***** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic and Market Fare:
***** Welsh: Understanding Trump’s Tariffs Effects on World Trade & How He’s Ending the American Era
................................................................................... What Trump’s team (not so much Trump as certain advisors) is trying to do is to re-shore a full manufacturing stack to America. They noticed that everyone industrializes behind some form of price supports, and that usually those are tariffs (China used currency controls.) so they’re instituting tariffs. Given the market for a lot of goods is in the US, they figure, correctly, that a lot of manufacturing will be forced to move back to America.
All those batteries Canada is making.
This screws every single American ally who allowed their economies to be restructured by American lead trade deals in the 80s. Every single one.
And that’s why Canada and Mexico are in for a world of hurt, and the EU too. It’s also why China is not in for a world of hurt: they’ve got the full stack and a massive domestic market, plus since their goods are cheap, they’ve got almost the entire global South plus most of the SE Asian economies as customers.
And here’s the problem for America: all its got is the US market, because it’s fucking every major trade partner it has. They have to go back to an old style economy too, or form a much smaller and stupider neoliberal bloc, and if they can’t sell to America, they aren’t going to buy from America either. So America can get some full stack back, but only what it’s economy can afford.
And the American economy is much smaller than it looks. Much, much smaller. GDP numbers are massively over-inflated by asset price bubbles ..........................
This week the American consumer got spooked, and the Atlanta Fed said the economy is shrinking. Plus, Trump antitrust officials move through Congress. And Jim Cramer asks, "Where are all the mergers?"
.................... There are a couple of reasons why I think we’re going into a downturn. There’s the structural weirdness of our economy. On first blush, things seem fine. I look at the economic cycle as based on economist Hyman Minsky’s theory. ................
Outside of the consumer, there is a bunch of weird stuff in our financial markets, from private credit to high commercial real estate debt to crypto to a multi-trillion dollar private equity bubble. Something like 10% of U.S. firms are “zombie companies,” which is to say, structurally unprofitable and subsisting by borrowing. Similarly, at this point, investment by big tech firms in generative AI is big enough to affect the economy, and while the firms financing investment are very profitable, the sector itself isn’t generating the revenue to justify the investment. And interest rates, which used to be low and allow for cheap financing, are now quite high, and putting pressure on firms that need capital.
That’s not how things were supposed to work. The premise of Trump’s election was that he’d boss around the Fed and get Jay Powell to lower rates, spurring a revival of home sales and factory construction. Consumers and businesses, confident now that Biden was gone and expecting tax cuts, would happily spend and invest. Prices would drop with more drilling, and less government spending due to DOGE.
But none of that is happening. ......................
There is a smidgen of truth in that ................
..................... Because of the dynamics of catch-up inflation, the effects of major supply shocks take years to work their way through markets. Could the Fed and the Treasury, working together, extinguish tariff-driven inflation completely while relative prices adjust? In theory, yes. But doing so would require a big dose of fiscal and monetary austerity in which unemployment would rise, real GDP would fall, and a prolonged recession would ensue. The adjustment would require absolute decreases in the prices of non-traded services. And unless the tariffs were only temporary, the adjustment would take even longer than the adjustment to the short-lived post-Covid supply-chain disruptions.
......................... Returning to the Atlanta Fed GDPNow estimates. It’s worth emphasizing that the estimate of zero real growth inc consumption spending, which doesn’t have any practical or conceptual problems as far as I can tell. So even if we set aside the import question, there is reason to say that real-time economic data suggest a sharp slowdown in spending — and therefore output, income and employment — relative to the recent trend. I think we should take that forecast seriously directionally, even if there is reason to be skeptical of the dramatic fall in GDP that they forecast.
Bubble Fare:
Charts:
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U.S. B.S.:
Sci Fare:
Pics of the Week:
Will we actually run the tariff-inflation experiment in real life? As tariffs become a reality, and as flexible prices show early signs of another upturn, it is looking more and more like we will.
Mason: Nowcast Negative
GDP Growth, Imports and Gold
If we set aside the import numbers, the estimate is real growth for the quarter of close to zero. Which would still be a sharp slowdown, and lead us to expect a significant rise in unemployment.
