After three decades, I remain as skeptical as ever. Unconstrained Credit is destabilizing. Market-based (as opposed to traditional bank) finance took hold during the nineties and never looked back. Between July 1990 and September 1992, the Greenspan Fed slashed rates 525 bps to an at the time unprecedented 3.0%. It was desperate times. The eighties Bubble had burst, leaving the economy in recession and the banking system deeply impaired. With a huge S&L bailout contributing to ballooning federal deficits, a major banking system recapitalization risked pushing Washington’s finances over the edge.
What on earth does this have to do with the current environment? Alan Greenspan orchestrated a surreptitious banking system recapitalization that unleashed a financial revolution, a fundamental transformation of market and financial structure that I believe is now in the process of what could prove a momentous test.
Greenspan created an artificially steep yield curve, allowing banks to borrow inexpensively while leveraging higher-yielding government bonds (and other Credit instruments). Importantly, this free “money” bonanza was manna from heaven for the fledgling hedge fund community. Meanwhile, collapsing deposit rates spurred disintermediation from the banking system, with an enterprising Wall Street fixated on “harvesting assets.” Rapid money market growth accelerated, with money market fund assets surging 19% in 1992 (to $570bn). “Money” flooded into equities.
Awash in “cheap money”, “Wall Street finance” hit overdrive. Broker/Dealer Assets (from Fed’s Z.1) surged 19% in 1991, 20% in 1992, and 24% in 1993. System “repo” liabilities jumped 18% in 1992 and 14% in 1993, surpassing $1 TN for the first time in 1993. Asset-backed securities surged a record $82.5 billion, or 22%, in 1993, capping off unprecedented four-year growth of $256 billion, or 122%. GSE securities also ballooned, posting record four-year growth of $640 billion, or 51%.
The latent instabilities of this new financial structure were laid bare on February 4th, 1994, when the Fed raised rates a “baby step” 25 bps to 3.25%. Beginning the month at 5.64%, 10-year Treasury yields ended February at 6.13% – on the way to a May peak of 7.48% and November high of 8.03%. The first major hedge fund deleveraging was painfully destabilizing. Fund losses were enormous, including major drawdowns for funds managed by “masters of the universe” Michael Steinhart and Julian Robertson. Major dislocations in the fledging derivatives marketplace took down Askin Capital Management. The effects of U.S. bond market deleveraging were felt globally, most painfully with the December 1994 Mexican peso and bond (tesobonos) collapse.
April 24 – Financial Times (Robin Wigglesworth, Kate Duguid, Costas Mourselas and Ian Smith): “Over the past few weeks, the bond market has done what many of Donald Trump’s opponents have failed to do. It has forced the American president into a partial retreat on tariffs, after a rout in US government debt threatened to spill over into a financial calamity…. Many stress that the turmoil was also exacerbated by highly leveraged hedge fund strategies. These ‘relative-value’ trades usually seek to take advantage of often tiny differences in prices between Treasury bonds and various derivatives contracts linked to them. Using short-term funding markets to borrow extreme amounts of money, they can transform small profits into large ones. These trades have helped turn the club of big hedge funds that pursue them into vital pillars of the $29tn Treasury market… However, many fear that they also make Treasuries vulnerable to sudden shocks. Even the Federal Reserve has argued that the growth of these leveraged hedge fund strategies — such as so-called ‘basis trades’ or ‘swap spread trades’ — is a risky development for a market that funds the US government, historically acts as a safe shelter for global finance and influences the pricing of virtually every other security on the planet… The gross US government bond holdings of all hedge funds that report to the SEC stood at nearly $3.4tn at the end of 2024, and has roughly doubled just since the beginning of 2023… Much of this will be held through myriad other strategies, but judging by the size of the short Treasury futures positions, most estimates are that fixed-income relative-value hedge funds in aggregate probably hold roughly $1tn of Treasuries.”
Looking back, 1994 was the first of a series of crises where the wrong lessons were learned and later reinforced. Hedge fund speculative leverage had become a serious issue. The money market, “repos” in particular, was the epicenter of destabilizing leveraging. More generally, “Wall Street finance” was inherently unstable, promoting Credit excess and boom and bust dynamics. Celebrated as instruments for managing and controlling myriad risks, the proliferation of derivatives strategies created innate systemic vulnerability.
Why weren’t critical lessons learned in 1994 – or with the 1997 “Asian Tiger” Bubble collapses; the ’98 LTCM/Russia meltdowns; the 2000/2001 “Dot.com” Bubble collapse; the 2008 mortgage finance Bubble collapse; the 2012 European bond crisis; the 2020 pandemic panic; or even the March 2023 bank run mini-crisis? Bailouts.
The GSEs (Fannie, Freddie, FHLB) expanded their balance sheets an unprecedented $150 billion in 1994, providing a powerful central bank-like liquidity backstop. With speculative leverage surging following the 1994 reliquefication and Mexico bailout (U.S. Treasury/IMF), GSE balance sheets ballooned an incredible $300 during crisis-year 1998 market liquidity support – a record that would be broken by 2001’s $345 billion. In a feat that fundamentally changed finance and altered the course of history, GSE assets expanded $1.7 TN, or 154%, in six years ended 2003.
While GSE balance sheets would expand another $300 billion during 2007, accounting fraud at Fannie and Freddie essentially ended their spectacular run as furtive quasi-central banks. A much bigger Bubble required a $1 TN Fed bailout in 2008. An only bigger one saw a $5 TN pandemic period ballooning of the Fed’s balance sheet. A quick $700 liquidity response (Fed/FHLB) to the March 2023 mini banking crisis ensured leveraged speculation blow-off excess didn’t miss a beat.
Three decades and skeptical as ever. Monstrous contemporary “Wall Street” market-based finance is as inherently unstable as ever. The proliferation of leveraged speculation ensures acute fragility. And, to be sure, faith in liquidity backstops and market bailouts is absolutely fundamental to market structure. Each bailout further emboldened risk-taking and leveraging, ensuring ever larger future bailouts. The size and scope of the next round of bailouts will astound.
From the above FT article excerpt: “Gross US government bond holdings of all hedge funds that report to the SEC stood at nearly $3.4tn at the end of 2024, and has roughly doubled just since the beginning of 2023.” When it comes to leveraged speculation, general excess appears to have “doubled” over recent years. The multi-decade speculative “blow-off” thesis is supported by a reported doubling of the “basis trade” since the pandemic and a near doubling of interest-rate derivatives.
I take note of the acute instability that has recently erupted in interest-rate and currency “swaps” markets. From the earliest CBBs (starting in 1999), I questioned the fundamental derivatives market presumption of “liquid and continuous markets.” After all, history is strewn with bouts of illiquid and discontinuous markets – with panics often following on the heels of manic excess. Crisis dynamics have repeatedly exposed this derivatives market fallacy. And for three decades, ever-ballooning liquidity backstops and bailouts provide derivative operators assurance that liquidity and market continuity will remain forever safeguarded.
I view recent market instability as the initial phase of what will be a momentous test of market structure. Derivatives markets will be at the epicenter. Way too much late-cycle market risk has been (or there are plans to) transferred to listed and over-the-counter derivatives markets, including “swaps” and myriad hedging vehicles (listed put option being the simplest). As for put options, in the event of a market drop, sellers/writers of these derivatives must short sell instruments (i.e. stocks, ETFs, Treasuries) to hedge exposures (establishing positions that would generate the necessary cash-flow to settle bearish derivatives sold in a down market).
Central to my Bubble analysis framework is that systemic risk expands exponentially during “terminal phase excess.” “Blow offs” are characterized by rapid late-cycle growth of Credit of deteriorating quality, along with speculative excess that sees asset prices detach perilously from underlying fundamentals. Importantly, levered speculation spurs destabilizing liquidity overabundance – rocket fuel for asset price inflation and manic melt-up dynamics. Moreover, liquidity excess, booming markets, and general exuberance ensure over-spending, resource misallocation, and deepening economic maladjustment.
Pandemic-related fiscal and monetary stimulus unleashed historic “terminal phase excess” – certainly including freakish levered speculation. Over five years, Non-Financial Debt (NFD) inflated $21.6 TN, or 39%, to $76.7 TN. While corporate debt surged $2.9 TN (22%), outstanding Treasuries and Agency Securities ballooned $14.3 TN, or 55%, to $40.4 TN. Reckless over-issuance fundamentally debased Treasury and Agency debt obligations – the foundation of global finance.
Market blow-offs are invariably vulnerable to a reversal of speculative flows. They are sustained only by increasing amounts of leverage, liquidity, rising prices, and risk embracement. Flow reversals set in motion deleveraging, illiquidity, deflating prices, and risk aversion.
Ebbs and flows – fits and starts – are typical. Wall Street will certainly not give up without one hell of a fight. The stakes couldn’t be higher. But I believe Bubbles are succumbing. The great reversal in speculative flows has commenced. It’s worth again recalling that the mortgage finance Bubble was initially pierced in the summer of 2007, with the eruption of deleveraging and instability at the subprime “periphery.” It was not until some 15 months later that all hell broke loose (at the “core”). I doubt crisis dynamics can be held at bay as long this time around.
Treasury/Agency debt markets have provided key crisis-period system stabilization over recent decades. After trading as high at 5.30% in June 2007, 10-year Treasury yields were more than 200 bps lower by March 2008. Benchmark MBS yields sank from 6.40% to as low as 4.80% in January 2008, with the surge in MBS prices underpinning leveraged speculating community performance. Moreover, sinking prime mortgage rates extended housing Bubble excess. Bubble deflation was somewhat hindered by eight rates cuts between September 2007 and April 2008 – rates slashed 325 bps to 2.00%.
Different dynamics are at play today. Treasury Securities expanded $271 billion in 2007 (up from 2006’s $220bn) to $6.051 TN. Treasury Securities inflated $1.3 TN over the five years ended 2007, versus the historic $11.5 TN surge over the past five years, to $28.1 TN. Rather than a source of stabilization, the Treasury and related derivatives markets are today key sources of systemic fragility and instability.
Importantly, the Treasury market became the epicenter of post-pandemic levered speculation blow-off excess – providing the marginal source of marketplace liquidity creation. “Repo” borrowings have been a primary source of speculative Credit. Not coincidently, the surge in hedge fund Treasury holdings coincides with the incredible $2.5 TN inflation in money market fund assets (MMFA) since mid-2022 (system “repo” assets up $2.571 TN over 19 quarters). While MMFA recovered $32 billion last week, the previous week’s $125 billion drop, the largest decline since September 2008, suggested aggressive deleveraging.
More from the FT’s, “How the Treasury Market Got Hooked on Hedge Fund Leverage.” “…Given the scale of US government debt issuance, [hedge fund] involvement is necessary. ‘In a world where people can’t put on those trades… Treasury yields would be much higher and US taxpayers would pay far more to borrow money,’ [a senior executive at one of the world’s largest trading firms] says.”
Impacts go far beyond Treasury yields. “Blow-off” speculative Bubble liquidity effects have been nothing short of historic. For starters, I don’t think the U.S. runs fiscal deficits of 6 to 7% of GDP without hedge fund levered purchases. It would have been a bond vigilantes “Liz Truss moment” – even before the Prime Minister’s brief stint at 10 Downing Street. Instead, it was liquidity over-abundance enough to fuel a historic stock market boom, including epic AI and crypto manias. Liquidity was more than sufficient to power ongoing booms in non-bank finance, including historic Bubbles in “decentralized finance,” “private Credit,” and leveraged lending.
Without “blow-off” speculative leverage and resulting liquidity excess, “American exceptionalism” wouldn’t have become such ritualized conventional wisdom.
Market-based finance, leveraged speculation, asset inflation, and Bubble dynamics are fundamental to “American exceptionalism.” By definition, historic Bubbles must radiate greatness – great technological advancement, great narratives, and seemingly great prospects. The “Roaring Twenties” had it all. And all the greatness is not remotely possible without a great deal of destabilizing Credit and financial excess. The fledgling Federal Reserve was integral to the twenties Bubble. A century later, an experimental Federal Reserve (and global central bank community) and runaway market-based finance have been central to history’s greatest Bubble.
No nation can compete with our $40 TN government (Treasuries/Agencies) securities market – history’s greatest marketplace for leveraged speculation and risk hedging. With total debt and equities securities of $150 TN, there’s no comparable market depth anywhere. Our $7 TN perceived safe and liquid money market fund complex has no equals, and we also lead the world in perceived liquid ETFs. And a $7 TN “repo” market to finance leveraged speculation is the very essence of “American exceptionalism.” Ditto for U.S.-based derivatives markets, unrivaled both for speculation and risk management.
The entire financial structure is backstopped by the world’s preeminent central bank for ensuring liquidity abundance – forcefully underpinned by confidence in the world’s reverse currency. Moreover, massive Treasury issuance underpins incomes, corporate earnings, asset prices, economic activity, and the Credit system more generally. “American exceptionalism” built on a fragile market structure hooked on hedge fund leverage.
Having succumbed to parabolic “terminal phase excess,” the great Bubble was on borrowed time with or without Donald Trump’s return to the White House. But he certainly fast-tracked crises of confidence dynamics. Uncertainties associated with a historic trade war are too much to bear. Too much uncertainty to remain highly levered. Too much uncertainty for a stock market mania. Too much uncertainty for a vulnerable Bubble economy. Too much risky Credit for an economy susceptible to shocks to consumer, business and market confidence. Too much uncertainty for a Federal Reserve that recently so botched its price stability mandate. Bloomberg: “Trump’s Trade War Shaking Pillars of Financial System, IMF Warns.”
From wheels coming off Monday to the blaring of “all’s clear” by Friday, it was quite a week. The administration was, understandably, in full-fledged damage control mode. “Major loser” notwithstanding, Powell’s job is safe. Trump: “The press runs away with things.” U.S./China trade war de-escalation. “We’re meeting with China. We’re doing fine with everybody.” “The Trump administration is considering slashing its steep tariffs on Chinese imports…” “Bessent Expects Tariff Standoff With China to De-Escalate.” Trump: “[Xi has] called. And I don’t think that’s a sign of weakness on his behalf.” China: “Fake news.” China foreign ministry spokesman: “China and the U.S. have not held consultations or negotiations on the issue of tariffs. The United States should not confuse the public.”
I’ll assume more market-friendly trade headlines in the offing. Trump: “I would say, over the next three to four weeks, and we’re finished, by the way. I’ll be finished.” If I were the leader of Japan, South Korea, or other nations, I’d confidently give my negotiators a little pep talk. It will be interesting to see how amenable the administration is to backpedaling. Hard to believe the President will respond well to comments mocking his climb down. FT: “Trump and the Art of Retreat.” Chinese trolls out in force. And the further stocks and Treasuries rally, the more forceful I’d expect the President to come back swinging.
Other trade deals will be mostly noise. There’s major trouble unless the President retreats from his trade war with China. Everything points to “fight to the end.”
April 25 – Bloomberg: “President Donald Trump misjudged Beijing by calculating that it would cave into economic pressure, leaving the US unprepared to handle the current tariff standoff, according to an adviser to China’s Foreign Ministry. ‘The mainstream narrative within the Trump team is that because the Chinese economy is bad, if the US plays the tariff card, then China will have no choice but to surrender,’ said Wu Xinbo, director at Fudan University’s Center for American Studies… ‘But surprisingly to them China didn’t collapse and surrender,’ Wu said… ‘The US side misjudged the situation and also is not well-prepared for the confrontation with China’… ‘We are witnessing a highly confrontational stalemate relationship between our two countries and there is a risk of further escalation,’ said Wu, pointing to finance, technology, security and people-to-people exchanges as areas that could be impacted by the spiraling trade war… ‘China is determined to take on the US to the end,’ Wu said. ‘It’s not a slogan,’ he added, referencing a vow from Chinese officials to ‘fight to the end.’ Wu warned against being optimistic about quickly reaching a deal, saying it ‘won’t be an easy process.’ It could take several months before the two sides agree to talk and years before they arrive at an agreement on trade, he added. ‘Time is on China’s side,’ said Wu. ‘It’s up to the US to decide to fight or not fight.’”
“Risk off” was in retreat. Stocks rallied big this week. The VIX closed below 25 for the first time in three weeks. High yield CDS dropped, and spreads narrowed. Junk bond and leveraged loan markets mustered limited re-openings. Treasuries rallied, though the swaps market remained notably unstable. But when it comes to crisis of confidence dynamics, the dollar’s meager 0.2% gain didn’t allay concerns.
For Posterity:
Lee Bollinger, Professor of Constitutional Law and former President, Columbia University (Fareed Zakaria GPS, April 20, 2025): “Two of the greatest achievements in America in the last 100 years have been one, the First Amendment and, two, universities… There have been thousands of cases from the courts establishing an incredible jurisprudence of free speech in America. It has become part of the identify of what America is all about. The second major achievement of America has been our universities. They were small colleges that were really limited to certain fields of inquiry, and over the past hundred years we have built them into powerhouses of search for knowledge and creativity. Both the First Amendment and universities share these values of an openness – a kind of creativity that people are willing to challenge conventional ways of thinking – search for truth – but primarily and fundamentally respect for knowledge. So, when those are assaulted, as is happening now, it’s incredibly reckless, and in my view the consequences could be tragic. When a lab has to shut down, the experiments are ended, and people are laid off… I am hearing daily from faculty who are thinking about leaving the country… I think there is an intimidation that is certainly going on with respect to international students. I think it will follow with even regular speech on campuses. So, these are very fragile achievements. They have taken a century to build up. They are stunningly successful. And now we are finding them shockingly at risk. This an encroachment unlike anything we’ve seen and the consequences, as I said, could be tragic.”
Fareed Zakaria: “Would you describe this as a kind of path toward authoritarian government?”
Dr. Bollinger: “I think there is no other way to describe it. These are techniques that are designed strategies that are designed to intimidate if not crush opposition and dissent. And we’re seeing them in full force against our leading institutions and against individuals. Under the First Amendment, we’ve gone through many periods where the government has acted in ways, and the society has acted in ways, that are repressive and that we are later, as we come out of those periods, embarrassed by. And we always say, and the courts have always said, we will learn from that, and we will not go back to it. I think it’s time now, for the courts especially, to make that point clear because these are interventions – these are actions – that are highly dangerous against the values that we have cherished as a society. So, I am indeed very worried, and I do fear for the future of American democracy.”
For the Week:
The S&P500 rose 4.6% (down 6.1% y-t-d), and the Dow recovered 2.5% (down 5.7%). The Utilities slipped 0.2% (up 4.8 %). The Banks jumped 5.7% (down 8.3%), and the Broker/Dealers rose 5.8% (up 2.3%). The Transports increased 0.4% (down 15.1%). The S&P 400 Midcaps gained 3.2% (down 9.3%), and the small cap Russell 2000 jumped 4.1% (down 12.2%). The Nasdaq100 rallied 6.4% (down 7.5%). The Semiconductors spiked 10.9% (down 14.6%). The Biotechs rallied 4.9% (down 3.7%). With bullion slipping $7, the HUI gold index fell 2.6% (up 41.2%).
Three-month Treasury bill rates ended the week at 4.19%. Two-year government yields declined five bps to 3.75% (down 49bps y-t-d). Five-year T-note yields fell eight bps to 3.86% (down 52bps). Ten-year Treasury yields declined nine bps to 4.24% (down 33bps). Long bond yields fell 10 bps to 4.70% (down 8bps). Benchmark Fannie Mae MBS yields dropped 11 bps to 5.61% (up 24bps).
Italian 10-year yields decline seven bps to 3.57% (up 5bps y-t-d). Greek 10-year yields fell eight bps to 3.29% (up 8bps). Spain’s 10-year yields declined five bps to 3.12% (up 6bps). German bund yields were unchanged at 2.47% (up 10bps). French yields dipped five bps to 3.19% (down 1bp). The French to German 10-year bond spread narrowed five to 72 bps. U.K. 10-year gilt yields dropped nine bps to 4.48% (down 9bps). U.K.’s FTSE equities index gained 1.7% (up 3.0% y-t-d).
Japan’s Nikkei 225 Equities Index rallied 2.8% (down 10.5% y-t-d). Japanese 10-year “JGB” yields rose five bps to 1.34% (up 24bps y-t-d). France’s CAC40 jumped 3.4% (up 2.1%). The German DAX equities index surged 4.9% (up 11.7%). Spain’s IBEX 35 equities index rallied 3.4% (up 15.2%). Italy’s FTSE MIB index surged 3.8% (up 9.2%). EM equities were higher. Brazil’s Bovespa index jumped 3.9% (up 12.0%), and Mexico’s Bolsa index surged 7.0% (up 14.6%). South Korea’s Kospi gained 2.5% (up 6.1%). India’s Sensex equities index increased 0.8% (up 0.9%). China’s Shanghai Exchange Index gained 0.6% (down 1.7%). Turkey’s Borsa Istanbul National 100 index rose 1.2% (down 4.0%).
Federal Reserve Credit slipped $2 billion last week to $6.680 TN. Fed Credit was down $2.221 TN from the June 22, 2022, peak. Over the past 293 weeks, Fed Credit expanded $2.953 TN, or 79%. Fed Credit inflated $3.869 TN, or 138%, over the past 650 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt added $2.2 billion last week to $3.295 TN. “Custody holdings” were down $60 billion y-o-y, or 1.8%.
Total money market fund assets recovered $31.7 billion to $6.913 TN. Money funds were up $778 billion over 39 weeks (16.9% annualized) and $944 billion y-o-y (15.8%).
Total Commercial Paper gained $7.5 billion to $1.401 TN. CP has expanded $313 billion y-t-d and $92 billion, or 7.0%, y-o-y.
Freddie Mac 30-year fixed mortgage rates dipped two bps this week to 6.81% (down 36bps y-o-y). Fifteen-year rates fell nine bps to 5.94% (down 50bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down two bps to 6.94% (down 68bps).
Currency Watch:
For the week, the U.S. Dollar Index recovered 0.2% to 99.471 (down 8.3% y-t-d). For the week on the upside, the Brazilian real increased 2.2%, the Mexican peso 1.1%, the South African rand 0.8%, the Norwegian krone 0.4%, the New Zealand dollar 0.4%, the Australian dollar 0.3%, and the British pound 0.1%. On the downside, the Swiss franc declined 1.4%, the South Korean won 1.1%, the Japanese yen 1.0%, the Swedish krona 0.9%, the Singapore dollar 0.3%, the euro 0.3%, and the Canadian dollar 0.1%. The Chinese (onshore) renminbi increased 0.18% versus the dollar (up 0.17 y-t-d).
Commodities Watch:
The Bloomberg Commodities Index slipped 0.3% (up 3.9% y-t-d). Spot Gold dipped 0.2% to $3,320 (up 26.5%). Silver rallied 1.7% to $33.1102 (up 14.6%). WTI crude dropped $1.66, or 2.6%, to $63.02 (down 12%). Gasoline gained 1.0% (up 5%), while Natural Gas sank 9.5% to $2.937 (down 19%). Copper rallied 2.2% (up 22%). Wheat dropped 3.4% (down 4%), and Corn declined 0.7% (up 4%). Bitcoin surged $10,330, or 12.2%, to $94,830 (up 1%).
Market Instability Watch:
April 22 – Bloomberg (Jana Randow and Laura Noonan): “President Donald Trump’s trade war is threatening the global financial stability that’s kept banks and insurers safe since the 2008 crisis, the International Monetary Fund warned… The world has seen a sharp repricing of some assets and heightened volatility across stock, currency and bond markets in response to the latest tariff announcements, the lender… wrote… More adjustments might be in the pipeline if the economic outlook were to deteriorate. ‘Global financial stability risks have increased significantly,’ the IMF said, warning that some financial institutions — especially highly leveraged ones — could come under strain. ‘One main trigger of further selloffs could be geopolitical risk.’”
April 22 – Bloomberg (Matthew Boesler): “President Donald Trump’s threats to fire Federal Reserve Chair Jerome Powell have had a significant impact on financial markets, Goldman Sachs Chief Economist Jan Hatzius said. ‘We have seen significant tightening in financial conditions, with increases in bond yields and declines in equity prices, and also weakness in the dollar,’ Hatzius said… ‘But net-net, it has tightened our financial conditions index whenever that has come up, and so I think that gives you sort of a foretaste of what would happen if we really did go down this road.’”
April 21 – Bloomberg (Ruth Carson, David Finnerty and Anya Andrianova): “The sell-America trade gathered momentum on Monday on concern President Donald Trump will act upon his threat of firing Federal Reserve Chairman Jerome Powell and implement policies that lead to a recession… ‘At a moment in which the administration has already instilled ever-higher levels of uncertainty into the economic outlook, any attempt to remove Powell will add to the downward pressure on US assets,’ said Ian Lyngen, head of US rates strategy at BMO Capital Markets.”
