A put is an option to SELL at a certain price, not BUY. If a stock is at 40 and you pay $1 to buy a put at $30, you have the option to sell it at $30. If the stock goes to $25, you can buy the stock at $25, sell it at $30, and your profit is $5 - $1 (initial premium) = $4
It's a way to limit downside. If you owned the underlying stock above and had a put at $30, the lowest you would have to sell the stock at is $30, even if the price is lower.
Hence the "Trump put" is the idea that there is some value in the market that Trump won't let the market go below, essentially giving investors a free put option.
This has the right idea but focuses on the wrong market. Trump only folded because of the bond market, not the stock market, which Trump conceded. Out of control yields on 10Y Treasuries could absolutely lead to a crisis, and that really began on April 7/8th. And this hasn't gone away either. Stocks rose, but yields are still rising (albeit slower). One hopes that stubborn bond markets tames even Trump's impulses, but I'm not holding my breath.
My friend, who is a currency trader and European national, warned me about this weeks ago. He said "you guys are burning down your house, the nicest house in the neighborhood, because you are bored and can't contemplate what burning it down means". He said everything we have is tied to our global leadership and currency reserve status, and that by blowing up trade, we threaten everything that stabilizes us and makes us the richest country in the history of the world.
This was in response to listening to a lady on the ski lift talk about how all of the fears around Trump's threats were overblown. He just looked at me blankly and said "Americans have had it so good, they walk around in a fog of dumb, numb, oblivious to their good fortune". We are like the rich kid born on third base, thinks he hits a triple, and then decides to burn $100 bills and crash his Lambo just for fun, only to realize that daddy has blown the entire fortune and he is now screwed.
This is very true, but the analogy doesn't quite hold as well as it seems on the face. The issue is the country isn't just an individual or a single household. In the aggregate, you can treat it as such, but that's just an abstraction (a useful one, to be sure, but still an abstraction). A country can still be considered "rich" by aggregate metrics even if a significant portion (half, 3/4, 90%, whatever) have little to no wealth, so long as the ultra-wealthy are doing well enough to offset the huddled masses.
This is all to say that what's happening is more a reflection of what those with very little to nothing feel about the economic state of the country. Sure, they will also be hurt by an economic downturn--as will everyone else--but you'd see a much different political landscape and, in turn, decision process if everyone was in roughly the same economic boat. This isn't a claim one way or another on whether such a state of affairs is a good or even desirable scenario, but at least in such a case the analogy of a rich kid burning $100 would be more apt.
In reality it's more like a wealthy household with multiple children, some of whom are the favorites and/or have done very well for themselves whereas the others have been cast aside (either through their own fault or external forces) and are doing much more poorly than their siblings. In this analogy the "less fortunate" siblings are still doing well relative to other families, but the root cause of the "burning of $100 bills" is much less about nihilistic boredom than it is about envy at the growing realization that some members of the same family are doing much worse than their compatriots.
You're making the same mistake as Trump , which is incidentally the core reason we can't expect the market to tame Trump: The markets didn't go down because of his tariffs, but instead went into free fall because of the catastrophic effect the tariffs would have on our economy, namely neutering supply chains for the vast majority of Americans and businesses. A tiny fraction of what we import can be source domestically at all, what little is that is available will be in limited supply as very few plants have unused capacity sitting around. What can be reshored eventually, which will be closer to a decade out and highly automated, will provide very few jobs. Anyone not directly impacted by the immediate loss of employment as hundreds of thousands of business shutter, will be hit by the secondary effects of unemployment spiking well into depression era numbers. Remaining business will have to make do with significantly fewer customers, virtually eliminating growth potentials.
With a 10% global tariff and 145% Chinese tariffs, we're possibly out of a depression but still certainly in a recessions. Because Trump and his supporters are unable to see these realities, they will continue to ignore the markets decline until it's much too late to fix.
I get the argument that the 10Y yield jumped more than usual during this episode, but it's also trading well within it's 1-year range and any look at a 5y chart shows at least 10-12 similar short-term moves to the 10Y yield in that period (along with it obviously going way up in general). I guess my question is, if they are this concerned about the 10Y yield right now, why weren't people freaking out about the 10Y yield in December or April of 2024?
Whereas the stock market collapse is clearly unparrallelled since March 2020 in its speed (though the 2022 bear market was ultimately deeper than we've seen so far, that took several months to play out).
Why is this 40bp increase to the 10Y so much more significant than those other ones?
