The Fire Jerome Powell Market Rout Investors render a verdict on tariffs and politicizing the Fed.

The WSJ Editorial Board:

If the White House wanted a test of how firing Jerome Powell would go over in the markets, it succeeded on Monday. U.S. stocks and the dollar plunged while yields on long-term Treasurys climbed after President Trump renewed his attacks on the Federal Reserve Chairman. (…)

Mr. Trump is furious that Mr. Powell has said publicly that tariffs will likely lead to higher inflation and slower growth. Mr. Trump conceded the growth point on Monday, lambasting Mr. Powell: “There can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW.” (…)

The Powell Fed’s policy is hardly tight in any case. He’s in the process of ending quantitative tightening by no longer shrinking the Fed balance sheet, which amounts to easing. His public message is that the tariffs make fulfilling the Fed’s twin mandates more difficult. That’s undeniably true.

The tariffs will cause at least a one-time increase in the price of tariffed goods, which may become more entrenched if the Fed accommodates them by cutting rates. Meanwhile, they are increasing uncertainty for businesses and consumers, which will slow the economy and hiring. (…)

Mr. Trump thinks he can bully everyone into submission, but he can’t bully Adam Smith, who deals in reality. Markets know tariffs are taxes, and taxes are anti-growth. The Trump tariffs are the biggest economic policy mistake in decades, and extending the 2017 tax reform and deregulation may not compensate for all the damage. (…)

There are also fears that if tariffs fail to reorder the global trading system, Mr. Trump might impose a fee on Treasury debt as chief White House economist Stephen Miran has proposed. This would amount to a partial U.S. default since it would cut the rate of return. Think Treasury yields are rising now? Watch what happens if a Miran fee is imposed.

All of this is tempting economic fate and contributing to a global “sell America” narrative in financial markets. That’s why the dollar is under pressure. Smart Presidents pay attention to market signals and adapt. The adaptation now would be to negotiate a quick end to the tariff barrage. Claim some trade-deal victories, and call it a day.

But markets are spooked because they don’t know if Mr. Trump listens to anyone but his own impulses.

The WSJ Editorial Board, often sympathetic to Trump’s policies, has turned clearly negative. Somebody might be looking for ways to fire them all.

• Trump Is Laying the Groundwork to Blame Powell for Any Downturn

In the real world:

Why It’s So Difficult for Robots to Make Your Nike Sneakers Trump sees tariffs as a way to boost U.S. manufacturing, but Nike’s struggle to move production from Asia is a cautionary tale

President Trump is betting that the threat of stiff tariffs on low-cost countries in Asia and elsewhere will pressure American companies to bring manufacturing—and jobs—back to the U.S.

Commerce Secretary Howard Lutnick has said the administration wants labor-intensive industries to return to the U.S. There will be an “army of millions and millions of people screwing in little, little screws to make iPhones,” he said in a recent interview with CBS.

But high U.S. labor costs mean companies would have to find ways to replace human workers with machines. For some industries, that has proved surprisingly difficult. (…)

Flex and Nike wound up the project by early 2019. By then, Under Armour had stopped mentioning to investors its “Project Glory” mission to make shoes in the U.S. That year Adidas, which had also faced challenges producing complex shoes with robots, said it would close down production in Atlanta and Germany. It shipped its “speedfactory” technology to suppliers in Asia.

The three shoemakers stuck with their original offshore locations—Vietnam, China, and Indonesia. (…)

• Just after the Trump administration raised tariffs on Chinese goods to 145% this month, a truck full of fake eyelashes came to a screeching halt in Mexico, just shy of the U.S. border. “If we pay 145% tariffs we would lose a significant amount of money on every product we send in,” she said. Zeng has two to three months of inventory in the U.S. that she can continue selling. “I think we’re trying to hold out for at least one more month to see what happens. But then we’ll have to make some hard choices,” she said.
• Many are reluctant to make big changes if the new rules are just going to get overturned by a tweet. “When they make a decision, they change their mind, and when they change their mind, they change it again,” said Clifton Broumand, whose company, Man & Machine, assembles waterproof keyboards and mice in Maryland, from Asian and domestic components. He is considering moving that assembly to Malaysia to escape some of the tariff burden, but the uncertainty makes it hard to plan.
• “Basically, what we’re doing is eating our inventory and hoping that it will last us until this gets settled,” he said. “If it doesn’t, we’ll be out of business.”
• Some shipping companies are so concerned about U.S. importers abandoning their cargo and declining to pay shipping fees that they are asking for full payment upfront.
• The [Japan] Ministry of Finance survey was conducted from April 9-15 with 518 companies including those in the auto, steel and service sectors, according to Tuesday’s release. Auto companies said some orders have already been canceled and one firm cut hours for factory workers, while those in the tourism sector said they are concerned that a stronger yen would weigh on inbound visitors, the survey showed.

How Long Will Big U.S. Banks Continue to Lead the World? The trade war threatens the global dominance and growth of America’s megabanks

(…) “We will be in the crosshairs. That’s what’s going to happen,” JPMorgan Chase Chief Executive Jamie Dimon acknowledged on the bank’s first-quarter earnings call. “And it’s OK. We’re deeply embedded in these other countries, people like us,” he added. “But I do think some clients or some countries will feel differently about American banks, and we’ll just have to deal with that.” (…)

“Foreign firms don’t generally have to use the global arms of U.S. banks for high-fee transactions,” said Brad Setser, senior fellow at the Council on Foreign Relations. Amid trade tensions and other cross-border spats, “there could be a chilling effect—in much the same way as Canadians are reconsidering whether they want to take a vacation in the U.S.” (…)

• “The geopolitical power structure is being reorganized under our eyes,” Jens Weidmann, the chairman of Commerzbank AG and previously the head of Germany’s central bank, told a London audience last week. The “exorbitant privilege of the US,” he said — using a phrase coined in Europe more than half a century ago to describe the dominance of the dollar — “may not be carved in stone.” (Bloomberg)

Wider Federal Workforce May Shrink by 1.2 Million, Fed Estimate Shows

The broader US federal workforce could shrink by more than 1 million, according to an analysis from the Federal Reserve Bank of Atlanta, largely reflecting an estimated reduction in those indirectly employed by the government through contracts and grants. (…)

Pitts found those cuts, along with a hiring freeze, buyouts and early retirement options could shrink the size of the full federal workforce, which includes contract and grant employees, by as much as 1.2 million.

