Though the gains have reversed and turned to losses as I write Tuesday afternoon, stocks ripped higher this morning on hopes that trade deals will be getting done.
From The Wall Street Journal:
Treasury Secretary Scott Bessent said the Trump administration was open to negotiating deals to reduce tariffs, and denied the market selloff had led the White House to change its approach…
“I would say the negotiations are a result of the massive inflow of inbound calls to come and negotiate,” he said…
“I think you’re going to see some very large countries with large trade deficits come forward very quickly,” he added. “If they come to the table with solid proposals, I think we can end up with some good deals.”
Here’s a question…
Vietnam has proposed lowering its tariffs to zero. Is that a “good deal”?
Not according to White House trade advisor Peter Navarro. Here was his response yesterday:
When they come to us and say, “we’ll go to zero tariffs,” that means nothing to us because it’s the nontariff cheating that matters.
It means “nothing”? Really?
Okay, here’s another question…
European Commission President Ursula von der Leyen suggested “zero-for-zero” tariffs with the U.S. for industrial goods, including cars.
Is that a “good deal?”
Apparently not. Here’s Newsweek:
Trump was asked whether [von der Leyen’s suggestion] was “enough” by a reporter in the Oval Office to which he replied:
“No, it’s not. The EU has been very tough over the years, I always say it was formed really to do damage to the United States in trade, that’s the reason it was formed.”
Now, even if our trade relationships with Vietnam and the European Union include warts that must be addressed beyond a 0% tariff rate, if freer, fairer trade is the goal, shouldn’t these proposals of 0% tariffs at least warrant some positive acknowledgement?
The absence of such positive acknowledgement prompts a question…
Is there a different end goal in mind?
On Saturday, Fox News ran an opinion piece that speculated on Trump’s real purpose
The author, Tanvi Ratna, is a policy analyst and engineer with a decade of experience in statecraft at the intersection of geopolitics, economics, and technology. Point being, whether you agree with her or not, she’s not coming from out of left field.
Ratna suggests that Trump’s real goal has less to do with “unfair” tariffs and far more to do with unsustainable debt and a complete economic restructuring:
In 2025, the U.S. government must refinance $9.2 trillion in maturing debt. Some $6.5 trillion of that comes due by June.
That is not a typo—that is a debt wall the size of a small continent.
Billions of dollars of debt expense are potentially on the line. Based on data in the article, each basis-point increase in interest rates would put the government on the hook for roughly $1 billion per year – huge motivation for lower interest rates.
Unfortunately, at the start of the year, the 10-year Treasury yield sat at the painfully high level of 4.80% after surging nearly all last fall.
What could bring it down?
Not the Fed.
With the specter of reinflation looming in January, the Federal Reserve appeared to be in no hurry to cut interest rates. And even if it was, the bond market wouldn’t necessarily follow suit.
As we covered in the Digest last fall, after the Fed’s first rate cut last September, the Fed Funds rate and the 10-year Treasury yield diverged in historic fashion.
While the Fed funds dropped, the 10-year Treasury yield surged. The situation grew more abnormal through the end of the year as the 10-year Treasury yield hit that 4.80% level I noted a moment ago.
So, how do you get bond yields (and by extension, federal debt payments) lower when both the Fed and the bond market didn’t appear interested in helping?
Back to Ratna’s Fox News piece:
By introducing sweeping tariffs, the administration is creating precisely the kind of economic uncertainty that drives investors toward safer assets such as long-term U.S. Treasuries.
When markets are spooked, capital exits risk and equity assets (as we see with the stock market collapse) and piles into safe assets, primarily the 10-year U.S. treasury bond. That demand pushes yields lower.
It is a counter-intuitive move, but a calculated one. Some have called it a “detox” for the overheated financial system.
Now, on Sunday, White House National Economic Council director Kevin Hassett denied this is Trump’s grand plan:
He’s not trying to tank the market. He’s trying to deliver for American workers. It is not a strategy for the markets to crash.
Of course, whether this is Trump’s plan or not, Hassett must say this.
If it is the plan, Wall Street can’t be in on it. After all, “fear” is the juice that powers the desired exodus from stocks to bonds.
The rest of Trump’s alleged plan
Ratna suggests that lower interest rates are just the beginning.
The federal deficit remains enormous, and that’s where Elon Musk and his team at DOGE are supposed to slash spending. The goal is to eliminate a trillion dollars from the deficit by later this year.
If successful, that would leave just one more part of Trump’s plan: economic growth.
Here’s Ratna:
By making imports more expensive, they create space for American producers to step back in. The objective is not to punish trade partners—it is to make domestic industry viable again, even if only long enough to rebuild critical capacity…
In the meantime, tariffs themselves will generate revenue—an estimated $700 billion or more in the first year.
That creates more fiscal room for the administration to enable tax cuts and keep spending on Social Security, Medicaid and other programs.
Ratna believes Trump’s overall goal is to reduce America’s debt, reset its industrial base, and renegotiate where it stands in the global order.
If this is, in fact, Trump’s true plan then, at best, it’s a colossal gamble. And the most obvious tripwire is stagflation that could be exacerbated by corporate CEOs who – purposefully – can’t be in on the game.