10Y yields almost always lower when the market sells off as investors move their capital to safer assets. This time, for whatever reason, yields rose. The reasons behind it and the consequences are complicated but the federal government was staring down the barrel of potentially even more massive interest payments (already $1 trillion per year).
Hard to know what would happen but there could have been contagion that sent them even higher if markets kept unwinding. The upward spike was extremely rapid.
2) in the wrong direction. Yields fell of a cliff as bond prices rose during COVID. You could re-fi a house for 2.75%. Flight to safety usually means US Treasuries.
If investors lose confidence in our ability to desie to repay our debt, we're scewed. Trump has said things along these lines. Remember, he basically had to go to the "lender of last resort" in Deutsche Bank becasue nobody else would give him a dollar. He kept defaulting, declaring bankruptcy, stiffing creditors. If he pushes do the do the same thing to the US, it could make us Argentina.
Not to mention that China holds a lot of our debt. If we push too hard on tariffs with them, they could burn us by dumping debt and sending our yields to the moon, making refinancing our debt prohibitively expensive.
“We are concerned because the movements you see point to something else other than a normal sell-off,” said a European bank executive in prime services, a division that facilitates leveraged trading for firms including proprietary traders and hedge funds. “They point to a complete loss of faith in the strongest bond market in the world.”
Traders said poor liquidity — the ease with which investors can buy and sell Treasuries without moving prices — was exacerbating market moves.
Analysts at JPMorgan said market depth, a measure of the market’s ability to absorb large trades without significant shifts in price, had significantly worsened this week, meaning even small trades were moving yields significantly.
The head of Treasury trading at a major US bond manager said liquidity was “not great today” and explained that “market depth was running 80 per cent below normal averages” on Friday.
“If a stiff breeze blew through the Treasury market today, rates would move a quarter point,” added Guy LeBas, chief fixed income strategist at Janney Montgomery Scot
the pattern today in the bond market is not great, not grat at all.
It was bond market and currency crisis potential that whacked Truss in UK and if it is potentially an outright crisis triggered by Treasuries collapse that could break Trump.
Nate hit it here with the comment about Congress delegating too much authority to POTUS. Trump is taking it off the rails but he didn't start the train and this type of this should have been an obvious result of congress doing everything it can to dodge actually having to work.
The original idea ironically was that Congress would be too prone to political pressure by interest groups to raise tariffs inappropriately, so they delegated the authority to the President to free themselves from having to take No votes on tariffs that would anger people and business in their districts.
But if the idea was for the President to say "No" to inappropriate tariffs, couldn't they just leave the power with Congress and expect the President to veto the inappropriate ones?
This post assumes without evidence that Trump “listened” or “capitulated” without once considering this was the plan the whole time. Art of the deal in action.
Look where we are now: the world just got left with a 10% global tariff and feels grateful.
China is sitting at 145% and is isolated from the world. Every other country clamoring to line up and cut a deal.
Trump just moved global markets 10% with a shit post! Now Trump- and the world- know he controls global markets.
In seven days he reframed 10% tariffs from “dangerous” to “default.” He isolated China. He dared them to retaliate—and they did, on cue. Now, every country knows two things:
1. Trump is willing to go full nuclear with China.
2. Everyone else has a 90-day window to cut a better deal.
He’s not bluffing. He’s negotiating in public—with the entire planet.
There is a large lag between setting up a tariff and its flow through to US consumers and then reporting the consequences. So an increased China tariff in April will not be experienced by US importers until May/June with the impact on consumers in June/ July, reported in July/August.
So for a short term perspective, Trump's actions are impacting markets based on guestimates of consequences, some of which haven't been considered. For an example, Xmas goods are being contracted for now, for delivering in August/ September, for sale in November/December. Importers will need to factor in NOW, the market reaction expected in November/December.
So there is a huge amount of guestimation going on, that doesn't give us a real understanding of what to do, consider, change.
There are many stories of people and business getting hit with Tarrifs already, some even prior to the tarrifs going into effect. Also, one doesn't need to guess what's going to happen as we've seen this a number of times throughout history. The question is the degree of catastrophe Trump is creating and how long we'll have to endure it.
canary in the coal mine. We need to heed that warning and watch it very carefully.
I think we're in for an Armageddon and a very long four years. I remember 08-09 and the awful aftermath very clearly when even government money markets broke the buck if they had the wrong kind of repos. This could get that bad and even even worse as investors around the world lose confidence in our govt. and no longer buy our debt. Instead they dump it.
