(SURVIVING THE TARIFFIED WORLD)

April 16, 2025

Hello everyone

The global economic landscape is being reshaped as we speak.  There are now heightened concerns about economic growth, currency stability, and financial retaliation.  We need to consider China’s potential response via US Treasury yields and other retaliatory measures.

On April 2, 2025, President Trump signed Executive Order 14257, imposing a 34% tariff on Chinese imports, pushing total levies above 70% for some goods.  China retaliation on April 4 with a matching 34% tariff on US imports, plus rare earth export curbs.  This is reminiscent of the 2018 trade war.

The US aims to boost manufacturing and cut reliance on China, whose share of US imports fell from 21% in 2018 to 14% in 2023.  Yet, higher tariffs will likely raise consumer prices for electronics and machinery.  The US-China Business Council estimates that revoking China’s trade status could cost 744,000 jobs.   With a $36.2 trillion national debt, the US faces refinancing challenges in 2025 as Treasury yields rise, a vulnerability China could exploit.

The US faces a delicate moment in its fiscal policy.  With national debt exceeding $36.2 trillion, the Treasury is set to refinance substantial portions in 2025 amid rising yields.  The 10-year Treasury yield has surged recently, reflecting market unease over tariffs and inflation expectations.  If China leverages its $1.11 trillion in US Treasury holdings, it could exacerbate this pressure.

China’s economy, slowed by post-COVID recovery and property debt, faces a tariff hit.  The Economist Intelligence Unit predicts as 20% US tariff increase could cut GDP growth by 0.6 points through 2027, with a 60% tariff costing 2.5 points.  Exports to the US (2.9% of GDP in 2023) remain key.  China plans a 6.9 trillion-yuan stimulus and rate cuts to hit a 5% growth target, but success is uncertain amid trade disruptions.

The yuan has weakened to its lowest since September 2023, with the People’s Bank of China (PBOC) seemingly willing to let it go lower.  A weaker yuan could offset tariffs by cheapening exports, potentially sliding to 7.7 to 7.8 if tensions rise.  However, this risks capital outflows and higher import costs, as well as global ripple effects from a broader monetary breakdown.

Alongside the changed economic environments, China holds several strategic tools for retaliation against the US. 

China holds $1.11 trillion in US Treasuries and could sell or halt purchases to spike yields, raising US borrowing costs as $6 trillion in debt matures in 2025-2026.  This is China’s primary trade war weapon. 

It dominates the global rare earth supply chain – critical to military and high-tech industries – supplying roughly 72 per cent of US rare earth imports, by some estimates. 

On March 4, China placed 15 American entities on its export control list, followed by another 12 on April 9.  Many were US defence contractors or high-tech firms reliant on rare earth elements for their products.

Export restrictions on rare earths could further pressure US tech and defence sectors, though escalation risks backlash.

China also retains the ability to target key US agricultural export sectors such as poultry and soybeans – industries heavily dependent on Chinese demand and concentrated in Republican-leaning states.  China accounts for about half of US soybean exports and nearly 10 per cent of American poultry exports.  On March 4, Beijing revoked import approvals for three major US soybean exporters.

And on the tech side, many US companies – such as Apple and Tesla – remain deeply tied to Chinese manufacturing.  Tariffs threaten to shrink their profit margins significantly, something Beijing believes can be used as a source of leverage against the Trump administration.  Already, Beijing is reportedly planning to strike back through regulatory pressure on US companies operating in China.

Let’s not forget the position that Elon Musk holds.  As we understand it, he is a senior Trump insider who has clashed with US trade adviser Peter Navarro against tariffs.  Furthermore, we know he has major business interests in China.  These facts could be a strong wedge that Beijing could exploit to divide the Trump administration.

As I pointed out last week in my Post on Friday (WHO’S IN CONTROL – TRUMP OR XI?) the changing dynamics could significantly reshape the geopolitical landscape of East Asia, bringing together countries to take advantage of a strategic opportunity to displace American hegemony.

