Whose put’s struck lower? Jerome Powell’s or Donald Trump’s?
Opinions vary. Last week, JPMorgan wrote that considering Trump’s first-term obsession with the stock market, it was reasonable to suspect that “the strike of the Trump put would be higher than the strike of the Fed put.” But the administration’s messaging around tariff-related market volatility and macro drag “challenges this assumption,” the bank cautioned, adding that Trump’s “acceptance of an ‘adjustment phase’ for the US economy indicates a lower sensitivity to the recent decline in equity markets, especially if that cost is perceived as temporary.” Ultimately, the bank said the administration may not exhibit anything that looks like real concern for stocks until the S&P falls near 5200.
The digital ink was barely dry on that JPMorgan note before media reports suggested Trump was considering a somewhat softer approach towards what he’s calling “reciprocal tariffs” set to be announced on April 2 — “Liberation Day,” as the administration dubbed it. Wall Street staged a raucous rally to start the week which some attributed to the constructive tariff news.
No sooner were stocks rallying and bonds selling off, than Trump threw everyone another Wakefield knuckleball threatening 25% “secondary tariffs” on anyone who buys energy from Nicolás Maduro (the US, one assumes, is exempt). In the executive order, Trump again tilted at the Tren de Aragua windmill, the same excuse he used to deport nearly 300 Venezuelans under a centuries-old statute earlier this month, prompting a highly contentious showdown with the judiciary. Venezuela, Trump said, “has been very hostile to the Freedoms which we espouse.” (He’d know.)
In theory, Trump could apply the same logic to a lot of countries. If France pisses him off, he could threaten secondary tariffs on any country which buys French wine, or on anyone who buys wool from Australia and New Zealand should they run afoul of his snowflake-delicate ego, or on anybody buying chocolate from Switzerland and Belgium.
Laugh if you will. Because it is funny. But note that ostensible jokes have a way of becoming real headlines in any Trump presidency. Just yesterday, for example, we found out the Defense Secretary posted US war plans for Yemen in a group chat where The Atlantic‘s editor in chief had been hanging out for at least two days on an accidental text-message invite from the national security adviser. Elon Musk played down the debacle writing, in response to a spoof headline from a satirical right-wing tabloid, that “the best place to hide a dead body is on page two of The Atlantic because no one goes there.”
Separate from the secondary tariffs on countries who traffic in Maduro’s oil and gas, Trump indicated that auto tariffs are still coming. He’s just not sure when. Some market participants assumed those were on hold, but maybe not? The White House, he said, will unveil levies on cars “fairly soon, over the next few days.” That appeared to suggest the auto tariffs might actually be announced before “Liberation Day.”
As if this needed to be any more confusing, Trump also said Monday that he might “give a lot of countries breaks” from the reciprocal tariffs next week, not because he’s concerned for markets, nor for disruptions to global trade and commerce, but rather because he’s “embarrassed to charge them what they’ve charged us.” And yes, that’s a direct quote.
Mixed messages, then, to put it very, very politely. The impolite might suggest 47’s approach to tariffs is so transparently seat-of-the-pants — so plainly ad hoc — that it’d make 45 blush.
In terms of the interplay between Trump and markets, BMO’s Ian Lyngen weighed in Tuesday with a characteristically incisive take. “We’re concerned that there might emerge a bit of circular reasoning as it relates to how hard the Administration can push,” he wrote, adding that, “by scaling back the potential worst case from ‘Liberation Day,’ the White House has created a positive outcome for the US equity market and risk assets more broadly, reinforc[ing] the exceptionalism argument that has emboldened the Administration to employ a tougher stance and leaves us worried that a near-term rebound in stocks could encourage the President to seek greater, more dramatic concessions later in the process.”
Lyngen framed the recent price action as evidence that in fact, “the Trump put remains in place and is struck much higher than the Powell put.” Still, he went on, “we’re wary of being this April’s fools in the event the President shocks on the high side with new levies, tariffs and restrictions.”