Back then Obama was surrounded by competent professional financial minds who helped dig us out of the mess. Not today. The moron currently in office trusts his gut instinct. Facts and data are irrelevant. So, whatever happens is going to be much worse because the emperor has no clothes.
I've actually been thinking of putting money in something other than dollars - not gold necessarily but other currencies. And keeping a lot more cash on hand under the mattress, literally. Normally I only keep a couple of hundred bucks around the house because I have no need for it. That's going to change.
Treasury money funds is where I am right now as I cashed out in early February. I had heard one stupid utterance too many and said 'that's it.' I've known many who did the same, a couple of months back restructuring their portfolios getting out of the market entirely. All these people believed Trump would not only destroy on their portfolios, but the country as well.
We do not have a rational leader. Other people have said he's mentally deranged. At one time, I had believed that was a bridge too far. I now think he is, in fact, mentally deranged, with an IQ of about 85.
I'm convinced everyone is underestimating how bad it will get.
The fact that Treasury bonds are selling like their debt from a third world country, we've already gotten all the signs we need. Trump has broken almost a hundred years of financial reliability that helps underpin America's global financial dominance. I do feel that if something is done shortly, we can probably return similar levels of trust within a decade or so. Not exactly same, and it will take a shit ton of work. If we wait to much longer, it will be generations if at all, before the world market treats us like anything other than high risk country for business and debt.
What are the odds that this sudden reversal was basically insider trading playing out in full view? Trump’s post about it being “a great time to buy” sure makes it seem like it. Even with the losses today, I can only imagine how much some people made yesterday after the bounce…and those people certainly aren’t the ones currently worrying over their retirement savings like the rest of us.
The post would be a horrible way to coordinate insider trading. I guarantee that some people and firms made and lost astronomical sums of money yesterday (or even today) if they were playing around with highly leveraged options.
The actual insider trading would be the people who knew he was about to pause, getting in before it (and then knowing enough to get out before today).
The real stunner is that Trump called for a weaker dollar. Presidents may think that, but they never say it because the dollar is the world's reserve currency. It is the safe store of value.
Saying that the price of gold is going up has it exactly backwards. What's happening is that the dollar is going down because of Trump and the merry band of schmucks surrounding him. This is getting scary.
Calculations about the future value of the American and global economy are wildly oscillating b/c a lot of models and knowledge are being thrown out of the window right now. Even in good times, I would assert that most economic models are wildly overfit on the last few decades of data, when that really represents a very small sliver of possible economic contexts and universes. But when several variables are being changed by huge amounts, with no clear idea on when and how much they will change again in the near future, it could certainly make a lot of models collapse.
Confidence that this stuff is being accurately priced is way down compared to a few weeks ago, so volatility will remain very high until there's more semblance of stability.
Why is it that a bear market is so unusual and a bull market the expected result? Look at any of the indices in an inception to date chart, and you’ll see an unprecedented spike in asset values. Trees do not grow to the sky.
What? Trees grow in the ground and monetary markets are large collections of people. Some of those people are highly influential and signal to other people what they're thinking. Sometimes if you follow what those people say, it makes sense to correlate those spikes and valleys. "The power of words"
Trump is behaving like typical “pump and dump” crook., but on an International scale. One day he issues information in unusual channels, mostly his friends as subscribers. The next day he issues the opposite “guidance”
"When you own shares of a company, you essentially hold a stake in its discounted future profits," is a normal assumption in finance, but it's essential to consider this quantitatively.
The simplest reasonable model of stock valuation is the Gordon Model, which says a stock is worth its expected dividend payments next year, divided by the difference between the expected real rate of return investors demand on the stock and the expected real rate of dividend growth. Obviously this has to be modified for stocks that don't pay dividends, or that otherwise cannot be expected to have dividends grow at a constant rate. Nevertheless it's a useful way to think about the sensitivity of market prices.
The S&P500 currently has a dividend yield of 1.5%, meaning the Gordon model denominator is 1.5%. This is close to consistent with the last 25 years when investors have earned an annualized real 5.2% return in stocks, and real dividends have grown at 3.5%.
Next year's dividends can be forecast pretty accurately, but what do we know about future dividend growth rates? Half the present value of stocks come from cash flows more than 67 years in the future, what could someone in 1958--67 years ago--have known about the likely growth rate of Meta or Alphabet after 2025?