More than 2.4 million people were directly employed by the federal government at the end of 2024, before these programs went into effect, the research notes. But more than 8 million people were estimated to be employed either directly or indirectly by the federal government through contracts and grants in February 2025, which greatly expands the pool of workers who could be affected by the cuts, according to the analysis.

Pitts cited estimates from the website layoffs.fyi that show there have been 136,621 “exits from the federal workforce” as of April 1 and another 170,214 in planned staff reductions.

If the employment impact of workers supported through government contracts and grants is proportional to that of those directly employed by the federal government, Pitts said that would suggest a reduction of about 900,000 additional jobs for a total of 1.2 million separations.

The Atlanta Fed estimate is on the high end of similar projections. A separate analysis by Bloomberg Economics published at the end of February found that the total direct and indirect job losses from efforts from the Department of Government Efficiency (DOGE), could reach 535,000 by the end of this year.

Whatever the outcome, it’s likely to take a while for the full scope of the federal cutbacks to be reflected in government employment data. Pitts noted many federal workers are currently on administrative leave, while others selected deferred retirements.

European travellers cancel US visits as Trump’s policies threaten tourism

Source: Financial Times

China Warns Against Trade Deal With U.S. at Beijing’s Expense Beijing’s warning comes as trade talks between the U.S. and several countries get underway

The Wall Street Journal reported earlier this month that the Trump administration planned to use trade talks with other countries to isolate China.

“I am telling you, these countries are calling us up, kissing my ass,” Trump referring to foreign leaders seeking to negotiate trade deals and secure relief from newly imposed U.S. tariffs. He went on to imitate foreign leaders as saying, “Please, please sir, make a deal. I’ll do anything sir”

The Art of the Deal!

China has warned countries against making trade deals with the U.S. that could hurt Beijing’s interests.

“China firmly opposes any party reaching a deal at the expense of China’s interests,” the Ministry of Commerce said Monday, adding that it would respond “resolutely” with reciprocal countermeasures should such a situation arise.

The ministry also said China is willing to strengthen solidarity and coordination with all parties, work together to respond to challenges, and oppose unilateral bullying. (…)

According to reports from The Wall Street Journal, Reuters, and other outlets, the administration is using ongoing tariff negotiations with more than 70 countries to pressure U.S. trading partners to limit their economic dealings with China. This includes asking countries to:

• Disallow China from shipping goods through their territories

• Prevent Chinese firms from establishing operations in their countries to circumvent U.S. tariffs

• Refrain from integrating low-cost Chinese industrial goods into their markets

The goal, as described by administration officials and confirmed by White House sources, is to marginalize China’s economy in exchange for easing U.S. tariffs and trade restrictions. The underlying strategy is to disrupt China’s supply chains and cut it off from global markets, thereby increasing pressure on Beijing to negotiate on U.S. terms.

Trump aides suggest the US can settle its trade differences with allies first — and use the prospect of tariff relief for those countries as leverage to create a united front against China. But there are signs in both Europe and Asia that many governments have revived interest in reaching out to Beijing, rather than ganging up on it alongside Trump. (Bloomberg)

Foreigners have been selling US corporate bonds

Source: BofA Global Research

Foreigners own $19 trillion of US equities, $7 trillion of Treasuries and $5 trillion of US corporate bonds, accounting for about 20% to 30% of the total market, according to Torsten Slok of Apollo Management. The unwinding of those holdings could cause substantial pain.

• Japanese investors sold $20bn of foreign debt as Trump tariffs shook markets

(…) Private institutions, including banks and pension funds, sold $17.5bn of long-dated foreign bonds in the week to April 4 and another $3.6bn over the next seven days, according to preliminary data from Japan’s Ministry of Finance. J

apan holds $1.1tn in US Treasuries across the public and private sectors — the biggest international stockpile in the world — so its transactions are closely monitored and considered a proxy for buying or selling of US government debt.

The recent sell-off marks one of the biggest outflows over any two-week period since records began in 2005. (…)

According to several investors, the fall in US equities would have knocked Japanese pension funds’ allocations to international debt and equity out of balance. As a result, the funds would have been under pressure to sell Treasuries and other US government-backed debt to bring their portfolios back into alignment, they said.

DAMAGE ASSESSMENT:

Ed Yardeni:

On a ytd basis, the 10.2% decline in the S&P 500 has been led by a 21.9% drop in the Magnificent-7. The S&P 493 is down just 5.2% so far.

The forward P/E of the Magnificent-7 plunged about 10ppts since the end of last year from roughly 32 to 22 currently. Over this period, the forward P/E of the S&P 500 has dropped about 4ppts from 22 to 18.

The US Dollar Index has dropped roughly 10% since the start of this year. It is likely to test and find support at the uptrend line that started in 2011.

American Exceptionalism has been most apparent in the global outperformance of the Magnificent-7 stocks in recent years. Foreign investors rushed into them and bolstered the Dollar Index. So far this year, the bear market in the Magnificent-7 may be the main reason for the weakness in the dollar. They are both overdue for rallies.