Remember the stink about Hillary’s emails? Maggie Haberman wrote about them 7 days a week….
We’ve been front running April Fools Day for weeks now…
+1.
Lyngen is right, the Trump put is certainly struck higher than the Powell put. The proof can be found in the simple fact that Trump says he’s not concerned about the stock market.
Trump has two highly reliable psychological traits: denial and projection. A recent display of projecting is one of my favorite to date: Trump said federal employees want to work from home so they can avoid work and go golfing. Then Trump flew home to Mar a Lago so he could avoid work and go golfing. If you ever want to know what Trump is doing behind the scenes, just listen to what he accuses others of doing behind the scenes.
I don’t think I need to provide examples of Trump and his displays of denial. His lawyers coached him well. So when he says he’s not watching the stock market, that he doesn’t care about it… he’s watching. He cares. My guess is that the Trump put is struck right at the 20% down level. The moment headlines start using the phrase “Bear Market,” Trump will react (this goes double for headlines with “Trump Bear Market”).
The real question is, how effective will the Trump put be? While Trump is fully capable of moving markets with his words, he misfires as often as he hits his target. Given the size of his lever, Jerome Powell might as well be Archimedes with his ability to move the world. Powell has the power to cause actual money to be created or destroyed. He can peg interest rates wherever he damn well pleases. Trump has a smartphone, a social media company, and a loud mouth. Sure, he can change all manner of policies at a whim, but the only market he can infallibly lever upwards is Volatility.
Since I have been though a seventeen year journey with my wife finally dying 5 years ago from Alzheimer’s I have a very good idea what dementia looks like. I’d add that to denial and projection, and for sure paranoia. That one hit my wife like a truck.
“What lever” is the key question. Suppose the market hits the Trump Put strike. What policy can or will Trump abandon or reverse to effectuate the put?
In the height-of-irony department we have today’s headline: ‘Trump venture will launch “stable”coin’.
I’ll bet it comes with a kill switch…
Back on topic, in practice, I suspect any Trump put will be randomly priced, so what’s really the point of valuing it relative to one’s portfolio?
Financial Times article
“Among proposals . . . is a plan to launch so-called Section 301 investigations into trading partners, while simultaneously using rarely invoked emergency powers to apply immediate tariffs in the interim . . . could include the use of the International Emergency Economic Powers Act, or a little-known US trade law, Section 338 of the Tariff Act of 1930, to potentially apply tariffs of up to 50 per cent on the country’s trading partners . . . Trump could immediately apply tariffs on vehicle imports on April 2, resurrecting a national security study into the global car industry from his first term. Trump on Monday said tariffs on cars could be announced “over the next few days” . . . a long shot — is an obscure piece of US trade law known as Section 122 of the Trade Act of 1974, which allows Washington to temporarily impose tariffs capped at 15 per cent for up to 150 days.
But the administration has not settled on its approach, with the purpose of the tariffs now in flux.
While Trump has complained of foreign countries’ unfair treatment of the US, his officials are more focused on using tariffs to raise revenues for planned tax cuts rather than as a bargaining chip with foreign capitals”.
As discussed, watch for tariff revenue being built into tax/budget – then the autogaslighting about tariffs just being a master negotiator’s tactics will “poof” and the reality of quasi-permanent global tariffs at 1930s levels will set in.
Of the positive side, “tariff winner trades” could then make money.
I kinda think we hit the put already. Trump was talking a lot of shit until the “Trump Correction” headlines started. He’s a walking spongebob episode so to Lyngen’s point if the market goes back up he might get cocky and need some “Trump Crash” headlines put him back in his place. But for now he seems like he got his yayas out.
I believe you are exactly correct.
The above article demonstrates the folly of the market paying attention to every Trump hiccup. The market thought it knew Trump right after the election and has been bouncing ever since his actions show what he is really up to. No need to play the game and to be jerked around. We now know enough to let go of the obsession and to chart our own paths as investors and countries.
A chimp with an AK47….