Southeast Asian countries could see a strengthened alliance and an “all-round cooperation”, which offers an opportunity to directly erode US sway in the Indo-Pacific.

A promising strategic opportunity is building in Europe too, with the European Union contemplating strengthening its own previously strained trade ties with China.  Both sides have jointly condemned US trade protectionism and advocated for free and open trade. EU and Chinese officials are holding talks over existing trade barriers and considering a full-fledged summit in China in July.

China is watching the US dollar.  It sees in Trump’s tariff policy a potential weakening of the international standing of the US dollar.  Widespread tariffs imposed on multiple countries have shaken investor confidence in the US economy, contributing to a decline in the dollar’s value.

Traditionally, the dollar and US Treasury bonds have been viewed as haven assets, but recent market turmoil has cast doubt on that status.  At the same time, steep tariffs have raised concerns about the health of the US economy and the sustainability of its debt, undermining trust in both the dollar and US Treasurys.

The tariff standoff between the US and China is more than a trade dispute, it may well reveal a world at a historic inflection point, where economic strategies and asset choices will define the next decade.  For the US, higher costs and refinancing woes loom; for China, growth hangs in the balance, with yuan depreciation a risky but viable counter. 

China’s potential to sway US Treasury yields adds a financial warfare dimension – a weapon that should not be taken lightly.  It has the tools to inflict meaningful damage on US interests.  Perhaps, more significantly, we need to understand that Trump’s all-out trade war is providing China with a rare and unprecedented strategic opportunity that could forever change the economic landscape.

AND

Cheers

Jacquie

(THE FED WON’T RUSH TO SAVE THE MARKET)

April 9, 2025

Hello everyone

Tariffs will spur inflation, and then slow growth.  It is very doubtful that the Fed will come to the rescue.

Morgan Stanley sees gross domestic product growth almost coming to a complete standstill and core inflation ending the year well above the central bank’s 2% target.  The Fed, then, is very likely to sit on its hands and maintain its holding pattern on interest rates.

Last week, Fed Chair Jerome Powell said he expects policymakers to “wait for greater clarity” on trade policy ramifications before adjusting any further.  The Fed currently targets its key overnight lending rate in a range between 4.25% and 4.5%, where it has been since December.

In a stagflation scenario of high inflation and slow growth, Morgan Stanley expects the Fed to lean toward controlling inflation rather than boosting growth.  And that means, probably no rate cuts in 2025 and not one until March 2026.  The investment bank then sees several cuts throughout next year.  However, a recession could change that and bring forward rate cuts.

Below is a chart of the S&P 500.  I show the Fib. Retracements.  I have already expressed the view that the S&P500 could fall as far down as 4500, and I still see the possibility of that move happening.  It may find a base between 4600 and 4500.  I also show the support level with the horizontal line which marks the 4400 level.  This support level should hold.

Trump’s steeper “reciprocal” tariffs are set to go into effect at midnight and are in addition to the 10% baseline tariff that took effect Saturday.  A 104% tariff rate on Chinese imports is among those the U.S. will impose.

China has said that it will continue to take ‘resolute and forceful’ countermeasures as U.S. tariffs kick in.   And China has wasted no time.  Just this evening the country has slapped 84% tariffs on the U.S.

With Trump seeking to rebalance global trade, a byproduct of that will be capital outflows from the U.S.

U.S. exceptionalism is not shining now – financial markets are suffering.

QI CORNER

Jeffrey Gundlach is speaking here on CNBC about the market turmoil.  Worth a listen.

https://youtu.be/SEcoQJNb8Hw?si=cIhZxm9jbBTVV-pa

Cheers

Jacquie

.

