, but also against Mexico and Canada, respectively the first- and second-largest importers. Together, the three nations purchased nearly half of all US food exports last year. (…)

It gets worse — because Trump’s tariffs on Canada will the cost of fertilizers. The US imports more than 80% of its potash, a key crop nutrient, from Canada. Acknowledging the damage, Trump recently lowered the tariff on Canadian potash to 10% from 25%. Still, the cost increase of a must-have input will further damage the farming economy. (…)

The previous trade war cost American farmers about $27 billion, according to a USDA study. The number will be larger this time, with Beijing already targeting food for retaliation. The American Farm Bureau Federation, the most powerful institution representing the country’s rural areas, has broken with its traditional support for Republican presidents, warning Trump he’s making a mistake. “For the third straight year, farmers are losing money on almost every major crop planted,” it said earlier this month. “Adding even more costs and reducing markets for American agricultural goods could create an economic burden some farmers may not be able to bear.”

The Trump administration should read a 1983 government report analyzing the impact of American food embargoes and trade spats in the 1970s and 1980s, under Presidents Richard Nixon and Jimmy Carter. The three lessons are crystal clear – and as applicable in 2025 as they were half a century ago. The US became viewed as an “unreliable” world supplier of agricultural commodities; the report found that “major countries that compete with the United States in the world grain and soybean markets expanded their production and exports of these commodities so as to capture a growing share of the world trade”; and the US government “incurred costs to cushion the adverse effects” of the trade policies. Rinse, wash, repeat.

The US’s agricultural rivals, notably Russia and Argentina, have room to expand — even more so if Chinese capital helps. Argentina is the must-watch nation. It’s never previously threatened the US because local politics, via large export taxes on grains and oilseeds, curbed the full development of its agricultural sector. Ironically, Milei, a free-market-supporting politician who’s close to Trump, could be poised to unleash Argentina’s potential.

American farmers face many enemies — foreign and domestic. But, ultimately, the US rural electorate is getting what it voted for.

• USAID Is Unraveling and US Farmers Are Collateral Damage The Iowans, Minnesotans and Kansans who sell food to the hunger-fighting agency are watching their crops go to waste.

USAID has been struck by the full fury of President Donald Trump, who attacked not only the agency’s existence but its reputation, calling its leaders “radical lunatics” and accusing it, without evidence, of massive corruption.

That charge has been echoed by Elon Musk, head of the so-called Department of Government Efficiency. Musk — who is neither an accountant nor deeply experienced in the workings of Washington agencies — has declared USAID to be “evil” and a “criminal organization” that is “beyond repair.” (No formal charges of wrongdoing have been made and many of the diatribes launched have been incorrect or misleading.)

After a three-week barrage, USAID is in tatters. Its doors are shuttered, its offices closed, its grants canceled. Thousands of staff have been put on administrative leave, leaving desperately needed projects in limbo.

Their pain is shared by American farmers, who supply more than 40% of the food that USAID sends around the world: corn, wheat, soybeans, sorghum and peas. In 2024 alone, the agency paid US farmers $2 billion for those crops. (…)

As Aaron Lehman, president of the Iowa Farmers Union, put it, “USAID is important for farmers. The grain goes all over the world with USAID.” Farmers were already suffering from low crop prices, especially for corn and soybeans, and were depending on those global USAID contracts. (…)

Minnesota Representative Angie Craig, the ranking Democrat on the House Agriculture Committee, said more than 550 million metric tons of food is now sitting in ports and storage facilities, unable to be delivered. (There is little farmers hate more than wasted food.)

Kim Barnes, chief financial officer of the Pawnee County co-op in Kansas, where he has worked for 51 years, said he has never seen financial impropriety on the grain side of USAID.

“My concern is these will be potential markets we’ll lose, and people will go hungry,” he said. His idea of USAID is a simple one: “We help you today, get you back on your feet and you could be a purchaser down the road.” (…)

FYI:

FYI #2: