Trump's Rate Of Failure
Market is holding up, ignoring all bad news. The bull case is this:
DOGE is D.O.A. - so no fiscal restructing. With no fiscal restraint or removal of fraud, waste & abuse - which is good for bonds but not equities - market is slow to embrace poor economic data.
Fiscal Spending is all gas, no brakes - so market continues to expect Trump’s big bad bill to pass, debt to rise & resulting nominal growth to outrun inflation & rising term premium.
Tariff Tapdown - so market thinks prices paid can rise slower now helping consumer spending, which helps corporate margins/guidance, economic growth.
Normative Fed Cuts - so market hears Goolsbee say that “IF tariffs are avoided by a deal or otherwise, could return to a situation where rates can come down”.
Nvidia ‘Beats’ - so market resumes its AI worship at the alter of Semi-Savior Jensen.
Trade deals, however, will be harder to come by - as was the promised Peace deal between Russia and Ukraine, which makes it questionable whether Tax deals will be so easy to secure with a new debt ceiling given Trump’s rate of failure.
Trump tried to bypass the Constitution & Congress.
The legal theory behind Trump’s Liberation Day tariffs ... is that there was/is an “unusual and extraordinary threat” (trade deficits), so the president can declare that all US trade with every country is a national emergency.
Matt Levine April 7th:
"The idea seems to be that every trade policy of every country in the world, over the past several decades, constitutes an “unusual and extraordinary threat.” This is a strange way to use words! How can every instance of trade with every country be unusual? How, after decades of trade deficits, is a trade deficit extraordinary?"
Granted, Trump has other levers he can pull.
Here is Goldman after Federal court shuts down tariffs via IEEPA.
And a good thread on next steps & impact by Diane Swonk.
“the fate of the economy remains precarious even if we avert a recession.”
Looking forward: Now Trump & Bessent hope to push through their BIG BAD BILL to increase spending & debt ceiling with potentially less offsetting revenue & falling political power - both here & abroad.
I know the saying, “Don’t bet against America,” but it needs to be book-ended with “Don’t bet against China.”
At the core, beyond the On/Off Tariff drama, Trump is compounding his already big errors on trade policy. The market just doesn’t see it yet.