The risk that inflation and corporate America don’t play along with Trump’s alleged vision
For this hypothetical plan to work, two things must happen:
- Inflation must be contained so that long-term bond yields fall and remain low.
- Onshoring must be a success, and corporate America must continue thriving
These things aren’t guaranteed to happen.
Beginning with inflation, we’ve been getting mixed messages in recent weeks.
By some measures, inflation is cooling rapidly. Truflation, an independent inflation index, reports a U.S. inflation rate of just 1.40%.
On the other hand, recent data from the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) Price Index show pressure on prices remaining firm.
The latest core CPI inflation data (which strips out volatile food and energy prices) found that prices climbed at a 3.1% pace year-over-year. Similarly, the most recent core PCE figure climbed 2.8% year-over-year, up from the prior reading of 2.6%.
Plus, inflation expectations have been climbing across the board in the wake of this trade war chaos. If expectation turns into reality, the Fed will be unable to cut rates, and the bond market will naturally climb on its own.
Speaking of climbing, the 10-year Treasury yield has surged about 32 basis points in two days. It’s exploded from 3.90% yesterday to 4.22% as I write.
By the calculations we used earlier, that’s about $32 billion extra in federal interest expense.
This is not the plan.
On our second point, onshoring and a resilient corporate climate aren’t guaranteed
Last month, a Bank of America survey found that 71% of global fund managers expect global stagflation within the next 12 months.
Meanwhile, last week, Citibank echoed this sentiment in a note to clients:
Looking out, large tariffs would move us closer to the stagflationary risks we have downplayed this past year.
This transition happens through a tightening of financial conditions which means fixed-income returns also turn negative.
The note – written before “Liberation Day” – modeled a base case of 10% tariffs, which Citi predicted could push the economy into stagflation in roughly six months. And with 20% tariffs, Citi predicted we’ll see an added “growth shock.”
Well, as we now know, many of Trump’s tariffs are multiples greater than 20%, so “growth shock” could be putting it mildly.
B of A and Citi aren’t the only Big Banks that have raised their stagflation predictions. We’ve seen similar calls from Goldman, Stifel, and UBS.
And yesterday, JPMorgan Chase CEO Jamie Dimon weighed in his annual letter so shareholders:
The economy is facing considerable turbulence (including geopolitics).
We are likely to see inflationary outcomes … Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth.
The problem is that lower yields and higher growth require contradictory messaging and emotions
For the bond market, Trump needs to communicate: “I don’t care about economic pain. I’m going to do whatever I want.”
The related emotion needs to be fear. That’s the best shot at pushing down long-term yields and holding them there.
But for corporate America, Trump needs to communicate: “This is temporary and for a greater economic good. Continue your cap ex spending. Continue hiring. Continue onshoring. Trust me. You’ll be okay.”
The related emotion is confidence. That’s the best shot as supporting our economy.
Given these contradictory messages, it’s no wonder we’re hearing two different things from The White House.
On that note, this morning, when asked whether the tariffs are permanent or up for negotiation, Trump said: “They can both be true.”
The reality is that, so far, Trump is successfully delivering the first message yet failing horribly on the second.
Billionaire hedge fund manager Bill Ackman explained the impact of this uncertainty and inconsistency on corporate America yesterday on X
Here’s Ackman:
Business is a confidence game and confidence depends on trust…
By placing massive and disproportionate tariffs on our friends and our enemies alike and thereby launching a global economic war against the whole world at once, we are in the process of destroying confidence in our country as a trading partner, as a place to do business, and as a market to invest capital.
The president has an opportunity to call a 90-day time out, negotiate and resolve unfair asymmetric tariff deals, and induce trillions of dollars of new investment in our country.
If, on the other hand, on April 9th we launch economic nuclear war on every country in the world, business investment will grind to a halt, consumers will close their wallets and pocket books, and we will severely damage our reputation with the rest of the world that will take years and potentially decades to rehabilitate.
What CEO and what board of directors will be comfortable making large, long-term, economic commitments in our country in the middle of an economic nuclear war? I don’t know of one who will do so.
When markets crash, new investment stops, consumers stop spending money, and businesses have no choice but to curtail investment and fire workers…
Business is a confidence game. The president is losing the confidence of business leaders around the globe.
This brings us to tomorrow, which marks the day when Trump said he’ll enact his proposed tariffs – the same ones Ackman just suggested would serve as an “economic nuclear war on every country in the world.”
We’ll see.
Despite the uncertainty surrounding Trump’s true goal, remember to maintain a cool head
In moments like these, it’s more important than ever to have a calm, informed perspective.
That’s why our team of experts – Louis Navellier, Eric Fry, and Luke Lango – sat down with our Editor-in-Chief and fellow Digest writer Luis Hernandez yesterday to discuss the volatility.
What happens from here? What should you do with your investments? Is this a “buy” moment or a “hunker down” moment?
Between the three of them, our experts have about 10 decades of investing experience. That matters in times like this.
Just click here to watch the interview.
As to the ongoing tariff war, and what Trump’s real motivation might be, we’ll keep you updated here in the Digest.
Have a good evening,
Jeff Remsburg