Understand that Ed’s P/E charts are on forward earnings. Known unknowns.

Especially with this:

US CEO sentiment has deteriorated sharply since January, with April showing the lowest expectations for profit, CapEx, and hiring over the next 12 months.

The share of firms anticipating declines now outpaces those expecting gains across all three categories, signaling rising caution amid growing economic uncertainty.

China’s CATL says it has overtaken BYD on 5-minute EV charging time

CATL has unveiled upgraded battery cells it claims can offer faster charging for electric vehicles than its rival BYD, putting the two Chinese groups ahead of competitors in the race to overcome a major barrier to the shift away from petrol vehicles.

The world’s biggest electric vehicle battery maker said on Monday that a new version of its flagship Shenxing battery cell could offer a 520km range from just five minutes of charging time. 

Last month, BYD shocked the industry by unveiling a charging system that could add about 470km in range to its batteries in about the same time. (…)

At present, Tesla vehicles can be charged up to 200 miles (321km) in added range in 15 minutes, while Germany’s Mercedes-Benz recently launched its all-electric CLA compact sedan, which can be charged for up to 325km within 10 minutes using a fast-charging station.  (…)

The second generation of the Shenxing battery, which boasts a range of 800km on one charge, can achieve a peak charging speed of 2.5km per second, the company said at a media event ahead of this week’s Shanghai auto show. (…)

CATL also unveiled its new sodium-ion battery, which it said would go into mass production in December. The battery brand called Naxtra is able to give a range of about 200km for a hybrid vehicle and 500km for an electric vehicle, according to Huan.  Sodium-ion batteries are seen as a cheaper and safer alternative to the lithium-based batteries widely used for energy storage, because they work better at both very high and low temperatures.

But the amount of energy they can produce relative to their size has long lagged behind lithium batteries, making sodium cells impractical until now. (…)

At the event, Huan claimed the new sodium-ion battery would enable the industry’s shift from “single resource dependence” to “energy freedom” and reshape the global energy landscape.

This is China vs China.

The US Needs to Regain Credibility

My good friend Hubert Marleau’s summary of the recent events:

It may be a blip, but based on Trump’s apparent willingness to pause some of his tariffs, and by demonstrating that he is attuned to the scruples of the capital markets, it is indeed possible that peak uncertainty has already passed. There is a large contingency of market strategists who are of the view that market and industry will keep on pushing and prodding the Administration until Trump finally capitulates and essentially reverses the whole thing, other than the basic 10% tariff rate on the whole world except Canada and Mexico. China, however, will definitely not be so lucky.

In this regard, Bloomberg’s index of trade-policy uncertainty has started to decline. While this is great, concerns remain that the American brand has nevertheless been tarnished.Indeed, America’s international reputation has already been seriously damaged, and the resilience of the American economy considerably undermined.

Big foreign customers of Treasuries, who currently hold about a third of this $30 trillion market, could accelerate their selling, wanting less of what America actually exports the most: US debt. This is bound to increase US Treasury term premia, thereby raising borrowing costs for US taxpayers more than they ought to.

The sharp devaluation of the US dollar so far this year is an indication that global money managers at margin might be losing some confidence in the U.S. as a place to invest and trade. Incidentally, the real rate on 10-year Treasuries has risen 50 bps since April 2 to 2.28% under a deteriorating economic outlook, suggesting that the entire rise was caused by term premium. (…)

The point is that the Americans do not have a divine right to success anymore than the Spartans, the Romans, the French, the Dutch, the Spanish, the Mongolians, the Ottomans or the British believe they had at one time.

The Economic Slowdown:

First, in a period of just three months, economists who responded to a Wall Street Journal’s quarterly survey dramatically slashed their growth forecasts and seriously raised them for inflation for 2025, increasing their estimated probability of recession in the next 12 months to 45% from 22% in January, blaming Trump’s erratic behavior on tariffs.

The Federal Reserve of N.Y. reported that unemployment expectations are at the highest level since April 2020. (…) Goldman Sachs estimates that a 10% tariff rate across the board would increase manufacturing jobs by 100,000, but drag down overall employment by fully 500,000.

The Atlanta Fed has a -2.2% contraction estimate for Q1, while the reputable Peterson Institute for International Economics conjectures that the economy will not grow in 2025 at all, blaming the disruptive effect of tariffs on prices, supply chains, real income and international trade. Based on tariff measures presently in place, the WTO reduced its own world trade growth estimate for 2025 from 3.0% to minus 0.2%, but it could be as low as -1.5% if Trump decided to re-introduce the full rates of his broader tariffs.

Xi’s Anti-Tariff Tour:

Second, by making trade with the U.S. more expensive, Donald Trump has created a powerful incentive for the rest of the world to form closer ties with China, and for those countries to strike non-tariff deals between themselves. In a recent poll, the Singapore-based Yusuf Isaak Institute found that, for the first time ever, a slim majority of the region’s people would ally with China over the U.S. if they were forced to choose.

In this connection, Xi launched a charm offensive in Southeast Asia, signing dozens of new economic agreements with Vietnam, and hopefully with Cambodia and Malaysia. To fight a trade war against China would be impossible to win because it is a formidable foe with immense resources like manufacturing heft, abundant labour and a vast supply of minerals.

The U.S., meanwhile, would need many allies, according to most foreign policy experts, which may be tougher now to accomplish, given that Trump has antagonized them all. Unnecessary concessions might be the only viable path to a coalition under such strictures.

The Decline of “Soft Power”:

“Soft Power” is a persuasive approach to international relations, typically involving the use of financial, economic or cultural influence. The hallmark of US soft power is not quantifiable, but everybody knows it exists and that it can make things happen for the benefit of everyone. Soft power is what won the Cold War for America.