April 24 – Financial Times (Ian Smith and Kate Duguid): “Donald Trump’s war of words with Jay Powell is likely to do lasting damage to the $29tn Treasury market, even after the US president backpedalled on his apparent threat to fire the Federal Reserve chair… Trump this week said he had ‘no intention’ of firing Powell… With Powell’s term as chair set to end in May 2026, the episode has fuelled investor fears about Fed independence and the path of US monetary policy. ‘Once you say it, you’ve said it, and while you can walk it back, in the back of people’s minds is, what’s the next surprise?’ said Andrew Chorlton, chief investment officer for fixed income at M&G Investments. ‘If your comfort level around the independence of the Fed… is being reduced, you expect to pay more for it.’”
April 23 – Bloomberg (Siddharth Philip): “Citadel founder Ken Griffin said President Donald Trump’s trade war has derailed business leaders’ plans to spend the next four years focusing on growth. Chief executive officers had been looking forward to a long stint of not having to navigate new regulations, Griffin said… ‘Unfortunately, the trade war, which has devolved into a nonsensical place, means we’re spending time thinking about supply chains,’ Griffin said… Griffin had previously criticized Trump’s tariffs even though he said he agrees with the president’s assessment of the issues that the US faces… ‘President Trump has an incredibly good sense of where problems lie,’ Griffin said. ‘But we’re moving too quickly, we’re moving too haphazardly, and we’re breaking a lot of glass in trying to solve some very real problems.’”
April 23 – Bloomberg (Jana Randow, Mark Schroers and Lisa Abramowicz): “Bundesbank President Joachim Nagel said a strong US Treasuries market is good for everyone, even as investors have turned to German bunds. ‘It is not good news that there is a lot of doubt regarding the safe haven of US Treasuries,’ he told Bloomberg Television… ‘We need a good US Treasuries market. This is so important for the financial markets worldwide.’”
Global Credit and Financial Bubble Watch:
April 21 – Bloomberg (Annie Ma): “Long-Term Capital Management founding partner Victor Haghani has joined the chorus warning that US bond markets are unlikely to offer a risk-free shelter from tariff-induced volatility. While the chance of a US debt restructuring is ‘pretty low,’ the recent selloff in long-dated Treasuries shows that government bonds are trading with some degree of credit risk, Haghani said… ‘When we’re learning finance at university, it’s like, oh, the risk-free asset. We’re always hearing about the risk-free asset. There is no risk-free asset,’ Haghani, who founded Elm Wealth in 2011, said… ‘US Treasuries are not risk-free.’”
April 23 – Financial Times (Claire Jones and Sam Fleming): “The fallout from US President Donald Trump’s tariff policies risks raising government debt around the world to levels not seen since the end of the second world war, the IMF’s most senior official for fiscal policy has warned. Vítor Gaspar… said the fund’s current worst-case scenario — with public debt rising from 92.3% of global output to 117% by 2027 — could even prove too optimistic if trade tensions intensify. ‘In 2025, uncertainty sharply rose, trade and geoeconomic uncertainties escalated, financing conditions tightened and financial market volatility increased, and spending pressures have intensified,’ Gaspar told the Financial Times. He added that risks were now ‘more considerable’ than the fund’s projections, which were calculated towards the end of last year.”
April 23 – Bloomberg (James Crombie): “Trade wars have battered risky credit, which is menaced by high rates and growing threat of recession. The leveraged loan market is increasingly vulnerable, given a dominance of weaker companies most likely to default as earnings crater. Leveraged loans are heading for their worst monthly loss since September 2022… This month is eerily reminiscent, with record cash outflows, two hung deals and the longest issuance drought on record. Adding insult to injury, the biggest buyers — collateralized loan obligations — have buckled under trade war pressure. The outlook is perilous as the risk of stagflation rises and earnings deteriorate, testing smaller companies with high leverage.”
April 21 – Reuters (Gaurav Dogra and Patturaja Murugaboopathy): “U.S. bond funds came under heavy selling pressure in the week to April 16, highlighting concerns that U.S. President Donald Trump’s tariff measures could fuel inflation and push the economy into a recession. Investors divested U.S. bond funds for a fifth successive week to the tune of $10.07 billion on a net basis, while in the previous week there were about $15.64 billion worth of net sales, data from LSEG Lipper showed… Meanwhile, U.S. investors ditched equity funds worth a net $10.62 billion, contrasting with $6.5 billion worth of net purchases in the prior week.”
April 22 – Bloomberg (Edward Bolingbroke): “The growing unease around US assets that has sparked a selloff in long-term government bonds and sent yields soaring is showing up in the options market, where premiums to protect against even bigger losses are at their highest since the ‘flash crash’ of 2021. The so-called option skew on Treasury bonds has blown out considerably, with investors aggressively driving up the price of puts that hedge against the risk of a yield spike relative to call options that would profit from the opposite. The last time the skew was favoring puts this much was Feb. 25, 2021 — the day of an unusual ‘flash’ event in US Treasury markets that featured a sudden drop in prices amid strained liquidity conditions.”
April 23 – Bloomberg (Masaki Kondo): “Japanese bonds and stocks are set to draw the biggest combined monthly foreign inflows on record, adding to signs global funds are seeking alternatives to US assets. Overseas investors have bought a net ¥9.64 trillion ($67.5bn) of the Asian nation’s debt and equities so far in April, according to… the Ministry of Finance… That level is already the most for any month on record… back to 1996.”
Trump Administration Watch:
April 22 – Bloomberg (Stephanie Lai and Catarina Saraiva): “President Donald Trump said he had no intention of firing Federal Reserve Chair Jerome Powell despite his frustration with the central bank not moving more quickly to slash interest rates. ‘Never did,’ Trump told reporters… ‘The press runs away with things. No, I have no intention of firing him. I would like to see him be a little more active in terms of his idea to lower interest rates.’ Trump’s National Economic Council Director Kevin Hassett on Friday told reporters that Trump was studying the question of whether he’s able to fire Powell after a series of presidential social media posts and public comments criticizing the Fed. The president unleashed a tirade against Powell last week…, saying in a post on Truth Social that ‘Powell’s termination cannot come fast enough!’”
April 24 – Financial Times (David E. Singer): “After weeks of bluster and escalation, President Trump blinked. Then he blinked again. And again. He backed off his threat to fire the Federal Reserve chairman. His Treasury secretary, acutely aware that the S&P 500 was down 10% since Mr. Trump was inaugurated, signaled he was looking for an offramp to avoid an intensifying trade war with China. And now Mr. Trump has acknowledged that the 145% t tariffs on Chinese goods that he announced just two weeks ago are not sustainable… Mr. Trump’s encounter with reality amounted to a vivid case study in the political and economic costs of striking the hardest of hard lines.”