When the Bureau of Economic Analysis attempts to measure GDP growth in the previous quarter, their estimates change by an average of 77 basis points (such as from 1.77% to 1%) between their first estimate a few weeks after quarter end, to their final estimate some months later. This is not predicting future growth rates for over a century, but the same people using the same methods to estimate economic growth for the quarter in the past, just using slightly more and better data. If the S&P500 dividend growth rate assumption changed by 77 basis points, the market would fall 56% or rise 137%.
Moreover we know even less about the other parameter in the denominator, the real rate of return investors demand on stocks. Despite a century and a half of good data, the "equity premium puzzle" is that observed real returns seem to high to be plausible expectations.
This is one of the reasons Fischer Black famously defined an efficient market that gets prices right within a factor of 2 90% of the time (I argued with him that half the time was better, and while he didn't change his speech, he didn't disagree either).
Given this, a 10% or even a 50%, change in stock prices need not be meaningful, even if you know precisely what caused it--which you never do.
So what good is a market that gets prices wrong by more than a factor of 2 10% of the time--or more? The key is that no one knows what assets are worth--especially highly levered, long-term assets like stocks. Nevertheless, economic efficiency demands people agree on a price to use. You don't want oil producers planning for $50/barrel oil while refineries are planning on $100/barrel.
Rather than thinking of the stock market as a valuation engine, think of it as a game for picking a price--accurate if possible, but having any price, even a random draw, is better than no price.
There are many other situations in which having an answer is more important than the answer being right. We promise a fair trial--a game concept--not a just verdict. Like games people wear funny clothes and use archaic language. We use randomness to select juries. Trials and games take place in courts--segregated areas in which outside considerations are not supposed to apply. You don't pass a basketball to your brother or your friend or the highest bidder, you pass to a teammate. Lawyers don't argue the truth, or for the result they hope for, but the case most favorable to their clients. Justice is nice, but it's more important that everyone treat the defendant as either guilty or innocent, as disagreement can lead to cycles of violence.
Elections are another example. No one thinks we elect the wisest or best people to office. Campaigns feature rallies with music, drinking, confetti, balloons, jokes and other forms of entertainment. We want a fair election more than we want the best result.
It may not feel like a good time for “the lab leak debate,” as Nate puts it, but there is certainly a confluence of circumstances worth ruminating on that go to the process of America and the World to awaken to what might cause a man to behave this way.
Belief in tariffs doesn’t explain his mad approach. Stupidity is also insufficient, he could impose tariffs in any number of ways that have been suggested to him by his supporters.
What we know about Trump, other than his narcissism, is he’s a crook. The transparent signals indicating policy shifts that will certainly cause fluctuations, combined with insiders who know even more about the meaning of his signals—is the perfect crime. Especially when done with official act immediately immunity and pardons. Even civil enforcement is out—he’s destroying the SEC.
Agree. "Markets" are neither sentient nor intentional. They cannot discipline a president or steer policies. But, markets are a great scorecard. It's highly likely that Trump's policies are going to lead to bad outcomes. But how can we know? How bad? Why? Markets - stocks, bonds, currencies - are assembling information from many people to give us a view.
There is no "Trump Put." There is a "Trump World" and markets are describing it to us.
I think a better analogy for the market than the fourth branch of government is to think of it as a constraint on government. When governments do stupid things that cause the stock market to go down a lot, that produces a political reaction among people who either lost wealth (and 60% of Americans directly or indirectly own stock) or who notice that something bad has happened. That reaction causes politicians to sometimes back off the stupid idea. Similarly, when the bond market tanks, it raises the cost of borrowing, which makes doing other things (smart or stupid) more expensive for politicians. So there is a check on stupidity. It doesn't check all stupidity, and it doesn't check all politicians equally either, but it checks a lot of stupidity and it checks a lot of politicians at least a little bit.
A put is an option to SELL at a certain price, not BUY. If a stock is at 40 and you pay $1 to buy a put at $30, you have the option to sell it at $30. If the stock goes to $25, you can buy the stock at $25, sell it at $30, and your profit is $5 - $1 (initial premium) = $4
Thanks! I was confused too, tying to remember if grad-school options learning was foggy!
It's a way to limit downside. If you owned the underlying stock above and had a put at $30, the lowest you would have to sell the stock at is $30, even if the price is lower.
Hence the "Trump put" is the idea that there is some value in the market that Trump won't let the market go below, essentially giving investors a free put option.
A 20 minute copy edit would have caught this.