Trump’s foreign policy is dismantling this beacon of freedom and the scaffolding of American soft power that took decades to build by squandering US global influence and goodwill, ceding power to authoritative regimes, ending Radio Free Europe/RadioLiberty and USAID, deporting people illegally, allowing Russia and China to fill the vacuum, insulting allies, indiscriminately taxing importers and blocking exporters, escalating tension within industry, and challenging the Fed’s independence.

These actions have collectively damaged the social construct wherein the world believed in the myth that the US was indeed exceptional when it came to the status of the mighty dollar, promotion of freedom, and protection of the monetary, economic and geopolitical order.

Should this whole edifice collapse, confidence will erode to zero and lead the globe into a tripolar world, which would dangerously and intensively compete for resources to keep its independence. The point is that it is not out of the question that nobody will trust the US not to have overplayed its hand in foreign defense and trade policies, to the point where the rest of the world may have decided that it is no longer to be trusted.

Milton Friedman on Free Trade:

Fred Langan reminded me of the Landon Lecture about free trade that Milton Friedman gave in Kansas on April 2, 1978. Fred extracted two paragraphs that summarized Friedman’s assessment of tariffs:

“The political reason for tariffs is that the interests that press for protection are concentrated. The people who are harmed by protection are spread and diffused. Indeed the very language shows the political pressure. We call a tariff a protective measure. It does protect: it protects the consumer very well against one thing. It protects the consumer against low prices. And yet we call it protection.”

“What about the argument of unfair competition? What about the argument that the Japanese dump their goods below cost? As a consumer, all I can say is the more dumping the better. If the Japanese government is so ill-advised as to tax its taxpayers in order to send us, at below cost, TV sets and other things, why should we as a nation refuse to reverse foreign aid?”

The Tariff Saviour to Fix the Error:

Thus, the only way to avoid the wrath of a rebellious world and a self-inflicted economic slowdown is for Trump to pivot toward postponing tariffs, while negotiating deals. Additionally, the Administration will need to give reassurances that it has competent economic managers, by not only being less disruptive, but by presenting defensible policies with the aim of pursuing tariffs that are actually reciprocal: what they do to us we do to them.

According to Jamie Dimon, CEO of JPMorgan, Scott Bessent is the man in the Administration who should negotiate trade agreements: he’s the one who has a clear eye about what the Administration is trying to accomplish, which is fair trading practices, and the wisdom to engage with Beijing. The US has economic prosperity, rule of law, and the military strength to fix this before it’s too late to repair.

Unfortunately, however, the Republicans are not likely to buck Trump. Bloomberg says that there are two reasons for this. Some actually support what he’s doing because he’s doing what he said he would, while others may disagree with ‘the how’, but not the agenda itself.

There is an elegant way out of this mess that would save face. Arthur Laffer, a Republican supporter, had a quote in the WSJ worthy of consideration.

“Mr. Trump should give a globally televised address announcing to the world that the U.S. is ready to drop its tariff and industry subsidies to zero tomorrow on any nation that does the same. This would be the ultimate reciprocal tariff policy. President Trump and the U.S. would regain the moral high ground in trade disputes; and it would be enlightening to see which supposedly “free trade” nations accept Mr. Trump’s challenge. Who better to pull off what could then become the greatest Art of the Deal negotiation in world history? It would restore a free, fair and unfettered global trading system. Everyone, everywhere would get richer. The American economy would be great again. And Donald Trump would win the 2025 Nobel Peace Prize.”

Can self-proclaimed Tariff Man accept to lose his identity and the “billions and billions” of revenue flows?

The WSJ tells us how Scott Bessent helped last week:

Trump Advisers Took Advantage of Navarro’s Absence to Push for Tariff Pause

On April 9, financial markets were going haywire. Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick wanted President Trump to put a pause on his aggressive global tariff plan. But there was a big obstacle: Peter Navarro, Trump’s tariff-loving trade adviser, who was constantly hovering around the Oval Office.

Navarro isn’t one to back down during policy debates and had stridently urged Trump to keep tariffs in place, even as corporate chieftains and other advisers urged him to relent. And Navarro had been regularly around the Oval Office since Trump’s “Liberation Day” event.

So that morning, when Navarro was scheduled to meet with economic adviser Kevin Hassett in a different part of the White House, Bessent and Lutnick made their move, according to multiple people familiar with the intervention.

They rushed to the Oval Office to see Trump and propose a pause on some of the tariffs—without Navarro there to argue or push back. They knew they had a tight window. The meeting with Bessent and Lutnick wasn’t on Trump’s schedule.

The two men convinced Trump of the strategy to pause some of the tariffs and to announce it immediately to calm the markets. They stayed until Trump tapped out a Truth Social post, which surprised Navarro, according to one of the people familiar with the episode. (…)

The Truth Social post sent the stock market soaring and helped stabilize the Treasury market. Later that day, Trump said he made the decision because financial markets were “getting yippy” and because he was keyed into warning signs from the bond markets. Just hours earlier, he had told people in a separate Truth Social post to “stay cool,” suggesting he might stay the course. (…)

The observation that the best way to influence Trump is to be the last person to speak to him on a particular matter has been widely reported by journalists, former aides, and diplomats who have interacted with him.

Bessent and Lutnick know that Trump is highly susceptible to the advice or opinion he hears most recently, sometimes described as having a “last-in, first-out” approach to decision-making.

In this particular case, Bessent was very much aware of the troubles in the Treasuries market and that only a tariff pause could stop the rout.

He now has less than 90 days to fix the tariff policy and to find “the wisdom to engage with Beijing”. That means keeping Navarro away and finding face savers for Trump and Xi, before soft data become too hard.

