Systemic Stress Despite Tariff Exemptions & Delays

MONEY GOES HOME meets MONEY STAYS HOME

I have been on this “MONEY GOES HOME” mantra since late February, when Trump targeted China Investments.

The dollar has been beaten down to the tune of -10% this year, but it is not the percentage loss in an of itself but the rate of change in which it happened! It has been unprecedented - except in major systemic stress like Covid and GFC.

Non-LaDucTrading clients still struggle to understand why, or ignore the warning signs by putting its fall in context of cyclical growth framing: goes up on economic expansion and falls on contraction. It is not that simple and does not apply in the current situation.

The US dollar is dumping while yields are rising in response to systemic stress:

1. MONEY GOES HOME means foreign investors are stepping out of US bond & equity markets to both chase higher currencies & yields abroad, but also to side-step the dislocation and distrust being caused as a result of the Trump administration's chaotic tariff policies and mis-steps with those policies.

2. Foreign selling of US Treasures was clear Tuesday night as the macro capital flows caused the US bond market to crash, sending yields sharply higher - before both Treasury Secretary Bessent and President Trump stepped in to stop the carnage in both equities and bonds Wednesday afternoon.

3. Foreign repatriation is only part of the equation. MONEY STAYS HOME is another side affect. Foreign money is now not entering as a crisis of confidence grips large pension funds and sovereign wealth funds abroad.

4. The Crisis of Confidence I wrote about last week may pull forward my POWELL CAPITUATION call, but it does not undue the damage already done by this administration to create, manage and roll-out a fiscal or tariff plan that engenders trust. Credibility breakdown will manifest in credit markets, as I've warned for over two months.

5. POLICY INTERVENTION is assumed to backstop markets, but any of the Fed/Treasury/White House methods will have dangerous consequences now. Example: Any attempt to announce QE (stealth or direct) will be met with spiking higher inflation expectations, term premia and yields. Yield curve control won't work anymore either.

Geoffrey reminds:

"You can ONLY print money when inflation is tamed and there is no crisis on the horizon.

You print in the last resort like an EM would do because the bonds are crashing totally, but then the currency dies."

Until the administration fixes this colossal failure in confidence, investors will demand higher yields for holding US treasuries, ESPECIALLY as the dollar falls.

And I can't underestimate how unfair it feels for small businesses who cannot Pay-To-Play for favors from Trump.

Trump caving with his tariff exemption for Big Tech while all other US businesses flounder from China’s 125% tariffs is a fiasco.

Exempting AAPL is also a clear attempt to delay market-melt-down and buy time, but it leaves the market & financial system more fragile, not less.

Trump & Bessent have failed as detailed in my serious post last Thursday:

DANCING TO THE EDGE OF DEFAULT

So today's post is a reminder that I have spent considerable time to detail my big picture warnings and concerns in addition to running a live trading room for 2HRS every morning to answer client questions directly to trade tactically around all of these headline risks and decaying market structure.

In addition, Hans and I met to discuss the mercurial market moves and how best to protect & position.

The Aftermath / Macro-To-Micro Options Power Hour / Apr 9, 2025

Also that Wednesday morning, I did deliver my market analysis and warnings for clients live. Here is a recap in case you missed them:

Major Market Warning

Last but not least, there a big hairy problem with investors wanting higher yields to justify holding US treasuries...

As Geoffrey reminds, and should not be ignored:
The 10Y yield rising from 4.5% into 6% puts interest servicing at 30% of US Govt revenues which will trigger hyper-inflation and US govt default.

That is ultimately what we are trading around: Systemic Stress that under Liquidity Strain that can trigger a Credit Crisis.

NEWS UPDATE: Just as I was about to hit "send", and 5 min before Asia opened...

President Trump says "no one is getting off the hook for the unfair trade" and tariffs, "especially China."

Again, this is all a STRATEGY OF CHAOS I will continue to warn is very dangerous for emotional and financial capital.