Maybe. I think some people get genuinely confused about the difference between say selling a call and buying a put. Hopefully he corrects this soon.
This has the right idea but focuses on the wrong market. Trump only folded because of the bond market, not the stock market, which Trump conceded. Out of control yields on 10Y Treasuries could absolutely lead to a crisis, and that really began on April 7/8th. And this hasn't gone away either. Stocks rose, but yields are still rising (albeit slower). One hopes that stubborn bond markets tames even Trump's impulses, but I'm not holding my breath.
My friend, who is a currency trader and European national, warned me about this weeks ago. He said "you guys are burning down your house, the nicest house in the neighborhood, because you are bored and can't contemplate what burning it down means". He said everything we have is tied to our global leadership and currency reserve status, and that by blowing up trade, we threaten everything that stabilizes us and makes us the richest country in the history of the world.
This was in response to listening to a lady on the ski lift talk about how all of the fears around Trump's threats were overblown. He just looked at me blankly and said "Americans have had it so good, they walk around in a fog of dumb, numb, oblivious to their good fortune". We are like the rich kid born on third base, thinks he hits a triple, and then decides to burn $100 bills and crash his Lambo just for fun, only to realize that daddy has blown the entire fortune and he is now screwed.
This is very true, but the analogy doesn't quite hold as well as it seems on the face. The issue is the country isn't just an individual or a single household. In the aggregate, you can treat it as such, but that's just an abstraction (a useful one, to be sure, but still an abstraction). A country can still be considered "rich" by aggregate metrics even if a significant portion (half, 3/4, 90%, whatever) have little to no wealth, so long as the ultra-wealthy are doing well enough to offset the huddled masses.
This is all to say that what's happening is more a reflection of what those with very little to nothing feel about the economic state of the country. Sure, they will also be hurt by an economic downturn--as will everyone else--but you'd see a much different political landscape and, in turn, decision process if everyone was in roughly the same economic boat. This isn't a claim one way or another on whether such a state of affairs is a good or even desirable scenario, but at least in such a case the analogy of a rich kid burning $100 would be more apt.
In reality it's more like a wealthy household with multiple children, some of whom are the favorites and/or have done very well for themselves whereas the others have been cast aside (either through their own fault or external forces) and are doing much more poorly than their siblings. In this analogy the "less fortunate" siblings are still doing well relative to other families, but the root cause of the "burning of $100 bills" is much less about nihilistic boredom than it is about envy at the growing realization that some members of the same family are doing much worse than their compatriots.
You're making the same mistake as Trump , which is incidentally the core reason we can't expect the market to tame Trump: The markets didn't go down because of his tariffs, but instead went into free fall because of the catastrophic effect the tariffs would have on our economy, namely neutering supply chains for the vast majority of Americans and businesses. A tiny fraction of what we import can be source domestically at all, what little is that is available will be in limited supply as very few plants have unused capacity sitting around. What can be reshored eventually, which will be closer to a decade out and highly automated, will provide very few jobs. Anyone not directly impacted by the immediate loss of employment as hundreds of thousands of business shutter, will be hit by the secondary effects of unemployment spiking well into depression era numbers. Remaining business will have to make do with significantly fewer customers, virtually eliminating growth potentials.
With a 10% global tariff and 145% Chinese tariffs, we're possibly out of a depression but still certainly in a recessions. Because Trump and his supporters are unable to see these realities, they will continue to ignore the markets decline until it's much too late to fix.
I get the argument that the 10Y yield jumped more than usual during this episode, but it's also trading well within it's 1-year range and any look at a 5y chart shows at least 10-12 similar short-term moves to the 10Y yield in that period (along with it obviously going way up in general). I guess my question is, if they are this concerned about the 10Y yield right now, why weren't people freaking out about the 10Y yield in December or April of 2024?
Whereas the stock market collapse is clearly unparrallelled since March 2020 in its speed (though the 2022 bear market was ultimately deeper than we've seen so far, that took several months to play out).
Why is this 40bp increase to the 10Y so much more significant than those other ones?
10Y yields almost always lower when the market sells off as investors move their capital to safer assets. This time, for whatever reason, yields rose. The reasons behind it and the consequences are complicated but the federal government was staring down the barrel of potentially even more massive interest payments (already $1 trillion per year).
Hard to know what would happen but there could have been contagion that sent them even higher if markets kept unwinding. The upward spike was extremely rapid.