And also prevent this:

Trump Studying If Removing Powell Is Option, Hassett Says

Donald Trump is studying whether he’s able to fire Federal Reserve Chairman Jerome Powell, his top economist said Friday, a day after the president publicly criticized the head of the central bank for not moving fast enough to slash interest rates.

“The president and his team will continue to study that,” National Economic Council Director Kevin Hassett said Friday when asked by a reporter if removing Powell was an option.

Hassett went on to suggest that the Fed under Powell, who was appointed by Trump during his first term, had acted politically to benefit Democrats. (…)

The president reiterated his call for Powell to lower interest rates, downplaying concerns about inflation, during an Oval Office event on Friday.

“If we had a Fed chairman that understood what he was doing, interest rates would be coming down,” Trump said. “He should bring them down.” (…)

In a February 5 interview on Fox, Bessent said “He [Trump] is not calling for the Fed to lower rates.”

In a Bloomberg television interview on April 14, Bessent reaffirmed strong support for the Fed’s independence in setting interest rates, saying it is a “jewel box that has got to be preserved.”

John Authers this morning discusses the Trump/Powell situation. After listing several of the recent WH rather strange decisions and actions, Authers writes

The Fed has many issues, but nobody will trust the people behind this catalogue of errors to handle a drastic move to bring it to heel. Trust in the dollar has been shaken in recent weeks. It’s not yet broken. In this febrile setting, firing Powell might finish the job — the mere threat of it was enough to force another leg down for the greenback in early Monday trading:

Ed Yardeni:

On November 1, 2023, the US Treasury, under Treasury Secretary Janet Yellen, announced a reduction in the pace of increases for longer-dated Treasury securities, easing the supply of new bonds. Yellen’s strategy leaned heavily on issuing short-term Treasury bills to meet borrowing needs. The Treasury Borrowing Advisory Committee, which advises the Treasury Department on matters related to the issuance of federal securities, has been recommending that no more than 20% of the Treasury’s marketable debt should be held in Treasury bills. Yellen took the ratio up to 22%.

This tactic was criticized by some, including current Treasury Secretary Scott Bessent, for potentially keeping borrowing costs artificially low ahead of the 2024 election.

When Bessent took over as Treasury secretary in early 2025, he initially criticized Yellen’s approach, arguing it shortened debt maturities too much and clashed with the Federal Reserve’s inflation goals.

However, on February 5, 2025, the Treasury under Bessent announced that it would maintain Yellen’s guidance, keeping longer-term debt issuance unchanged at $125 billion for quarterly refunding auctions spanning 3-, 10-, and 30-year maturities, with no increases expected for “at least the next several quarters.”

Bessent explained his continuation of Yellen’s plan in a February 20, 2025, Bloomberg Television interview, stating that any shift to Treasury’s issuing new debt with longer maturities was “a long way off” due to market conditions, inflation, and the Fed’s quantitative tightening. He suggested a gradual approach, as flooding the market with long-term bonds could spike yields and borrowing cost.

I [Yardeni} will not be surprised if Bessent addresses the recent turmoil in the Treasury bond market by reducing the size of Treasury bond auctions, thus financing even more of the deficit with Treasury bills. The next quarterly refunding announcement is scheduled for April 30. That would certainly push bond yields lower. In effect, this would amount to a policy of Yield Curve Control by the Treasury (YCC-T) rather than the Fed (YCC-F).

As a thought experiment, what if the Treasury issued only Treasury bills?

The Fed would be forced to buy a significant amount (if not all) of them to keep the FFR from rising above its range. Bond yields would fall dramatically unless inflationary pressures resulted, in which case the Fed would have to raise the FFR range. That would immediately increase the cost of financing the Treasury’s debt. Might that put pressure on Congress and the White House to reduce the deficits? Probably not, because YCC-T would effectively bury the Bond Vigilantes.

Bessent should explain to the President that the balance of payments always balances. The flip side of America’s current account deficit are net capital inflows. So for example, last year, the former totaled $1.13 trillion, while the latter totaled $1.26 trillion. This suggests that if Trump succeeds in reducing the trade deficit, foreigners will have fewer dollars with which to buy US Treasuries and other securities.

The world is so complex…

Thomas Friedman in the NYT on April 15:

(…) It’s commendable that the president honors men and women who work with their hands. But when he singles out coal miners for praise while he tries to zero out development of clean-tech jobs from his budget — in 2023, the U.S. wind energy industry employed approximately 130,000 workers, while the solar industry employed 280,000 — it suggests that Trump is trapped in a right-wing woke ideology that doesn’t recognize green manufacturing jobs as “real” jobs. How is that going to make us stronger?

(…) he launched a trade war with no allies and no serious preparation — which is why he changes his tariffs almost every day — and no understanding of how much the global economy is now a complex ecosystem in which products are assembled from components from multiple countries. And then he has this war carried out by a commerce secretary who thinks millions of Americans are dying to replace Chinese workers “screwing in little screws to make iPhones.” (…)

FYI: In a recent poll 80% say “America would be better off if more people worked in manufacturing”, but only 25% say “I would be better off if I worked in a factory.” Back to Friedman:

By attacking our closest allies — Canada, Mexico, Japan, South Korea and the European Union — and our biggest rival, China, at the same time he makes clear he favors Russia over Ukraine and prefers climate-destroying energy industries over future-oriented ones, the planet be damned. Trump is triggering a serious loss of global confidence in America.

The world is now seeing Trump’s America for exactly what it is becoming: a rogue state led by an impulsive strongman disconnected from the rule of law and other constitutional American principles and values.

And do you know what our democratic allies do with rogue states? Let’s connect some dots.