April 24 – Wall Street Journal (Brian Spegele and Jason Douglas): “President Trump’s apparent softening on tariffs against China in recent days has buoyed markets and raised hopes for a detente between the world’s two largest economies. For Chinese leaders, it only strengthens their resolve that Trump will eventually cave if they wait him out… After Trump hinted… he was actively talking with China on trade, a Chinese Foreign Ministry spokesman dismissed any suggestion that the two sides were negotiating as ‘fake news.’ ‘This tariff war was launched by the U.S., and the Chinese side’s position has always been clear and consistent,’ Foreign Ministry spokesman Guo Jiakun said… ‘If we fight, we will fight to the end; if we talk, the door is wide open. Any dialogue or negotiation must be based on equality, respect and mutual benefit.’”
April 22 – Financial Times (Demetri Sevastopulo): “US Treasury secretary Scott Bessent… warned that the US-China trade war was ‘not sustainable’ and that the two countries would have to de-escalate their dispute, in comments that buoyed financial markets hoping for a trade deal. Bessent told investors at a private conference hosted by JPMorgan in Washington that he expected Washington and Beijing would reach a deal in the ‘very near future’…”
April 18 – Wall Street Journal (Alexander Saeedy and Josh Dawsey): “They needed to get the president alone. On April 9, financial markets were going haywire. Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick wanted President Trump to put a pause on his aggressive global tariff plan. But there was a big obstacle: Peter Navarro, Trump’s tariff-loving trade adviser… Navarro isn’t one to back down during policy debates and had stridently urged Trump to keep tariffs in place, even as corporate chieftains and other advisers urged him to relent… So that morning, when Navarro was scheduled to meet with economic adviser Kevin Hassett in a different part of the White House, Bessent and Lutnick made their move… They rushed to the Oval Office to see Trump and propose a pause on some of the tariffs—without Navarro there to argue or push back.”
April 25 – Bloomberg (Hadriana Lowenkron): “President Donald Trump said he expected to wrap up trade deals with US partners looking for lower tariffs soon. ‘I would say, over the next three to four weeks, and we’re finished, by the way,’ Trump said of the deals in an interview with Time magazine… ‘I’ll be finished. Now, some countries may come back and ask for an adjustment, and I’ll consider that, but I’ll basically be, with great knowledge, setting—ready,’ he added. Trump told reporters… is ‘getting along very well with Japan’ and an agreement is ‘very close’.”
April 24 – Associated Press (Josh Boak and Amelia Thomson-DeVeaux): “Americans’ trust in President Donald Trump to bolster the U.S. economy appears to be faltering, with a new poll showing that many people fear the country is being steered into a recession and that the president’s broad and haphazardly enforced tariffs will cause prices to rise. Roughly half of U.S. adults say that Trump’s trade policies will increase prices ‘a lot’ and another 3 in 10 think prices could go up ‘somewhat,’ according to the poll by The Associated Press-NORC Center for Public Affairs Research. About half of Americans are ‘extremely’ or ‘very’ concerned about the possibility of the U.S. economy going into a recession in the next few months.”
April 21 – Financial Times (Chris Giles): “It is time to retire the phrase: ‘When America sneezes, the rest of the world catches a cold.’ Said to have first been used in relation to Napoleonic France, that idiom lost its value after Waterloo. Donald Trump is about to destroy its modern equivalent. In foreign policy, the president’s choice no longer to be a reliable ally providing trusted security guarantees is a seismic change. It ensures that other countries will now be less willing to accept US demands. But it is on the economic front that hubris is most likely to result in humility for a country that has long since lost its status as the world’s largest producer of goods and services. It is not just that Trump’s negotiating hand with tariffs is much weaker than he imagines. It is that the rest of the world controls 85% of the global economy and no longer has to follow whatever the US does.”
Constitution/Supreme Court Watch:
April 21 – Axios (Sareen Habeshian): “Harvard filed a federal lawsuit against the Trump administration…, arguing that government overreach violated the university’s constitutional rights. The Ivy League institution has rejected a litany of demands from the administration, resulting in a freeze on $2.2 billion in federal funds. The suit marks an escalation in the administration’s battle with elite institutions as it tries to influence and reorient their priorities through federal funds. Harvard President Alan Garber said… the ‘consequences of the government’s overreach will be severe and long-lasting’ and accused the administration of trying to impose ‘unprecedented and improper control.’”
April 20 – Financial Times (Gideon Rachman): “By now, it should be obvious. The Trump administration’s attack on American universities is not about combating antisemitism. This is an attempt to bring institutions that nurture independent thought under the control of the government. For the Trump movement, universities are the heart of the American liberal establishment. If liberalism is to be defeated, the top universities need to be taken down. In 2021, JD Vance gave a speech entitled ‘The universities are the enemy’. The future vice-president argued that ‘we have to honestly and aggressively attack the universities in this country’. It is important to note that the Vance speech was given two years before the October 7 Hamas attack on Israel. But the campus Gaza protests gave the Maga movement the opening it was looking for.”
April 19 – BBC (Brandon Drenon and Robin Levinson-King): “For the last few weeks, many foreign students living in the US have watched as a sequence of events has repeated itself on their social media feeds: plain-clothes agents appearing unannounced and hauling students off in unmarked cars to detention centres. Those taken into custody in a string of high-profile student detentions captured on video have not faced any criminal charges and instead appear to have been targeted for involvement in pro-Palestinian protests on college campuses. The Trump administration has said repeatedly that visas are a ‘privilege’ and can be revoked at any time for a wide variety of reasons. But the crackdown appears to be far wider than initially thought, with more than 1,000 international students or recent graduates at colleges across the US now having had their visas revoked or legal statuses changed…”
April 23 – Axios (Daniel Flatley): “Elon Musk and Treasury Secretary Scott Bessent got into a heated shouting match in earshot of President Trump and other officials in the White House last week during a dispute about the IRS, two witnesses and three sources briefed on the matter tell Axios. ‘It was two billionaire, middle-aged men thinking it was WWE in the hall of the West Wing,’ one witness said of the argument last Thursday. The clash — with both men in each other’s face — showed how much Musk’s personality and style have rankled some senior administration officials since he began running roughshod through agencies with DOGE.”