(SUMMARY OF JOHN’S APRIL 2, 2025, WEBINAR)

April 4, 2025

Hello everyone

TITLE Trade Terrors

TRADE ALERT PERFORMANCE

2025 YTD: +14.44%

Since inception: +766.33%

Trailing One Year Return: +81.35%

Average Annualized Return: +49.82%

PORTFOLIO REVIEW

Risk On

(NVDA) $90-$95 call spread 10%

(COST) 4/$840-$850 call spread 10%

(TSLA) 4/$160-$170 call spread 10%

Risk Off: No positions

THE METHOD TO MY MADNESS

$700 billion tax increase starts today – the biggest in 85 years.  The depressing effects on the economy will be immense.

The US economy is now in recession.  How long it will last, nobody knows.

Interest rate plays like bonds are back in favour as recession fears drive rates down.

Gold hits new highs on a major upside breakout.

US dollar enters free fall with declining rates cutting it off at the knees.

Big technology was the most expensive and saw the biggest falls.

Energy gets a rare rally after hitting four-year lows.

Cash is king - $1 at the market top is worth $10 at the bottom.

THE GLOBAL ECONOMY – DYING ON THE VINE

Stagflation Accelerates, with a hot 0.4% increase in the Consumer Price Index and a tepid 0.1% increase in Consumer Spending, the worst since the Pandemic.  One year inflation expectations have shot up to 5.0%

Fed leaves interest rates unchanged at 4.25%, cuts quantitative tightening from $25 billion a month to $5 billion a month, to head off a coming recession.

US GDP grows 2.4%, during the October-December quarter.  These may be the last positive numbers we see for a while as the country heads into recession.

Equipment rentals fall 7% in February.

Consumer Confidence Plunges, by the most in five years.

Weekly Jobless Claims Rise 2,000 to 223,000.

UCLA Anderson School of Business Announces, “Recession Watch,” the first ever issued.

STOCKS – SELL ALL RALLIES

Stocks are oversold so expect a 3%-5% rally.

But sell on any rally as much lower lows beckon.

All long-term technical indicators have rolled over, meaning that the bear market could continue until summer at the earliest and next year at the latest.

Hedge Funds are still dumping technology stocks as they still command big premiums to the main market.

Vaccine stocks get nailed, as the FDA moves to eliminate the vaccine establishment.

Travel demand is collapsing as consumer rush to cut back discretionary spending.

This has been one of the most rapid corrections in history.

The Volatility Index peaked at $25, this time but there are higher highs to come.

Tesla's brand has been damaged.  Nobody buys cars in recessions.

THE ULTIMATE HEDGE – Defensive stocks only go down at a slower rate.

90-day US Treasury Bills (Warren Buffet owns $300 billion)

Government Guaranteed principal

Endless liquidity – trade like water

100% collateral value for margin

Lock in guaranteed income

Can be sold at any time to earn full interest

Will survive any bear market

Ask your broker how to buy

THE WORST-CASE SCENARIOS

The Bull Case

We are now in a recession that will probably cost us -6% - 7% over 2-3 quarters and then ends with a renewal of a $5 trillion tax cut for 2026 (SPY) down 20%-30%, (SPY) multiple drips from 22X to 19X last seen in 2018.

OR

THE BEAR CASE

No tax cut means we enter a depression and lose 25% of GDP over four years.  (SPY) down 60% if (SPY) PE falls from 22X to 9X, 240% of stock gains since 2009 have been multiple expansion.

BONDS – RECESSION BOOST

Bonds rocket with a stock market crash prompting a run into safe assets.

Moody’s downgrades the United States, saying Trump’s trade tariffs could hamper the country’s ability to cope with a growing debt pile and higher interest rates.  Recession risks are rising.

Rising recession risks put bonds back in the spotlight.

During the pandemic recession, the (TLT) rose to $165.

Shocking CPI at 5.0% annualized gives bonds a boost.

It means that the next Fed move will be a raise, not a cut.

Buy (TLT), (JNK), (NLY), (SLRN) and REITS on dips.

FOREIGN CURRENCIES – DEAD DOLLAR

Prospect of falling interest rates is demolishing the US dollar.

Yen carry-trade unwind sends Japanese currency soaring.