First, they don’t buy Treasury bills as much as they used to. So America has to offer them higher rates of interest to do so — which will ripple through our entire economy, from car payments to home mortgages to the cost of servicing our national debt at the expense of everything else. (…)

The second thing is that our allies lose faith in our institutions. The Financial Times reported Monday that the European Union’s governing “commission is issuing burner phones and basic laptops to some U.S.-bound staff to avoid the risk of espionage, a measure traditionally reserved for trips to China.” It doesn’t trust the rule of law in America anymore.

The third thing people overseas do is tell themselves and their children — and I heard this repeatedly in China a few weeks ago — that maybe it’s not a good idea any longer to study in America. The reason: They don’t know when their kids might be arbitrarily arrested, when their family members might get deported to Salvadoran prisons.

Is this irreversible? All I know for sure today is that somewhere out there, as you read this, is someone like Steve Jobs’s Syrian birth father, who came to our shores in the 1950s to get a Ph.D. at the University of Wisconsin, someone who was planning to study in America but is now looking to go to Canada or Europe instead.

You shrink all those things — our ability to attract the world’s most energetic and entrepreneurial immigrants, which allowed us to be the world’s center for innovation; our power to draw in a disproportionate share of the world’s savings, which allowed us to live beyond our means for decades; and our reputation for upholding the rule of law — and over time you end up with an America that will be less prosperous, less respected and increasingly isolated.

Wait, wait, you say, but isn’t China also still digging coal? Yes, it is, but with a long-term plan to phase it out and to use robots to do the dangerous and health-sapping work of miners.

And that’s the point. While Trump is doing his “weave” — rambling about whatever strikes him at the moment as good policy — China is weaving long-term plans.

In 2015, a year before Trump became president, China’s prime minister at the time, Li Keqiang, unveiled a forward-looking growth plan called “Made in China 2025.” It began by asking, what will be the growth engine for the 21st century? Beijing then made huge investments in the elements of that engine’s components so Chinese companies could dominate them at home and abroad. We’re talking clean energy, batteries, electric vehicles and autonomous cars, robots, new materials, machine tools, drones, quantum computing and artificial intelligence.

The most recent Nature Index shows that China has become “the leading country globally for research output in the database in chemistry, earth and environmental sciences and physical sciences, and is second for biological sciences and health sciences.”

Does that mean China will leave us in the dust? No. Beijing is making a huge mistake if it thinks the rest of the world is going to let China indefinitely suppress its domestic demand for goods and services so the government can go on subsidizing export industries and try to make everything for everyone, leaving other countries hollowed out and dependent. Beijing needs to rebalance its economy, and Trump is right to pressure it to do so.

But Trump’s constant bluster and his wild on-and-off imposition of tariffs are not a strategy — not when you are taking on China on the 10th anniversary of Made in China 2025. If Treasury Secretary Scott Bessent really believes what he foolishly said, that Beijing is just “playing with a pair of twos,” then somebody please let me know when it’s poker night at the White House, because I want to buy in. China has built an economic engine that gives it options. (…)

If Trump doesn’t stop his rogue behavior, he’s going to destroy all the things that made America strong, respected and prosperous.

I have never been more afraid for America’s future in my life.

Some Trump supporters ask:

Is this maybe intentional? The dollar’s role at the center of the global financial system creates what is often called the exorbitant privilege: The United States enjoys a stronger dollar and lower interest rates because financial actors all over the world need to buy dollars and dollar-denominated assets to conduct business. But some economic thinkers around Trump have the unorthodox view that this is actually a burden — as a senator, JD Vance wondered if it could be considered a “resource curse” — because it makes U.S. exports too expensive, and in their view undermines our manufacturing base. Is this some sort of strategy to make us into more of an exporting country? (NYT)

Lael Brainard, director of the National Economic Council from 2023 to 2025 and a vice chair of the Federal Reserve:

If so, it is not a smart strategy. Hitting working families with huge price hikes, raising the risk of throwing the economy into a recession, increasing interest costs on the U.S. debt at a time when the administration is planning to issue trillions of dollars of additional debt for tax cuts seems like a self-inflicted mistake.

(…) a weaker U.S. dollar might support U.S. exports. The problem is that putting tariffs on not just final but intermediate goods as well raises the cost of production for U.S. manufacturers. So even if the dollar were to fall 10 percent, because of the new tariff base line U.S. manufacturers will be less competitive in global markets than they were pre-tariffs.

One can wonder if there is any understanding in the WH of how things work in the real world. Even “clear eyed” Scott Bessent gets confused:

As the president’s tariff announcements started disrupting financial markets, rates on U.S. government bonds were initially falling, and Treasury Secretary Scott Bessent took something of a victory lap about this, saying this would lead to lower mortgage rates and that this was how the administration was shifting benefits from Wall Street to Main Street.

Then that effect reversed, and interest rates started rising as stocks continued to fall.

On April 6, hedge fund mogul Bill Ackman, one of the most outspoken backers of Trump on Wall Street, said he was “totally supportive” of Trump using tariffs as a negotiating tool, but as the trade fight escalated quickly, he recently warned that the president might have gone too far.

He said “America was heading toward a self-inflicted “economic nuclear winter” because of Trump’s steep tariffs, urging a pause for country-specific levies. Business is a confidence game. The president is losing the confidence of business leaders around the globe.”

After Trump announced the 90-day pause on April 9, Ackman wrote on X:

Thank you on behalf of all Americans, this was brilliantly executed by @realDonaldTrump. Textbook, Art of the Deal.

Textbook Art of the Deal? What deal was actually struck on April 9, other than Trump yielding to Bessent’s begging for a Liberation Day pause because the equity, forex and bond markets were in simultaneous routs? “Brilliantly executed”? Maybe the only brilliance was that the pause bailed Ackman out of unhedged positions…

Amid all the known and unknown unknows, thankfully, we now have one certainty: market vigilantes are effective.