China Trade War Watch:
April 24 – Wall Street Journal (Josh Chin): “As President Trump tries to play hardball in his trade war with Xi Jinping, he faces an adversary who has armed China to play a long and potentially painful game in its contest with the U.S. In the weeks since the U.S. president first slapped sky-high tariffs on China, Beijing has responded with defiance. A spokeswoman for China’s Foreign Ministry posted on X footage from 1953 of Mao Zedong promising to fight to the end against U.S.-led forces in the Korean War. ‘We are Chinese,’ she wrote. ‘We don’t back down.’ The Mao post and other messages from Beijing highlight what China sees as one of its core advantages against the U.S.: While Trump and his Republican backers are vulnerable to the whims of American voters, the party that Mao built is deeply entrenched, having maintained power through more than seven decades despite war, famine, political upheaval and financial crises.”
April 23 – Wall Street Journal (Gavin Bade, Lingling Wei, Josh Dawsey and Alex Leary): “The Trump administration is considering slashing its steep tariffs on Chinese imports—in some cases by more than half—in a bid to de-escalate tensions with Beijing that have roiled global trade and investment… President Trump hasn’t made a final determination, the people said… One administration official said Trump wouldn’t act unilaterally and would need to see some action from Beijing to lower tariffs. One senior White House official said the China tariffs were likely to come down to between roughly 50% and 65%. The administration is also considering a tiered approach similar to the one proposed by the House committee on China late last year: 35% levies for items the U.S. deems not a threat to national security, and at least 100% for items deemed as strategic to America’s interest…”
April 24 – Bloomberg: “China demanded that the US revoke all unilateral tariffs and denied there were talks on reaching a trade deal, maintaining a defiant stance despite President Donald Trump’s recent easing of criticism of the country. ‘The US should respond to rational voices in the international community and within its own borders and thoroughly remove all unilateral tariffs imposed on China, if it really wants to solve the problem,’ Commerce Ministry spokesman He Yadong said… He also dismissed speculation that progress has been made in bilateral communications, saying ‘any reports on development in talks are groundless,’ and urging the US to ‘show sincerity’ if it wants to make a deal.”
April 24 – Bloomberg: “China’s government is considering suspending its 125% tariff on some US imports, people familiar with the matter said, as the economic costs of the tit-for-tat trade war weigh heavily on certain industries. Authorities are considering removing the additional levies for medical equipment and some industrial chemicals like ethane…”
April 23 – Bloomberg (Daniel Flatley): “Treasury Secretary Scott Bessent said that President Donald Trump hasn’t offered to take down US tariffs on China on a unilateral basis. Asked if there was no unilateral offer from the president to de-escalate, Bessent said ‘not at all.’ He was answering reporters’ questions… ‘As I’ve said many times, I don’t think either side believes that the current tariff levels are sustainable, so I would not be surprised if they went down in a mutual way.’”
April 20 – Bloomberg: “China sharply reduced imports of many US commodities last month, in some cases to zero… Among the worst affected were purchases of liquefied natural gas and wheat, which both fell to nothing in March, according to Chinese customs data… The US accounted for 17% of China’s wheat imports last year, and 5% of its LNG… Other farm products saw steep declines in March. American cotton imports plunged 90% from the same month last year to just over 14,000 tons. Corn imports fell to less than 800 tons, the lowest level since February 2020.”
April 19 – Financial Times (Harry Dempsey, Camilla Hodgson, Kana Inagaki and Edward White): “China’s latest export controls on rare earth minerals could cause shutdowns in automotive production, with stockpiles of essential magnets set to run out within months if Beijing fully chokes off exports. Beijing expanded its export restrictions to seven rare earth elements and magnets vital for electric vehicles, wind turbines and fighter jets in early April in retaliation for US President Donald Trump’s steep tariffs of 145% on China. Government officials, traders and auto executives said that, with inventories estimated to last between three and six months, companies would be racing to stockpile more material and find alternative supplies to avoid major disruption.”
April 20 – Financial Times (Hannah Kuchler and John Reed): “The generic drug industry has warned that US tariffs on pharmaceuticals risk causing shortages of medicines including cancer treatments, and that manufacturers might stop making products that become unprofitable as a result. Generic medicines… make up about 90% of US drug supply. The majority are manufactured outside the US, in lower-cost countries such as India. The active ingredients used in the products often come from China.”
April 20 – Financial Times (Harriet Agnew, Alexandra Heal, Antoine Gara, Kaye Wiggins and Cheng Leng): “Chinese state-backed funds are cutting off new investment in US private equity…, in the latest salvo against President Donald Trump’s trade war. State-backed funds have been pulling back from investing in the funds of US-headquartered private capital firms in recent weeks, according to seven private equity executives… The moves come in response to pressure from the Chinese government…”
April 24 – Bloomberg (Michael Hirtzer): “Tariffs are starting to hit American meat exports, with China making its biggest cancellation of pork orders since 2020, according to… the US Department of Agriculture. The cancellation of 12,000 metric tons of US pork was the most since the Covid-19 pandemic roiled global supply chains. For the week, overall US pork export sales fell to the lowest level since October.”
Trade War Watch:
April 20 – Bloomberg (Josh Xiao and Lucille Liu): “China warned countries against striking deals with the US that could hurt Beijing’s interests, upping the ante in the trade war with Washington and showing how others risk getting caught in the middle. While it respects nations resolving their trade disputes with the US, Beijing ‘resolutely opposes any party reaching a deal at the expense of China’s interests,’ the Ministry of Commerce said… If that happens, Beijing ‘will never accept it and will resolutely take reciprocal countermeasures,’ the ministry added. ‘China is willing to strengthen solidarity and coordination with all parties, jointly respond and resist unilateral bullying acts.’”
April 21 – Bloomberg (Mari Kiyohara and Sakura Murakami): “A high-level Japanese delegation will deliver a letter from Prime Minister Shigeru Ishiba to Chinese leader Xi Jinping this week, as Tokyo strives to avoid getting caught in the crossfire of escalating trade friction between China and the US. Tetsuo Saito… will deliver the letter during a three-day visit… ‘The prime minister told me that he would like me to deliver a letter, as it may take some time before he can visit China,’ Saito told reporters… The gesture highlights Japan’s desire to balance managing its relationships with China, its largest trading partner, and with the US, its sole formal security ally…”
April 19 – Reuters (Leika Kihara): “Japan will emphasise ‘fairness’ in any discussions with the U.S. on exchange rates, Prime Minister Shigeru Ishiba said…, as bilateral trade talks grab global attention in President Donald Trump’s tariff offensive. Ishiba, in a talk show on public broadcaster NHK, indicated Tokyo could buy more U.S. energy and suggested flexibility on U.S. accusations of non-tariff barriers to the Japanese automobile market.”
