The Trump administration is up to their elbows in meddling directly with the economy.
Despite the fact that services are 80% of the U.S. economy (goods production is only 20%), and the fact that the service sector has a positive balance of trade, Trump has focused on goods because of the negative balance of trade.
I’m not sure of the status of tariffs since it seems to change every day. Not to mention the administration slapping fees on shipping if the cargo vessels originate in China (or maybe were simply manufactured in China?).
This has a direct impact on manufacturers and also on consumers.
With Only Bad Options, Businesses Scramble for a Tariff Chaos Playbook
President Trump’s trade war is forcing companies to cut costs, raise prices, shrink profits, discontinue products and find other suppliers.
By Lydia DePillis, The New York Times, April 20, 2025
Businesses that rely on imported products expected duties, which President Trump had promised. Just not this high, this universal or this sudden, with almost no time to adjust. A 145 percent tariff on all Chinese products, after all, is more like a trade wall than a mere barrier.
But shock is settling into reality, and corporate leaders are trying to manage…
Move out of China, preferably yesterday [develop alternative sources]
Take the hit and hope it’s temporary… Corporate profits are near record highs, so they might accept narrower margins, at least for a while. [expect lower profits which will hit stock prices]
Batten down the hatches
Even for those with healthy profits, paying more in tariffs generally means spending less on something else. That could mean deciding to not lease a larger space, pay for advertising, buy new equipment or hire a new sales associate.
Some can cut costs through automation. Others will end up letting people go…[end quote]
“Batten down the hatches” means cutting back on capital investment, firing workers and reducing other spending which will reverberate through the economy. This is a classic recipe for recession.
Who Will Pay the Price for Trump’s Economic Goals?
Slash the trade deficit and the net inflow of foreign money dries up; this will hit share prices and raise the cost of borrowing for companies
By James Mackintosh, The Wall Street Journal, April 19, 2025
…
Smaller trade deficits mean smaller inflows of capital…
The flip side of America relying on foreign savings all these years is that it has been able to consume far more. The rest of the world has to work for a living, while America gets stuff in return for promising its full faith and credit…
The existing system is focused on delivering stuff to satisfy consumer wants, and let jobs fall where they will, even if that is outside the U.S., rather than delivering jobs and supplying only the stuff that ends up being produced…
More expensive stuff, and less choice of stuff…
Higher interest rates. The capital inflows that offset the trade deficit help fund a big chunk of federal government borrowing…
Lower stock prices.…
A weaker dollar.… Questions over the independence of the Federal Reserve, and Trump’s personal attacks on its chairman, Jerome Powell, have the potential to scare off buyers of both the dollar and Treasurys…[end quote]
Investors are watching this chaos closely and have come to similar conclusions.
SPX and NAZ are in steady downtrends. The percent of S&P100 stocks over their 200 day moving average has dropped to 35%. This was consistently over 60% in 2024. VIX has dropped from its high but is still elevated at 30.
The trade is risk-off as stocks and junk bonds are falling faster than the 10 year Treasury price. USD is falling. Gold continues to skyrocket. Oil and natgas prices are falling.
The Treasury yield curve has a positive slope. (Except for the fed funds rate.) The two-year Treasury yield is lower than the fed funds rate which shows the market expects a recession in the near future, forcing the Fed to cut the fed funds rate. But Fed Chair Jerome Powell will not cut, regardless of market turmoil or slowing of the economy, as long as inflation is higher than their target and unemployment is relatively low.
The Fear & Greed Index is in Extreme Fear. Financial stress, while still low, suddenly spiked. Junk bond spreads suddenly jumped since a recession can cause default of zombie companies.
The actions of the Trump administration caused a trend change that can be seen in the charts. The sudden announcement of “90 day delays” in the tariffs caused immediate relief in the markets. But how long can that last?
The stock market is still in a bubble. A little air has been let out but it’s still vulnerable to being popped.
The METAR for next week is rainy and possibly stormy. This is not going to turn around soon.
Wendy
). Focusing on what benefits low education people, would tie in with “Plan Steve” to increase the use of child labor, while largely defunding public high schools and colleges, so the money can be given to the “JCs” instead, which I have been banging on about for some time.