Very good point: the spread's change was
1) extremely rapid, and
2) in the wrong direction. Yields fell of a cliff as bond prices rose during COVID. You could re-fi a house for 2.75%. Flight to safety usually means US Treasuries.
If investors lose confidence in our ability to desie to repay our debt, we're scewed. Trump has said things along these lines. Remember, he basically had to go to the "lender of last resort" in Deutsche Bank becasue nobody else would give him a dollar. He kept defaulting, declaring bankruptcy, stiffing creditors. If he pushes do the do the same thing to the US, it could make us Argentina.
Not to mention that China holds a lot of our debt. If we push too hard on tariffs with them, they could burn us by dumping debt and sending our yields to the moon, making refinancing our debt prohibitively expensive.
FT reporting today: https://www.ft.com/content/5b436a19-4061-48a8-87fa-94c0c8d83e0e
“We are concerned because the movements you see point to something else other than a normal sell-off,” said a European bank executive in prime services, a division that facilitates leveraged trading for firms including proprietary traders and hedge funds. “They point to a complete loss of faith in the strongest bond market in the world.”
Traders said poor liquidity — the ease with which investors can buy and sell Treasuries without moving prices — was exacerbating market moves.
Analysts at JPMorgan said market depth, a measure of the market’s ability to absorb large trades without significant shifts in price, had significantly worsened this week, meaning even small trades were moving yields significantly.
The head of Treasury trading at a major US bond manager said liquidity was “not great today” and explained that “market depth was running 80 per cent below normal averages” on Friday.
“If a stiff breeze blew through the Treasury market today, rates would move a quarter point,” added Guy LeBas, chief fixed income strategist at Janney Montgomery Scot
Yes exactly. The bond market.
the pattern today in the bond market is not great, not grat at all.
It was bond market and currency crisis potential that whacked Truss in UK and if it is potentially an outright crisis triggered by Treasuries collapse that could break Trump.
Borrowing costs spiking flows through.
Great point. Maybe the Trump put is on bond prices.
The gamble the American people made with Trump was, perhaps, understandable in 2016. In 2024 its inexcusable and this is the end of Pax Americana.
‘Markets and elites “got through” to Trump this time’. This sentence was obviously written before today’s market seesaws.
Does Trump have to ban online poker for Nate to say the obvious. He doesn’t care about our country or any of us. This has been obvious for decades.
Nate hit it here with the comment about Congress delegating too much authority to POTUS. Trump is taking it off the rails but he didn't start the train and this type of this should have been an obvious result of congress doing everything it can to dodge actually having to work.
The original idea ironically was that Congress would be too prone to political pressure by interest groups to raise tariffs inappropriately, so they delegated the authority to the President to free themselves from having to take No votes on tariffs that would anger people and business in their districts.
But if the idea was for the President to say "No" to inappropriate tariffs, couldn't they just leave the power with Congress and expect the President to veto the inappropriate ones?
This post assumes without evidence that Trump “listened” or “capitulated” without once considering this was the plan the whole time. Art of the deal in action.
Look where we are now: the world just got left with a 10% global tariff and feels grateful.
China is sitting at 145% and is isolated from the world. Every other country clamoring to line up and cut a deal.
Trump just moved global markets 10% with a shit post! Now Trump- and the world- know he controls global markets.
In seven days he reframed 10% tariffs from “dangerous” to “default.” He isolated China. He dared them to retaliate—and they did, on cue. Now, every country knows two things:
1. Trump is willing to go full nuclear with China.
2. Everyone else has a 90-day window to cut a better deal.
He’s not bluffing. He’s negotiating in public—with the entire planet.
There is a large lag between setting up a tariff and its flow through to US consumers and then reporting the consequences. So an increased China tariff in April will not be experienced by US importers until May/June with the impact on consumers in June/ July, reported in July/August.
So for a short term perspective, Trump's actions are impacting markets based on guestimates of consequences, some of which haven't been considered. For an example, Xmas goods are being contracted for now, for delivering in August/ September, for sale in November/December. Importers will need to factor in NOW, the market reaction expected in November/December.
So there is a huge amount of guestimation going on, that doesn't give us a real understanding of what to do, consider, change.
There are many stories of people and business getting hit with Tarrifs already, some even prior to the tarrifs going into effect. Also, one doesn't need to guess what's going to happen as we've seen this a number of times throughout history. The question is the degree of catastrophe Trump is creating and how long we'll have to endure it.
The bond market is the
canary in the coal mine. We need to heed that warning and watch it very carefully.
