The Markets are Calling Trump and Bessent out…

Monday’s overnight markets in bonds, gold, dollar, and stocks, are saying enough is enough. Crazy game over.

Donald Trump increased his attacks on Jerome Powell. Basically, he’s saying that if the current situation is painful for everyone, it’s the Fed’s fault. And we can read between the lines what lies ahead if the White House’s economic policy turns out to be a disaster: it will be Powell’s fault for refusing to cut rates. The direct consequences: the dollar has taken a hit, US bond yields have jumped, and gold has soared to new heights, flirting with USD 3,500 per ounce.

The trade war launched by Donald Trump is destabilizing investors around the world. If it comes with a crusade against the Fed, the situation could become explosive: financial markets abhor situations that are poorly controlled. Wall Street can tolerate the White House wreaking havoc around the world if it is in the interests of the U.S. But the American business community is much more nervous when chaos begins to spread at home. If, on top of that, dissension sets in between the political and monetary authorities, the risk of things getting out of hand increases.

From a News standpoint we will therefore be monitoring two stormy relationships this week: that between China and the U.S., and that between Trump and Powell. On Wednesday, all eyes will be on the first PMI activity indicators for April, which will provide a snapshot of the major economies at a pivotal moment in the trade war. 

Keep in Mind…

The economy and stock markets are two different beings. That is why in my analysis I separate the Drivers of the Market into two separate entities, monetary drivers and economic drivers. Interestingly monetary drivers, in spite of Trump’s contentions, have been very supportive of the stock market. A declining dollar, relatively low short-term interest rate, and declining oil prices have been very supportive of the markets since early March. The yield curve and gold do however tell the big story as long-term rates smell the rot building in the economy. The second part of the Driver’s story, the two multipliers, the monetary and economic multipliers, both tell the same story, declining confidence in a good long-term outcome.

Which brings up Trading the markets…

I think one has to ignore the media during all this, starting with the WSJ, and move on to Forbes, Bloomberg, and CNBC. These news sources have been in a financialization bubble since 1980 and at this point have little clue about what to do next. Keep in mind Steve Bannon, the instigator of all this back in 2016 was and still is a believer in crushing financialization. Fox has never had a clue, Kudlow may be the most clueless, and for him that started during his Reagan years.