Expected interest rate differentials are the principal foreign currency driver.

Recession fears are bringing forward Fed interest rate cuts.

The Trump economy is forcing investors to flee all US assets, including stocks and currency.

Massive cash flight is running away from the US and into Europe and China.

Buy (FXA), (FXE), (FXB), (FXC), and (FXY)

ENERGY & COMMODITIES – RARE RALLY

Trump threatens a 25% tariff against anyone who buys Russian oil, same with Venezuela.

That gives oil a rare rally to sell into.

US Drillers cut back on new rigs as the country is glutted with over-production, according to Baker Hughes data out today.  Recession fears are the gasoline on the fire.  Unemployment will rise in the oil-producing states.

Copper hits a new all-time high at $5.02 a pound.  The red metal has outperformed gold by 25% to 15% YTD.

The Oil market is in turmoil, with crude prices bouncing off a four-year low.

A global recession is looming large.

PRECIOUS METALS – NEW HIGH

Gold is over-extended and due for a correction.

But long-term targets are getting raised across the board.

No upside resistance above $3,200 - setting up a possible melt-up.

Falling interest rates have given gold a new lease on life.

Gold Stocks in Comex Warehouses hit record highs, due to the risk of import tariffs curtailing shipments to the United States from other countries.

Will import duties divide the gold market into American and foreign gold?

REAL ESTATE – GREEN SHOOTS?

US Mortgage Rates Drop to 6.65% for 30-year fixed-rate loans.  Recession fears have driven interest rates from over 7.30% down a full 10.65%.  Recession fears have been driving rates down.

Pending Home Sales Rise, based on signed contracts.

Pending Home Sales decreased 3.6% from a year earlier.

US Home Sales rise, but the stocks still look awful, increasing 1.8% to 676,000 units last month.  The sales pace for January was revised up to a rate of 664,000 units from the previously reported 657,000 units.

Homebuilder Sentiment craters to a seven-month low in March as tariffs on imported materials raised construction costs.

Existing Home Sales Jumped in February with a decent push from falling interest rates, increasing 4.2% from the annual rate of 4.26 million.

TRADE SHEET – THE RECESSION TRADE

Stocks – sell rallies

Bonds – buy dips

Commodities – stand aside

Currencies – buy dips

Precious Metals – buy dips

Energy – stand aside

Volatility – sell over $30.

Real Estate – stand aside

NEXT STRATEGY WEBINAR

12:00 EST Wednesday, April 16, 2025, from Incline Village, NV.

Cheers

Jacquie

(APRIL IS HERE - WHEN THE TARIFF UNCERTAINTY MAY BECOME A KNOWN CERTAINTY)

March 31, 2025

Hello everyone

WEEK AHEAD CALENDAR

MONDAY, MARCH 31

9:45 a.m. Chicago PMI (March)

10:00 a.m. Dallas Fed Index (March)

7:30 p.m. Japan Unemployment Rate

Previous: 2.5%

Forecast: 2.5%

TUESDAY, APRIL 1

12:30 a.m. Australia Rate Decision

Previous: 4.1%

Forecast: 4.1%

9:45 a.m. S&P PMI Manufacturing final (March)

10:00 a.m. Construction Spending (February)

10:00 a.m. ISM Manufacturing (March)

10:00 a.m. JOLTS Job Openings (February)

WEDNESDAY, APRIL 2

8:15 a.m. ADP Employment Survey (March)

10:00 a.m. Durable Orders final (February)

10:00 a.m. Factory Orders (February)

10:00 a.m. New York Federal Reserve Bank

Deputy SOMA Manager Julie Remache speaks at a seminar in Monetary and Fiscal Policy at Vanderbilt University, Nashville.

