Did everyone hear Scott Bessent on Wednesday?
I hope so, because the rhetoric from the Trump administration at this point changes by the hour, and the ever-shifting narrative’s a source of comic relief, even as it drives a lot of market participants crazy.
Last week, and really right up through Monday, the big guy was carrying on as usual about global conspiracies to expropriate America’s wealth and how much of a “loser” Jerome Powell is, only to turn around on Tuesday — which is to say after Wall Street suffered another grievous selloff — and claim he never wanted to fire Powell in the first place, and that he actually intends to be “very nice” to China. Not only that, Trump said tariffs on Beijing “will come down substantially.”
Fast forward to Wednesday, and Bessent, speaking at an IIF event in Washington, refused to say whether Trump has in fact ruled out firing Powell. “I’m not a lawyer,” he responded, when queried on the simmering soap opera.
Although he trafficked in a set of thoroughly exhausted talking points centered on the old “America first does not mean America alone” cliché, Bessent also chastised the IMF and World Bank for “mission creep,” an allusion to Trumpian anti-globalist sentiments.
Notably, he appeared to walk back Trump’s remarks on lowering the China levies, ironic considering it was Bessent who started the ball rolling on the conciliatory tariff rhetoric halfway through Tuesday’s session. There’s been no “unilateral offer from Trump to cut tariffs on China,” he said. A full deal with Beijing “could take two to three years.”
Again, this is the same Scott Bessent who on Tuesday told a closed-door meeting of investors convened by JPMorgan that the Trump administration knows a triple-digit tariff duel between the world’s two largest economies isn’t sustainable and that he expects a de-escalation sooner rather than later.
So, which is it? Is firing Powell on the table or no? Is a de-escalation with China imminent or not so much? What’s going on? More the point: Is there a plan here, or is this all just ad hoc? Because it seems to me — and to a lot of other people besides — that the script gets burned every night, and the administration starts with a blank page the next morning.
“Convos with clients are indicating that most continue [to] exhibit reticence to ‘chase’ new information with still nothing tangible here and instead, bunches of trial balloons,” Nomura’s Charlie McElligott said, noting that tariff negotiations with China “haven’t even begun.” Beijing, he reminded investors, has “said repeatedly” they won’t negotiate with a gun to their head.
If you ask Charlie, conciliatory nods from the administration following stock (or bond) selloffs are just damage control devices good for a “relief rally optic,” but not much else, and certainly not for any “two-handed re-risking.”
In addition, every incremental “fold” from Trump — or even just the perception that he’s folded to markets — weakens his leverage, “which in turn reduces pressure on China et al to rush towards a conciliatory deal.”
That’s a key point. I realize “Liberation Day” seems like a lifetime ago, but in fact, it was just earlier this month. We’ve seen any number of capitulatory actions and rhetorical “caves” since April 2. And everyone knows where the pain thresholds are. It’s fairly obvious, for example, that there’s no appetite at the White House for five-handle Treasury yields, nor for a domestic economic downturn that morphs into whatever a modern-day depression looks like.
The problem for Trump, though, is that the toothpaste’s out of the tube. He can’t cave entirely. He’s pot committed. And we haven’t even made it to the sector-specific tariffs yet, which according to Howard Lutnick are due by or before June.
Further, it’s critical to remind yourself (preferably every day) that the starting point for the average US tariff rate was between 2% and 3%. So even if Trump cobbles together some kind of “compromise” regime that puts the “terminal” US tariff rate at, say, 15% (versus a guesstimated 25% currently), that’s still a tripling of the pre-Inauguration import duty.
“It’s still stagflationary,” McElligott said. “We’ve just moved from the acute left-tail, ‘run-the-train-off-the-cliff’ risk to instead, a chronic ‘fade-into-the-economic-wall'” scenario, he wrote, adding that the implication’s still “a growth drag and a (local) inflation tailwind.”
Speaking at a Semafor summit on Wednesday, Ken Griffin warned that the uncertainty Trump’s stoking will be counterproductive. “People are not going to race to build manufacturing in America,” he told the financial media. “With the policy volatility, you actually undermine the very goal you’re trying to achieve.” “Unfortunately,” Griffin went on, “the trade war has devolved into a nonsensical place.”
Gee, Ken, who could’ve seen this coming? You’d think people managing tens of billions of dollars would have some basic ability to recognize a charlatan.
Remember the 2004 presidential election when the GOP excoriated John Kerry for “flip flopping” on issues? Back then GOP voters favored resolute stuborness over reactive bobbing and weaving.
Things have changed, I guess.
Crazy that it hasn’t even been a month indeed. It feels we really went down the rabbit hole on April 2nd and we still haven’t found our way out.
It’s game over for America I think. Total laughing stock on the world stage and the country is quickly realizing it holds no real cards.
Because it holds no real leaders.
Yes
This is the very real problem. Neither party possesses a single viable leader who knows anything. The US literally has no future.
Nice to see the Big Orange taking care of those who add to his coffers. The top 220 holders of Bitcoin $TRUMP will be invited to an exclusive gala dinner with the president next month.
It’s beyond my mental capacity to understand how something like this can be normalized.
I thought that, at least in part, Trump wanted to increase tariffs in order to set the stage for Congress to extend the 2017 tax cuts (the real goal). So if tariffs are just the means to the end; then it really doesn’t matter if US actually collects more in tariffs or not- so long the perception is that higher tariffs are on their way (just close your eyes and believe) which will offset taxes given up by extending the 2017 tax code (vote yes! because this is favorable to the wealthy who paid to get you in office).
I still say that a “cabal” of ultra wealthy/power brokers, who have direct, or once removed, access to Trump, are calling the shots. And that cabal doesn’t want anything to happen that would destroy their own wealth.
So what is “signal” and what is “noise”?
I think you’re right about a cabal. Just think it’s a group that’s formed that wants to take us back to the “glory days” when we were a white, god-fearing nation, when white/men/might made right. Trump doesn’t care about the religious implications because they’ll let him and his family become wealthier than they ever would have been (already happening). He’s a tool.
Maybe. My life experience tells me that it is ALWAYS about the money.
Trump goes into his playroom and consults his magic 8 ball….The Magic 8 Ball has 20 possible answers, ranging from affirmative to negative and non-committal. Affirmative answers include “It is certain”, “Yes, definitely”, and “As I see it, yes”. Negative answers include “Don’t count on it”, “My sources say no”, and “Outlook not so good”. Neutral answers include “Ask again later” and “Very doubtful”.
Now you know.
Concentrate and ask again.
This is the conundrum.
The reciprocal tariffs announced on 4/2 plus the triple-digit tariffs thereafter announced on China imply a very severe recession or worse – maybe with high inflation, maybe with recessionary deflation – and SP500 with a 3 handle.
The current best-wish-case of 10% on everyone plus 50% or so on China imply a significant recession, and a 4 handle.
We don’t know which scenario we’re headed for, or how long it will take to get there (2-3 years?!?), or what other self-harm this administration will inflict, and yet the SP500 has a 5 handle.
Actually, is that really a conundrum? Maybe it’s pretty clear.