Charles’ Note: Whenever I try to connect the dots or see the order behind the chaos, I fall back on the wisdom of Occam’s razor: The simplest explanation is usually the best one.
For example, you’re at a ranch in Texas and hear hoofbeats. The approaching animal could be a:
- Horse
- Zebra
- Centaur, the half-man, half-horse creature from Greek mythology
I suppose any of the three would be possible. But which is probable?
The rational answer would be horse.
I ponder this in the aftermath of President Donald Trump’s decision to put his “Liberation Day” tariffs on hold for 90 days.
Which of these two scenarios would seem more likely:
Scenario 1: Trump devised an elaborate plan that he kept so secret that even most of his cabinet and closest supporters in the media, Wall Street, and Congress didn’t know the details.
He would tout the revenue that his new tariffs would bring in and an amazing stampede of new investment in American factories would immediately follow.
He would intentionally fabricate a fake public feud between Elon Musk and trade advisor Peter Navarro as a distraction.
To show he meant business, he would intentionally create a meltdown in the stock and bond markets while continuing to insist the tariffs were simultaneously permanent and open to negotiation to sow maximum confusion and chaos.
And then, just as it looked like we were sliding into the abyss, he would abruptly come to the rescue by putting the tariffs on hold, knowing that backing down in the face of a market meltdown would make him paradoxically look strong and increase his bargaining leverage.
Or…
Scenario 2: Trump slapped on the highest tariffs in over a century without thinking through the consequences.
He panicked when the stock and bond markets went into freefall and his wealthy donors publicly turned on him.
Not wanting to go down in history as the guy who started the second Great Depression, he got cold feet… but made sure to save face by increasing the tariff on China.
I’ll let you draw your own conclusions.
The good news is that we get to go through all of this again in exactly 87 days when the tariff pause expires!
Welcome to the Age of Chaos.
As always, one of the greatest market commentators and thinkers of our time, Bill Bonner, has a way of putting it all in perspective. As founder of Bonner Private Research, Bill has dedicated his life to understanding market insanity and using that knowledge to invest successfully. The man’s been connecting the dots for longer than I’ve been alive.
Bill, take it from here!
Planetary Wealth Extinction
By Bill Bonner, Bonner Private Research
Countries are kissing my a** to negotiate trade deals.
— Donald Trump
How exhilarating it must be. To have the whole world bending over and puckering up.
What a feeling of power!
Like Gen. Irvin McDowell setting out to teach those Rebs a lesson at Bull Run… Bonaparte chasing the Russkies out of Moscow… or the Titanic under full steam.
And what a pleasure it must be to jerk them around. You threaten them with tariffs… and then, at the last moment, you “pause.” Then, you single out the world’s biggest exporter for punishment… because he disrespected you!
On your own say-so, you introduce the biggest tax increase ever (no need to ask Congress!) on everyone who shops at Walmart.
And you – not the free market, not the citizens themselves, not buyers and sellers – decide who wins and who loses. Trump:
Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately… At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other countries, is no longer sustainable or acceptable.
We thought we’d seen it all. But there must be more to this story… a sequel… a Part II. After all, in what kind of a story would we see such vaulting pride without a fall that followed?
What kind of dull, predictable world would it be if the bully got his way?
Fortunately for irony, sarcasm, and long-odds bettors… there are still plenty of surprises… and many slippery feed-back loops to circle around and bite the Big Man on his big derriere.
And there it is – the snakiest bond market since Adam – a huge beast… nourished by Democrats and Republicans over the last half-century.
Thanks to the U.S. fake money system… nearly un-interrupted deficits, including half-a-century of trade deficits as well as federal budget deficits… there are nearly $37 trillion worth of U.S. notes, bills, and bonds outstanding.
And of all the prodigious borrowers, none outdid America’s current jefe, Donald Trump. In just four years, he accomplished what took his predecessor – Barack Obama – twice as long, adding $8 trillion to the national debt. Now he’s back. And back at it. Spending is going up.
Breaking Defense:
A $1 trillion defense budget? Trump, Hegseth say it’s happening
“We also essentially approved a budget, which is in the [vicinity], you’ll like to hear this, of a trillion dollars,” Trump said while meeting with Israeli President Benjamin Netanyahu.
Debt is going up too.
The Peterson Foundation:
The tax cuts proposed by President Trump and Republican leaders would reduce tax revenues by $7.8 trillion through the 2025–2034 budget period, according to the Tax Foundation. If not offset with spending cuts or tax increases, the tax cuts would increase deficits by $9.1 trillion over 10 years, including related interest costs.
And that’s in addition to the trillions in new debt already on the program.
But there is a wobbly planet in the Trump firmament. The feds can cut off trade with friends and “enemies.” They can pump up the economy with stimmies. They can back the stock market with “put options” and rescue packages. They can reduce unemployment by hiring people… and increase sales by spending money they don’t have.
But they can’t control the value of the money they spend… or control the cost of borrowing it.
And when Planet Debt spins out of control, watch out.
James Carville famously remarked in 1993:
I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.
But back then, the U.S. treasury market counted only $4 trillion in federal debt. Today, it is nearly 10 times as much. Worldwide there’s more than $100 trillion of debt that is either directly or indirectly calibrated to U.S. Treasury market yields. And this week, those yields went over 5%.
The Wall Street Journal:
U.S. Treasury yields continued to surge after President Trump’s sweeping duties, including a 104% tariff on Chinese goods, took effect Wednesday and investors raced to pull money out of bonds. In overnight trade, the 30-year Treasury yield briefly touched 5% before retreating. It was last trading at 4.835%, still up 12 basis points on the day and up about 45 basis points this week, according to Tradeweb data. Yields rise when bond prices fall.
Newsweek comments:
A swift and sharp sell-off in U.S. Treasuries is rattling global financial markets, shaking the foundation of what has long been considered one of the world’s premier safe-haven assets.
Even in 1993, the bond market flexed its muscles and prevented Bill Clinton from passing the stimulus package he had promised voters. Yields rose and he couldn’t finance it.
Today, the bond market is much bigger and much stronger. It is where investors all over the world register their faith in the U.S. dollar, the U.S. economy, and U.S. leadership.
But with enough tariff hikes, pauses and tax cuts, that faith could evaporate.
A big increase in bond yields would mean a big increase in the cost of funding U.S. deficits.
Either the Trump Team would be forced to back off.
Or, brace yourself for wealth extinction on a planetary level!
Regards,
Bill Bonner