TACO. Who wants TACOs?
I’m referring, of course, to the acronym for “Trump Always Chickens Out,” which in 2025 is an actual trading strategy.
I don’t know what Beijing said to Trump over the weekend, but whatever it was, Friday’s chest-beating bravado turned into Sunday’s mollified mumbling which translated directly into Monday’s risk rebound on Wall Street.
China responded to Trump’s tariff escalations in a subtly menacing press release masquerading as an export control FAQ list, but according to Scott Bessent, the two sides were already engaged in an effort to dial down the temperature.
Apparently, The White House’s initial efforts to reach out to China about Beijing’s latest rare earth export restrictions were rebuffed, prompting the Trump tirade which torpedoed US stocks late last week. Subsequently, the Chinese picked up the phone.
There was “substantial communication” between the two sides over the weekend, Bessent told US state television on Monday, adding that he expects the planned Trump-Xi meeting to go ahead next month on the sidelines of the APEC summit in South Korea.
Between Trump’s transparent attempt to talk back Friday’s selloff (i.e., his absurdist “Don’t worry about China, it will all be fine!” exhortation) and Bessent’s follow-up (which, I should note, was replete with quasi-threats), the dip was bought and the vol rip sold.
The chart below is proof of life for Pavlov. Note that the classical conditioning’s even stronger in 2025 commensurate with the size of the reward the administration delivered on April 9, when a plainly panicking Trump catalyzed a near 10% single-day surge for the S&P and a 12% rally for big-tech.
Suffice to say the dogs salivate especially greedily when you pair the initial bell with ground up TACOs instead of cheap Pedigree.
By now, everyone — including and especially Xi — knows Trump doesn’t have the stomach for the sort of all-out tariff war he sometimes insists is necessary to restore lost American “greatness.” Triple-digit trade levies on China are tantamount to an embargo, and that simply isn’t tenable.
So when Trump threatens triple-digit tariffs, as he did on Friday, it’s everywhere and always a bluff. He will “chicken out” because sticking to his guns would mean betting a hopelessly spoiled US electorate can outlast the Chinese in a war of creature comfort attrition. A ridiculous proposition if ever there was one.
In 2025, competition for so-called “dip alpha” is synonymous with a frantic rush to claim “TACO alpha.” Because more times than not, tariff threats are the proximate cause of equity dips.
The TACO acronym’s philosophically problematic, though. TACO rallies can negate themselves simply by occurring if Trump’s pride gets the best of him. That is: If Trump’s apprised that stocks rallied on the notion he’s a “chicken,” he might be tempted to double-down on the belligerence, triggering another market reversal.
That to say this: Don’t get too comfortable. Particularly given that we still don’t know whether China intends to enforce the rare earth curbs which drew Trump’s ire last week.
During the same Monday Fox interview, Bessent described those export restrictions as “a bazooka [pointed] at the supply chains and the industrial base of the entire free world.”
New item on McDonald’s menu: chicken TACOs.
The chikin TACOs will. go right next to the hamberders.
And both come with a free Covfefe.
“So when Trump threatens triple-digit tariffs, as he did on Friday, it’s everywhere and always a bluff. He will “chicken out” because sticking to his guns would mean betting a hopelessly spoiled US electorate can outlast the Chinese in a war of creature comfort attrition. An ridiculous proposition if ever there was one.”
Similar dynamic applies to voters who claim to support slashing governmant spending until they realize that might mean that it will mean that their aging parents or inlaws cannot be dumped into luxurious Medicaid-paid eldercare facilities: “My God honey, there is so way I can deal with caring for her in this small house…”
Fortunately for the US, Australia (who has a long and checkered history with ubiquitous mining- not only in Australia but throughout Oceania) is agreeing to fast track mining of rare earths for a US/Australian partnership.
https://www.australianresourcesandinvestment.com.au/2025/10/10/new-rare-earths-deal-strengthens-us-australia/
Again – rare eaerg ores are pretty abundant. The capacity to refine them into a useful form is not. Even in Australia. And even if it was, you are looking at years not months.
Abundant, but not often found in concentrated amounts. Iron, copper, coal, spodumene (lithium), they’re found in large deposits and veins which allow for efficient bulk mining. Rare earths are most commonly found in trace amounts in the tailings of other minerals’ mining and/or refining processes.
REE names are popping up like mushrooms. Everyone has a promising mine project. Fewer have refining capability, or magnet manufacturing capacity.
Even fewer have guaranteed take deals and price floors, to keep them profitable when China drives REE price down to far below Western costs, as it periodically does.
Of course, Western companies should take advantage of those periods to stockpile years’ worth of REE inputs. The entire US import of REE was about $190MM/yr. Big US companies could have insulated themselves from REE supply risk for the cost of one month, or one week, of share buybacks. They didn’t. Japanese companies did.
The company I would want to invest in is Noveon Magnetics, based outside of Austin, TX. It is currently operational, but still in the process of scaling to maximum manufacturing capacity. A pretty great story about the founder and his vision.
Unfortunately, I don’t have the level of net worth to have access to these kinds (I would also like to invest in SMR’s) of private investment opportunities.
Trump was just sidetracked today by the opportunity to show appreciation for himself and take credit for world peace. We know he chafes at the TACO term. There has been no de-escalation since Friday, except for Trump hinting that Xi would come to his senses. The two sides may be trying to dial down the temperature, but both Trump and Xi want to “win” -trade is not accomplished by the two biggest bullies on the playground. I would not be surprised at another Truth Social tirade in the wee hours of the morning sometime in the next few days. I wonder how many people will get advance notice about the upcoming tirade?
In the immortal words of His Highness Donnie J Drumpf himself, the answer is A LOT.
This is just a way to “lead” a country…………………………… I am amazed the economic repercussions have not been greater. He/we can do better
It is interesting, though, that a mere 3% equity blip brought out the conciliation. In April, Trump was unmoved by a much deeper equity hit and it took bond “yips” to cook the chicken. Perhaps someone there realizes how much weaker the Main Street (as distinguished from Wall St and AI St) economy has become in the past six months? Or maybe China timed its move well, during a govt shutdown?
or Trump just didn’t want news of a down market when it was his day to ‘shine’ on the world stage.
I guess you saw the futures before I did because “Don’t get too comfortable” is the phrase of the day, thus far. Trump may have tangled with the wrong tiger.
In the last few weeks, he’s gone from transparently corrupt to transparently ill. Wall Street won’t care if he’s dealing with TIAs (transient ischemic attacks) or TDS (Trump Derangement Syndrome) …they’ll simply take chips off the table.
Risk-off is back.
His illnesses becoming more obvious seems like the big story no one is talking about. He tweeted a couple days ago about ‘Biden’s FBI’ on January 6,2020. He was able to hold that thought in his head long enough to type it out on his phone and post it, without the notion ever creeping into his mind that it was 14 days before Biden took office.
And yet it’s ignored, and you get accused of having TDS if you suggest the dementia is getting worse.
SPY aftermarket down from yesterday’s close as well.
I’d review Walt’s 10/8 piece on the risk the vol algos present if the stock market whipsaws too much. Here’s a quote from his piece:
“I’ll spell it out again. After a while — which is to say after a prolonged period during which equities meander higher on relatively contained daily moves — the projected, model-based sell impulse from vol-sensitive strategies in the presence of larger stock swings exceeds the projected, model-based buy impulse in a scenario where stocks continue to trade calmly. Again: That’s the asymmetry.”
Ignore Walt at your own risk.
Bessent should learn to keep quiet. He doesn’t know to speak to real world adults.