I think we're in for an Armageddon and a very long four years. I remember 08-09 and the awful aftermath very clearly when even government money markets broke the buck if they had the wrong kind of repos. This could get that bad and even even worse as investors around the world lose confidence in our govt. and no longer buy our debt. Instead they dump it.
Back then Obama was surrounded by competent professional financial minds who helped dig us out of the mess. Not today. The moron currently in office trusts his gut instinct. Facts and data are irrelevant. So, whatever happens is going to be much worse because the emperor has no clothes.
I've actually been thinking of putting money in something other than dollars - not gold necessarily but other currencies. And keeping a lot more cash on hand under the mattress, literally. Normally I only keep a couple of hundred bucks around the house because I have no need for it. That's going to change.
Treasury money funds is where I am right now as I cashed out in early February. I had heard one stupid utterance too many and said 'that's it.' I've known many who did the same, a couple of months back restructuring their portfolios getting out of the market entirely. All these people believed Trump would not only destroy on their portfolios, but the country as well.
We do not have a rational leader. Other people have said he's mentally deranged. At one time, I had believed that was a bridge too far. I now think he is, in fact, mentally deranged, with an IQ of about 85.
I'm convinced everyone is underestimating how bad it will get.
The fact that Treasury bonds are selling like their debt from a third world country, we've already gotten all the signs we need. Trump has broken almost a hundred years of financial reliability that helps underpin America's global financial dominance. I do feel that if something is done shortly, we can probably return similar levels of trust within a decade or so. Not exactly same, and it will take a shit ton of work. If we wait to much longer, it will be generations if at all, before the world market treats us like anything other than high risk country for business and debt.
What are the odds that this sudden reversal was basically insider trading playing out in full view? Trump’s post about it being “a great time to buy” sure makes it seem like it. Even with the losses today, I can only imagine how much some people made yesterday after the bounce…and those people certainly aren’t the ones currently worrying over their retirement savings like the rest of us.
The post would be a horrible way to coordinate insider trading. I guarantee that some people and firms made and lost astronomical sums of money yesterday (or even today) if they were playing around with highly leveraged options.
The actual insider trading would be the people who knew he was about to pause, getting in before it (and then knowing enough to get out before today).
Nah, the post is evidence that nothing could be insider trading because Trump already signaled the information to the public at large.
The real stunner is that Trump called for a weaker dollar. Presidents may think that, but they never say it because the dollar is the world's reserve currency. It is the safe store of value.
Saying that the price of gold is going up has it exactly backwards. What's happening is that the dollar is going down because of Trump and the merry band of schmucks surrounding him. This is getting scary.
Calculations about the future value of the American and global economy are wildly oscillating b/c a lot of models and knowledge are being thrown out of the window right now. Even in good times, I would assert that most economic models are wildly overfit on the last few decades of data, when that really represents a very small sliver of possible economic contexts and universes. But when several variables are being changed by huge amounts, with no clear idea on when and how much they will change again in the near future, it could certainly make a lot of models collapse.
Confidence that this stuff is being accurately priced is way down compared to a few weeks ago, so volatility will remain very high until there's more semblance of stability.
Why is it that a bear market is so unusual and a bull market the expected result? Look at any of the indices in an inception to date chart, and you’ll see an unprecedented spike in asset values. Trees do not grow to the sky.
The market was certainly due a reset after the Covid cash infusion and Bidenflation. Best to do it now quickly, like a bandaid - right off!
Now the world stage is reset. This was masterful premeditated genius. Not dumb reactionary luck.
Markets would be wise to realize such.
What? Trees grow in the ground and monetary markets are large collections of people. Some of those people are highly influential and signal to other people what they're thinking. Sometimes if you follow what those people say, it makes sense to correlate those spikes and valleys. "The power of words"
Trump is behaving like typical “pump and dump” crook., but on an International scale. One day he issues information in unusual channels, mostly his friends as subscribers. The next day he issues the opposite “guidance”
"When you own shares of a company, you essentially hold a stake in its discounted future profits," is a normal assumption in finance, but it's essential to consider this quantitatively.
The simplest reasonable model of stock valuation is the Gordon Model, which says a stock is worth its expected dividend payments next year, divided by the difference between the expected real rate of return investors demand on the stock and the expected real rate of dividend growth. Obviously this has to be modified for stocks that don't pay dividends, or that otherwise cannot be expected to have dividends grow at a constant rate. Nevertheless it's a useful way to think about the sensitivity of market prices.