................. Commenting on these pre-recessionary soundbites, Goldman's head of Delta One trading Rich Privorotsky said that "while commendable to attempt to address the long term imbalances of debt sustainability and spending (which accelerated during covid) it’s hard to see how these won’t have short term economic implications" effectively echoing what we said a month ago.
Rabobank was even more explicit when it said that "Trump hasn’t mentioned stocks so far, and the word from D.C. is their focus is on Main Street, not Wall Street, with willingness to tolerate “disturbance” for at least the next six to eight months, while blaming it on Biden, in order to get a framework in place that allows for growth based on what Trump thinks GDP is for..."
But it was perhaps Nomura's Charlie McElligott who laid it out best saying the US is now underoing a clear "Phase Shift", one which will be very painful (full note available to pro subs in the usual place):
DON’T JUST TAKE MY WORD FOR IT—THEY’RE TELLING YOU THE PLAYBOOK, AND THE “PHASE SHIFT” WILL BE THE PAINFUL PART AS WE “ENGINEER A RECESSION”: ...............
The tariff throwdown between Donald Trump and Justin Trudeau has slowed Canadian corporate bond sales to a trickle over the past week as investors demand a higher premium to hold loonie debt.
The US president’s looming 25% tariff on Canadian goods — which briefly took effect last week before being paused until April — threatens to send the Canadian economy spiraling into a recession, spurring job losses and price spikes that fuel inflation. Canada’s vulnerability in the trade war has bubbled up in a credit market that has historically been largely indifferent to macro risks.
In response to all the saber rattling, bond holders are asking for bigger premiums. Canadian corporate credit spreads shot to the widest level relative to government bonds in about five months on Tuesday, according to a Bloomberg gauge. ............
Bubble Fare:
US has grown to nearly two-thirds of global equity market value, but some analysts see danger in ‘huge bet on AI’
.............. “If you hold a global tracker then by definition two-thirds of that is the US, and a lot of that is in Silicon Valley specifically,” said Paul Marsh, a professor of finance at London Business School who has spent the past 25 years tracking long-run investment returns. That means you’re very vulnerable to this huge bet on AI.” ...................
............... “Every now and then, finance goes off the rails and that happened in Japan. People get overenthusiastic, everybody feels rich, but then it turns out to be a house of cards,” said Richard Sylla, professor emeritus of economics at NYU Stern School of Business.
Quotes of the Week:
Paul Sankey: I always say that my career wasn’t built on anything I thought of. It’s me working out who the smartest person is in the room, and then listening to them extremely carefully.
Charts:
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U.S. B.S.:
............ Between this rock and this hard place, there are the politics and the business of enlarging power and making money. According to Trump in his March 4 speech to Congress, he aims at “building the most powerful military of the future. As a first step, I am asking Congress to fund a state-of-the-art golden dome missile defence shield to protect our homeland — all made in the U.S.A.”
For “most powerful military of the future”, Trump means new hypersonic weapons for a first strike against Russian and Chinese nuclear forces. For his “golden dome”, Trump means first-strike capacity without fear of retaliation — without mutually assured destruction by the Russians and Chinese. The word for this isn’t peace – it’s a new US arms race. .................
.................. Even today, this conclusion is hard for most people to accept, for the conclusion they started with – what was planted in their brains – precluded imagining another hypothesis. To do so was considered too outrageous – an impossibility that offended the patriotic heart.
And of course the Bush administration’s lies steamrolled any skepticism, the Patriot Act was quickly passed, and endless U.S. wars of aggression ensued, both preceding and following Colin Powell’s Academy Award performance at the United Nations. But he too was an honorable man.
They too are honorable men.
So if you sat with your mouth agape in shock at the dog and pony show in DC between Trump, the reality TV actor, and Zelensky, the comedian, who became Ukraine’s president and Trump’s apprentice in 2019 during Trump’s first term, let me suggest a bizarre possibility at a time when the bizarre has become commonplace. ................