8:30 p.m. Australia Trade Balance

Previous: A$5.6B

Forecast: A$5.6B

THURSDAY, APRIL 3

8:30 a.m. Continuing Jobless Claims (03/22)

8:30 a.m. Initial Claims (03/29)

8:30 a.m. Trade Balance (February)

9:45 a.m. PMI Composite final (March)

9:45 a.m. S&PPMI Services final (March)

10:00 a.m. ISM Services PMI (March)

FRIDAY, APRIL 4

8:30 a.m. Hourly Earnings preliminary (March)

8:30 a.m. Average Workweek preliminary (March)

8:30 a.m. Manufacturing Payrolls (March)

8;30 a.m. Nonfarm Payrolls (March)

Previous: 151k

Forecast: 128k

8:30 a.m. Participation Rate (March)

8:30 a.m. Private Nonfarm Payrolls (March)

8:30 a.m. Unemployment Rate (March)

9:00 a.m. New York Federal Reserve Bank

Director of Research Kartik Athreya speaks at the 2025 New York Fed Innovation Conference, New York.

April is tariff month, I think, unless President Trump changes his mind.

The stock market is on tenterhooks waiting for some known path forward.  Investors are similarly agitated as policy changes from the White House have kept everyone off balance and confused about what is the best area to buy into and which sectors should be sold off.

It may be that come April 2, the market will have enough certainty to get some sort of boost – a temporary relief rally.  But that would be a sell into space as tariffs are a negative any way you look at them.  They will be disruptive to the US and global supply chains, negative for US and global growth and, for the US and economies that retaliate, inflationary.

And tariffs are just one slice of the economic picture, which is looking increasingly challenging.  Consumer sentiment is showing weakness, inflation is expected to surge, and unemployment numbers are rising.  Recession signs are showing up everywhere.

The U.S. share market fell 2 percent last Friday.  It’s down more than 9 percent since Trump announced his plan for reciprocal tariffs in the middle of last month – with the tech-heavy Nasdaq market down 2.7 percent and the “Mag Seven” mega-tech stocks down 3.5 percent.

Most US business economists have been revising down their expectations of US economic growth this year from an original consensus of GDP growth of around 2 percent.  Some investment banks’ forecasts are below 1 percent.

With inflation remaining stubbornly high – above the Fed’s 2 percent target even before the core of Trump’s tariffs plans is unveiled, the risk of stagflation – falling growth even while inflation remains high – is rising.  Without a material fall in the inflation rate, the Fed will be forced to keep interest rates on hold.

Trump’s tariffs policy is a game where no one wins. It is doubtful that anything Trump does will materially shrink America’s trade deficit unless it results in a substantial reduction in US living standards and an America that lives within its (diminishing) means.  And it is something to think about that he might inadvertently actually achieve that.

MARKET UPDATE

S&P500

The view of a major top since Feb. remains.  There is scope for further consolidation/ranging before a strong resumption of the downtrend resumes.

Support: $5555/65/$5500

Resistance:  $5675/85 and $5795

GOLD

Gold has pushed to another new high, but the market is seen within the final up leg in the rally from the Feb 28^th low (wave v) as well as the larger up move from the Nov. low at $2537, which suggests a rising risk of a peak for at least a few months. 

Support: ~$3050/$3025/$2995

Resistance: $3095

BITCOIN

No change.  Bitcoin is still seen basing in a large correction, with eventual new highs above that $109 area after.  As I have already pointed out, we could see lower lows in the low $70’s or even the high $60’s, before the correction is exhausted.

Support:  $81.5k/$77k/$73.5k

Resistance: $$88/$89 area/$92/$99.5k

QI CORNER

HISTORY CORNER

On March 31

SOMETHING TO THINK ABOUT

Cheers

Jacquie

(MARKETS ARE DEFINED BY UNCERTAINTY)

March 24, 2025

Hello everyone

WEEK AHEAD CALENDAR

Monday, March 24

8:30 a.m. Chicago Fed National Activity Index (February)

9:45 a.m. PMI Composite preliminary (March)

9:45 a.m. S&P PMI Manufacturing preliminary (March)

9:45 a.m. S&P PMI Services preliminary (March)

Tuesday, March 25

9:00 a.m. FHFA Home Price Index (January)

9:00 a.m. S&P/Case-Shiller comp. 20 Home Price Index (January)

9:05 a.m. New York Federal Reserve Bank President and EO John Williams speaks at the 2025 New York Fed Regional and Community Banking Conference.