The S&P500 currently has a dividend yield of 1.5%, meaning the Gordon model denominator is 1.5%. This is close to consistent with the last 25 years when investors have earned an annualized real 5.2% return in stocks, and real dividends have grown at 3.5%.
Next year's dividends can be forecast pretty accurately, but what do we know about future dividend growth rates? Half the present value of stocks come from cash flows more than 67 years in the future, what could someone in 1958--67 years ago--have known about the likely growth rate of Meta or Alphabet after 2025?
When the Bureau of Economic Analysis attempts to measure GDP growth in the previous quarter, their estimates change by an average of 77 basis points (such as from 1.77% to 1%) between their first estimate a few weeks after quarter end, to their final estimate some months later. This is not predicting future growth rates for over a century, but the same people using the same methods to estimate economic growth for the quarter in the past, just using slightly more and better data. If the S&P500 dividend growth rate assumption changed by 77 basis points, the market would fall 56% or rise 137%.
Moreover we know even less about the other parameter in the denominator, the real rate of return investors demand on stocks. Despite a century and a half of good data, the "equity premium puzzle" is that observed real returns seem to high to be plausible expectations.
This is one of the reasons Fischer Black famously defined an efficient market that gets prices right within a factor of 2 90% of the time (I argued with him that half the time was better, and while he didn't change his speech, he didn't disagree either).
Given this, a 10% or even a 50%, change in stock prices need not be meaningful, even if you know precisely what caused it--which you never do.
So what good is a market that gets prices wrong by more than a factor of 2 10% of the time--or more? The key is that no one knows what assets are worth--especially highly levered, long-term assets like stocks. Nevertheless, economic efficiency demands people agree on a price to use. You don't want oil producers planning for $50/barrel oil while refineries are planning on $100/barrel.
Rather than thinking of the stock market as a valuation engine, think of it as a game for picking a price--accurate if possible, but having any price, even a random draw, is better than no price.
There are many other situations in which having an answer is more important than the answer being right. We promise a fair trial--a game concept--not a just verdict. Like games people wear funny clothes and use archaic language. We use randomness to select juries. Trials and games take place in courts--segregated areas in which outside considerations are not supposed to apply. You don't pass a basketball to your brother or your friend or the highest bidder, you pass to a teammate. Lawyers don't argue the truth, or for the result they hope for, but the case most favorable to their clients. Justice is nice, but it's more important that everyone treat the defendant as either guilty or innocent, as disagreement can lead to cycles of violence.
Elections are another example. No one thinks we elect the wisest or best people to office. Campaigns feature rallies with music, drinking, confetti, balloons, jokes and other forms of entertainment. We want a fair election more than we want the best result.
It may not feel like a good time for “the lab leak debate,” as Nate puts it, but there is certainly a confluence of circumstances worth ruminating on that go to the process of America and the World to awaken to what might cause a man to behave this way.
Belief in tariffs doesn’t explain his mad approach. Stupidity is also insufficient, he could impose tariffs in any number of ways that have been suggested to him by his supporters.
What we know about Trump, other than his narcissism, is he’s a crook. The transparent signals indicating policy shifts that will certainly cause fluctuations, combined with insiders who know even more about the meaning of his signals—is the perfect crime. Especially when done with official act immediately immunity and pardons. Even civil enforcement is out—he’s destroying the SEC.
Agree. "Markets" are neither sentient nor intentional. They cannot discipline a president or steer policies. But, markets are a great scorecard. It's highly likely that Trump's policies are going to lead to bad outcomes. But how can we know? How bad? Why? Markets - stocks, bonds, currencies - are assembling information from many people to give us a view.
There is no "Trump Put." There is a "Trump World" and markets are describing it to us.
Yep, true. Trump World is about the use of power to accumulate more power. The rest is incidental though profoundly damaging to the rest of us.
I think a better analogy for the market than the fourth branch of government is to think of it as a constraint on government. When governments do stupid things that cause the stock market to go down a lot, that produces a political reaction among people who either lost wealth (and 60% of Americans directly or indirectly own stock) or who notice that something bad has happened. That reaction causes politicians to sometimes back off the stupid idea. Similarly, when the bond market tanks, it raises the cost of borrowing, which makes doing other things (smart or stupid) more expensive for politicians. So there is a check on stupidity. It doesn't check all stupidity, and it doesn't check all politicians equally either, but it checks a lot of stupidity and it checks a lot of politicians at least a little bit.