A Trump put you say?

Only time and frenetic and complex negotiations will tell. In the meantime, the world has been placed on pause.

EARNINGS WATCH

From LSEG IBES:

59 companies in the S&P 500 Index have reported earnings for Q1 2025. Of these companies, 67.8% reported earnings above analyst expectations and 23.7% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 77% of companies beat the estimates and 17% missed estimates.

In aggregate, companies are reporting earnings that are 5.7% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.3% and the average surprise factor over the prior four quarters of 6.8%.

Of these companies, 54.2% reported revenue above analyst expectations and 45.8% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 62% of companies beat the estimates and 38% missed estimates.

In aggregate, companies are reporting revenues that are 0.5% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 1.2%.

The estimated earnings growth rate for the S&P 500 for 25Q1 is 8.1%. If the energy sector is excluded, the growth rate improves to 9.9%.

The estimated revenue growth rate for the S&P 500 for 25Q1 is 4.1%. If the energy sector is excluded, the growth rate improves to 4.4%.

The estimated earnings growth rate for the S&P 500 for 25Q2 is 8.2%. If the energy sector is excluded, the growth rate improves to 9.7%.

These 59 companies’ earnings were up 10.6% in Q1 on revenues up 6.2%. Of these, 25 were financials with a beat rate of 84%. The other 34 reporters’ beat rate was 55%.

On revenues, the beat rate for the 59 companies was only 54%.

As we all know, this is behind us as a new regime started on April 2nd. The only interest of Q1 results is the base from which we go from here.

Trailing earnings are now $248.80. Current 2025 bottom up estimates are $266.02, +9.6% vs 2024. Forward EPS are $275.24, +9.0% YoY and still up from the March 28 forward EPS of $268.81.

But analysts are busy trying to figure out what’s ahead and, lacking clarity and guidance, their impulse is to “cut” their “forecast” …

…but shave is the word, so far.

  

The reality is they don’t know, because nobody, even the U.S. administration, knows anything.

As expected, CEOs are refusing to provide any forward-looking guidance because of “macro factors” and “unprecedented uncertainty”.

But top-down forecasters are more than shaving, per Bloomberg:

Expectations for global economic growth are souring since Trump’s April 2 “Liberation Day” announcement. At a Peterson Institute event last week, Dynan downgraded her forecast for global growth in 2025 to 2.7% from 3.2%, and 82% of investors surveyed by Bank of America this month expect the global economy to weaken. Goldman Sachs now expects year-over-year global GDP growth of just 1.4% in the fourth quarter — less than half of the 3% growth at the end of last year.

The IMF will slash its own growth forecasts when it publishes its World Economic Outlook on Tuesday. “Our new growth projections will include notable markdowns but not recession,” Managing Director Kristalina Georgieva said on Thursday. (…)

“Trade wars are contractionary for the world economy, and they are also difficult for central banks to manage,” says Kimberly Clausing, also a senior fellow at Peterson. “A global recession is a particularly daunting problem since every country’s reduced demand further harms other countries’ export sectors.”

In other words, in a tightly knit global economy, even bilateral trade fights can have ripple effects.

CONSUMER WATCH

Value Retailers Have Been Waiting for the Higher-Income Consumer. They’ve Arrived. As financial stress mounts, chains like Dollar Tree and Academy that cater to the budget-conscious are seeing more of a new class of shoppers

(…) Those better-off shoppers “are coming because of financial stress,” [Academy Finance Chief Carl] Ford said. (…)

Higher-income households have been spending at a stronger pace in recent months than middle- and lower-income consumers, according to a review of credit- and debit-card spending at the Bank of America Institute. 

But as the economic unknowns continue, how and where the more comfortable consumer spends could change, said David Tinsley, senior economist for the Bank of America Institute. Lower-income shoppers traded down first, he said, but those pressures are rippling up the income brackets.

Value retailers are seeing the shift.

[At Dollar Tree], stronger demand from higher-income consumers helped to offset belt-tightening from other shoppers for the quarter ended Feb. 1. (…)

Dollar General has seen an acceleration in upper-end consumers trading down to its lower-priced items. (…)

Vera Bradley, which usually draws customers from across a range of income levels with bags that cost from $5 to around $300, has seen customers with household income under $75,000 pull back even on lower-priced outlet items while higher-income segments are buying more often and spending more. (…)

The brand best known for its quilted bags and backpacks aims to appeal to all shoppers, he added, but lower-income households squeezed by higher prices for groceries and other necessities are doing less discretionary spending. (…)

The last time this happened was in 2008-09.

Here and there:

Data from Earnest Analytics, which tracked anonymous card data of millions of Americans, showed consumer spending rose 33% at Apple, 26% at Restoration Hardware and 10% at Home Depot this past Saturday compared with the average of the previous four Saturdays.

At Eagle Tire Pros auto-repair shop in La Follette, Tenn., a dozen customers have come in to change tires early to get ahead of higher prices, owner Brandon Johnson said. He rushed to double the usual inventory of many of his tires after the April 2 announcement.

Trucking company J.B. Hunt:

Import volumes picked up at the beginning of the year as companies rushed in inventory to get ahead of the expected tariffs, but activity has more recently slowed as retailers pare new orders and wait to see what happens with duties. The National Retail Federation’s Global Port Tracker has projected that 19 consecutive months of year-over-year growth in U.S. import volumes would end in May, dropping sharply to 1.66 million containers, down 20.5% from 2024. “Our customers continue to plan for multiple what-if scenarios, but most of them are waiting for the dust to settle to determine how tariffs might influence and change their short- and long-term business strategies,” Frazier said.