9:10 a.m. New York Federal Reserve Bank Director of Research and Head of the Research and Statistics Group Kartik Athreya speaks on the National Economic Outlook.

9:30 a.m. New York Federal Reserve Bank Head of Microeconomics Research and Statistics Group Jaison Abel speaks on the Regional Economic Outlook.

10:00 a.m. Consumer Confidence (March)

Previous: 98.3

Forecast: 94.0

10:00 a.m. New Home Sales (February)

10:00 a.m. Richmond Fed Index (March)

10:15 a.m. New York Federal Reserve Bank Head of the Supervision Group Dianne Dobbeck moderates panel discussion: Views from Community Bank C-suite

Earnings: McCormick & Co

Wednesday, March 26

3:00 a.m. UK Inflation Rate

Previous: 3.0%

Forecast: 2.9%

8:30 a.m. Durable Orders preliminary (February)

Earnings: Dollar Tree

Thursday, March 27

8:30 a.m. Continuing Jobless Claims (03/15)

8:30 a.m. GDP final (Q4)

Previous: 3.1%

Forecast: 2.3%

8:30 a.m. Initial Claims (03/22)

8:30 a.m. Wholesale Inventories preliminary (February)

10:00 a.m. Pending Home Sales Index (February)

11:00 a.m. Kansas City Fed Manufacturing Index (March)

Friday, March 28

8:30 a.m. PCE (February)

Previous: 2.5%

Forecast: 2.7%

8:30 a.m. Personal Income (February)

8:30 a.m. Michigan Sentiment final (February)

10:00 a.m. Fed Vice Chair for Supervision Barr discusses at the 2025 Banking Institute, Charlotte, North Carolina

The market has a cloud of uncertainty hanging over its head.

Trump’s policy agenda is driving markets – and they are showing an unsteadiness as they endeavour to navigate the dynamic landscape.

Investors won’t get clarity on tariffs until April 2 when the number of levies is expected to take effect.

Those worried about a worst-case scenario have allocated more toward Treasurys and gold, as well as other liquid defensive areas.

Also, on deck this week are key economic reports.  PCE and several sentiment surveys are also set to be released.  The data should be quite telling about the consumer’s health and the perceived impact of Trump’s tariffs.

Economists expect more signs of stalling inflation in the Personal Consumption Expenditures (PCE) release due Wednesday.  Economists expect annual “core” PCE – which excludes the volatile categories of food and energy – to have clocked in at 2.7% in February, up from the 2.6% seen in January.  Over the prior month, economists project “core” PCE at 0.3% unchanged from January.

Inflation remains a big hurdle for consumers, and the sticky price pressures are likely to linger longer than expected.

MARKET UPDATE

S&P500

The index remains higher from the Mar 13^th low at 5505.  The bounce could continue.  Any break over $5790/15 area would argue at least another few weeks of gains, while remaining below argues further downside.  The long-term view of a major top remains.  Any bounce, even a deep bounce, will be seen as a correction & part of the significant topping pattern.

Resistance: $5745/$5825

Support: $5500/10 area

GOLD

Gold is overbought after the recent surge since November.  Nearing the end of this rally – rising risk of a top for at least several months.  We may see marginal new highs and/or more consolidation before the topping formation is complete.

Resistance: $3058/63

Support: $2988/$2951/$2915

BITCOIN

Bitcoin is still undergoing a correction.  There is scope for more choppiness and further lows first, before we see new highs.

Resistance: $87.0/$87.5K and $$90.9k/$92/$93k

Support:  $79/$80 and $76/$77/$74.

QI CORNER

HISTORY CORNER

On March 24

SOMETHING TO THINK ABOUT

Cheers

Jacquie