These reactions have been repeated ad infinitum. They are equally absurd propaganda in the service of the U.S. elites’ Repubmocratic tandem team of imperialists. ...............
Of course I have no evidence for this hypothesis and it might sound as if I have come unhinged. But wouldn’t it serve common sense to entertain it as an alternative interpretation when hyper reality has become commonplace and the realization that we have been ruled by con men and fraudsters is widely accepted? .....................
***** Yarvin: Barbarians and mandarins
"As soon as it stops accelerating, it stalls and explodes."
Geopolitical Fare:
Sachs: The Geopolitics Of Peace
................ Let’s start with the 2014 Maidan protests which overthrew the government. They were a color revolution, heavily supported by the Americans and Europeans. Say what you will about Yanukovych, he was the elected President. There’s decent evidence that the sniper massacre was done by Maidan itself (see this academic study), and post coup, Ukraine was essentially run by Victoria Nuland.
The Maidan coup came in response to Yanukovych’s decision to accept Russia’s aid package instead of the West’s. This was the correct decision: Russia offered more money and aid with less strings, while Western aid came with IMF restructuring. If you know anything about the IMF you know that their restructuring is always painful and doesn’t improve host nations economies, but does increase inequality, and opens up the economy so foreigners can buy in. ..................
So notice that without the coup, which was US backed, there’s no 2014 war between Ukraine and Russia, no loss of Crimea or semi-independence for the far East of Ukraine.
The coup was anti-democratic, overthrowing a legitimately elected government which was accepting the best deal offered. (And folks, I’ve studied IMF deals. They are always bad. Always.) ......................
But American negotiation seems to be about making the best deal for America, not for Ukraine.
My suggestion would be that Zelensky ask the Chinese to host negotiations. Yes, they’re an ally of Russia, BUT they’ve always supported a peace and, more importantly, they’re the only nation which really does have leverage over Russia: without China, Russia cannot survive economically. And, unlike America, China has said it is willing to put peacekeepers in Ukraine. Russia is NOT going to target Chinese troops.
Further, if China promises to rebuild Ukraine, it will do so, and do so quickly and competently. ............
As the Trump administration pauses military aid to Ukraine and western liberals continue their shrieking meltdown over Trump hurting Saint Zelensky’s feelings, it’s probably worth reminding everyone that the Russian invasion of Ukraine was indisputably provoked by western aggressions. That’s why so many western experts and analysts spent years warning ahead of time that western aggressions were going to provoke an invasion of Ukraine.
Now, some may hear this and say “Okay but Russia still shouldn’t have invaded even though our western leaders were aggressively provoking them to.” But before you do that it might be a good idea to look inside yourself and ask where that impulse is arising from. Why are you so eager to skip past the part where you criticize your own rulers for their role in starting this war and focus solely on criticizing the leader of an eastern government who has no power over you? What is it inside of you that’s flailing all over the place trying to avoid any forceful scrutiny of the reckless warmongering of your own government and its allies?
The last time a foreign rival placed a credible military threat near the border of the United States, the US responded so aggressively that the world almost ended (if you want to know just how close we came to nuclear annihilation during the Cuban Missile Crisis, look up the name Vasili Arkhipov). Western liberals have been conditioned to insist that Russia should have responded differently to the US empire amassing proxy forces on its border than the US would respond to the same kind of threat on its own borders. The frenetic mental contortions needed to justify this ridiculous double standard are only possible because the west is saturated in domestic propaganda manipulating the way they think about the world. ............
.............................. The western empire provoked this war. The western empire sabotaged peace talks in the early weeks after the invasion. They refused off-ramp after off-ramp in pushing Ukraine into this situation, and as a result Ukraine is going to be much worse off than before this all started. Wanting Ukraine to keep throwing human lives into the meat grinder in the hopes that they can recover all their lost territory is just sunk cost fallacy at this point. .............
Sci Fare:
Scientists worry that persistent cognitive issues caused by Covid signal that a surge in dementia cases and other mental conditions is on the horizon.
Other Fare:
Pics of the Week:
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