That’s the pause in action…

Huber Marleau thinks that peak uncertainty may have passed. Ed Yardeni suggests that we may be at peak bearishness:

(…) Granted, there are valid reasons for losing sleep in recent weeks: Donald Trump’s chaotic trade war, American consumers’ depressed confidence readings, global stagflation chatter, panicky bond markets, Chinese deflation, China’s preparations to blockade Taiwan, the Russia-Ukraine debacle, Iranian nuclear machinations, the skyrocketing price of gold, and mounting fears of another Great Financial Crisis.

But the sheer scale of this year’s bull market in terms of angst could be a bubble all its own. If negativity is indeed overdone, then global equity markets may be due for a bounce—or, at worst, choppy stabilization until the dominant risks work themselves out.

One reason for optimism: China’s willingness to sit at Team Trump’s negotiating table. Last week, President Xi Jinping’s government said China is ready to talk trade—with preconditions, of course, including the Republican Party lowering the rhetoric temperature and Trump clarifying exactly what concessions he seeks.

But this step alone could give Trump geopolitical cover to whittle his 145% tariff down to a market-relieving double-digit figure or to suspend it. Hints that US-Japan bilateral trade discussions are progressing might also prompt Trump to pivot away from escalating his trade war.

The bottom line: It might require a stock market meltdown that matches or exceeds the 2008 Lehman Brothers crisis to justify the fever pitch of doom-and-gloom in world markets. There are no clear signs one is afoot.

Hmmm…China’s preconditions are actually more than what Ed says:

China wants to see a number of steps from President Donald Trump’s administration before it will agree to trade talks, including showing more respect by reining in disparaging remarks by members of his cabinet, according to a person familiar with the Chinese government’s thinking.

Other conditions include a more consistent US position and a willingness to address China’s concerns around American sanctions and Taiwan, said the person, who asked not to be identified to discuss internal thinking.

Beijing also want to know that Washington is ready to address some of China’s concerns, the person said. Chief among those is the prevailing perception among Chinese officials that the US has enacted policies designed to contain and suppress China’s modernization.

Beijing also wants the US to appoint a point person for talks who has the president’s support and can help prepare a deal that Trump and Chinese leader Xi Jinping can sign when they meet, the person said.

There is no way that Xi will sit down with Trump risking being Zelinskyed in the Oval Office. And how can Trump provide assurance that he will not later renege on a deal if unhappy about anything China says or does?

Robert Wu, a Chinese businessman in Shanghai, wrote in the NYT on April 17:

(…) Mr. Trump’s main problem is that he and his team evidently — and wrongly — assumed China was so desperate to protect its exports to the United States that it would simply bend to his will. (…)

China under President Xi Jinping has spent years preparing for this expected trade confrontation with the United States, through its messaging at home and by prioritizing technological self-sufficiency, economic security and industrial retooling. In recent months it has taken additional steps to strengthen the economy and promote domestic consumption and is once again embracing China’s leading private sector entrepreneurs, whose dynamism and prominence faded in recent years as the government pursued more state-led industrial development. (…)

His admission that he backed off because investors were getting “yippy” was unwise, showing that he might waver again if the standoff with China persists. (…) Mr. Trump’s negotiating position will weaken by the day as U.S. consumers feel the sting of rising inflation, investors watch their stock portfolios suffer and chief executives see the business outlook darken.

China’s leaders are simply not as vulnerable to domestic pressure as Mr. Trump. This has deep historical, cultural and social roots. Recurring periods of hardship in Chinese history have embedded in the nation’s psyche a capacity for endurance and fortitude. The phrase for this is “chi ku,” or to “eat bitterness.” Younger Chinese today are accustomed to more comfortable consumer lives than previous generations, but chi ku still runs strong. (…)

Instead of voicing worry, most Chinese I know are simply annoyed at the United States and fully support the Chinese leadership’s decision to dig in. In the public eye, Mr. Trump’s assault has only validated the years of official warnings that China needed to prepare for this.

Both China and the United States are trying to change their economic models. China produces too much and wants to shift toward more consumption; the United States consumes too much and wants to produce more. Both transitions are tricky. But it is easier for the Chinese, conditioned to endure hardship, to shift toward producing less and consuming more than for a consumer-centric economy like the United States to move the other way. (…)

A severe downturn in global demand caused by his tariffs would undoubtedly affect the Chinese economy. But he shouldn’t wait around for a call from Beijing pleading for a deal. Mr. Xi can afford to sit tight and blame any economic hardship on Mr. Trump.

Mr. Trump’s boorish, erratic approach has brought him no closer to achieving his unclear trade goals with China. What it has done is raise the risk of a world recession and make China appear like the more stable and reliable economic partner.

So much for the art of the deal.

Foreign Investors in U.S. Stocks

The venerable Ned Davis, NDR’s Founder and Senior Investment Strategist, addresses a common client question about foreign Investors and the US Stock Market. (5 min. from the link above)

• Tariffs and trade tensions could reduce foreign sales to the US, leading to fewer dollars for reinvestment, potentially affecting the bull market and the rising dollar.
• A trade war could lead to stagflation, which historically results in poor stock returns.

BTW, re: immigrants (how the U.S. became the U.S. BTW)

More than half of the top privately held AI companies based in the U.S. have at least one immigrant founder, according to an analysis from the Institute for Progress shared first with Axios’ Alison Snyder. The founders of those companies “hail from 25 countries, with India leading (nine founders), followed by China (eight founders) and then France (three founders). Australia, the U.K., Canada, Israel, Romania, and Chile have two founders each.”

Immigrant AI founders

Data: Jeremy Neufeld and Lindsay Milliken at the Institute for Progress. Chart: Erin Davis/Axios Visuals