April 23 – Bloomberg (Alastair Gale, Haze Fan, Yoshiaki Nohara, and Sakura Murakami): “Japan intends to push back against any US effort to bring it into an economic bloc aligned against China because of the importance of Tokyo’s trade ties with Beijing, according to current and former Japanese government officials. Like many other countries, Japan is trying to get permanent relief from President Donald Trump’s tariffs by addressing US concerns in areas of bilateral trade, including automobiles and agriculture. The officials… said that Japan is pushing to strike a deal before the current 90-day reprieve in tariffs expires… At the same time, the officials said Japan doesn’t want to get caught up in any US effort to maximize trade pressure on China by curbing its own economic interaction with Beijing, which is Tokyo’s biggest trading partner and an important source of goods and raw materials.”
April 23 – Bloomberg: “President Xi Jinping is seeking to repair ties with the European Union, painting China as the more reliable partner as Donald Trump alienates the bloc over issues from tariffs to defense. Faced with an effective trade embargo from the US, Chinese policymakers and business leaders are searching for new markets in Europe and beyond. To help smooth those ties, Xi is preparing to lift sanctions on several EU lawmakers… — a largely symbolic gesture of good will as the measures had little impact. ‘As the world’s major economies, China and Europe will jointly safeguard the multilateral trading system,’ the Chinese Foreign Ministry said…”
April 23 – Reuters (Steve Holland and Kanishka Singh): “The White House said… fines on Apple and Meta Platforms by the European Union were a ‘novel form of economic extortion’ that the United States will not tolerate. Apple was fined 500 million euros ($570 million)… and Meta 200 million euros, as EU antitrust regulators handed out the first sanctions under landmark legislation aimed at curbing the power of Big Tech… ‘This novel form of economic extortion will not be tolerated by the United States,’ a White House spokesperson said.”
April 23 – The Times (Steven T. Dennis and Hadriana Lowenkron): “The head of one of the world’s biggest hedge funds has condemned President Trump’s ‘nonsensical’ trade war and the damage it has wreaked to the United States’ brand. Ken Griffin, the billionaire chief executive of Citadel, said: ‘The United States was more than just a nation. It’s a brand. It’s a universal brand, whether it’s our culture, our financial strength, our military strength. America rose beyond just being a country. It was like an aspiration for most of the world and we’re eroding that brand right now.’ Griffin cited the sell-off in US treasuries in recent weeks, as Trump’s tariffs increased investor concerns about the ‘safe haven’ status of American sovereign debt, as well as a weakening of the dollar. ‘No brand compared to the brand of the US treasuries — the US treasury market, the strength of the US dollar, the strength of credit worthiness of US treasuries,’ he told business leaders and politicians…”
April 23 – Financial Times (Madeleine Speed and Gregory Meyer): “The world’s largest consumer goods groups have warned that US President Trump’s trade war is denting already fragile consumer sentiment and threatens to leave consumers dealing with a fresh round of price rises. Food and personal care giants PepsiCo and Procter & Gamble (P&G) cut their financial outlooks for the year on Thursday as a result of tariff-related uncertainty. Meanwhile, Unilever and Nestlé said weary shoppers would have to swallow higher prices. Pepsi… said profits were likely to stagnate in 2025… The company blamed tariffs and economic uncertainty for a 1.8% drop in sales during the first three months of the year. ‘We probably aren’t feeling as good about the consumer now as we were a few months ago,’ chief financial officer Jamie Caulfield told analysts.”
April 23 – Financial Times (Peter Foster): “Medical device makers have raised the alarm over a potential supply chain crunch and higher prices for hospitals around the world because of the disruption from the US-China trade stand-off. Experts said the industry’s highly integrated global supply chains, which can see a single device drawing parts from more than 20 different countries, had left the industry highly exposed to a global tariff war.”
Budget Watch:
April 21 – Axios (Alexander Bolton): “Republican leaders are rapidly running out of ways to pay for President Trump’s agenda as GOP lawmakers shoot down various proposals to cut spending or increase revenues. Without finding some new ideas, the GOP risks adding trillions of dollars to future deficits by passing Trump’s agenda… ‘I just don’t see them getting the money. There’s no ‘there’ there, to be quite honest about it. If they want to spend money, they’re going to end up putting it on the debt,’ said former Sen. Judd Gregg… ‘They’re not going to get it out of tariffs, either. You have [White House trade adviser Peter] Navarro running around saying they’re going to get $600 billion in tariff revenue. That’s absurd. It’s basic economics. You raise the price on it, people stop buying it,’ he said.”
April 23 – Bloomberg (Steven T. Dennis and Hadriana Lowenkron): “President Donald Trump said that imposing a higher tax rate on millionaires would spur the country’s richest to leave the US, downplaying an idea that is under discussion in some Republican circles as a way to pay for an economic package. ‘I think it would be very disruptive because the millionaires would leave the country,’ Trump told reporters… ‘Other countries that have done it have lost a lot of people. They lose their wealthy people. That will be bad because the wealthy people pay the tax.’”
New World Order Watch:
April 22 – Wall Street Journal (Paul Hannon): “The sharp rise in tariffs since the start of the year marks the onset of a new era that will see most economies grow more slowly than previously expected, with the U.S. suffering one of the largest hits to its prospects, the International Monetary Fund said… In its quarterly report…, the IMF said U.S. tariffs now exceed the highs reached during the Great Depression, marking a departure from the long period of relatively low barriers to trade that began to unfold after World War II. ‘We’re entering a new era as the global economic system that has operated for the last 80 years is being reset,’ said Pierre-Olivier Gourinchas, the fund’s economic counselor.”
April 23 – Wall Street Journal (Jon Sindreu): “While the prospect of President Trump de-escalating his trade war has triggered a market rally, there could still be a permanent loss of confidence in U.S. assets. So far, concerns about capital flight have focused on the government’s debt, but the implications for stocks and the U.S. dollar could be more serious… The reversal in international investment flows could be sizable, given how massive they have been in one direction. In Bank of America’s December survey, the difference between the percentage of global fund managers who were overweight U.S. equities and those who were underweight was 36 percentage points, the highest on record.”
April 23 – Financial Times (Claire Jones and James Politi): “US Treasury secretary Scott Bessent has accused the IMF and World Bank of ‘mission creep’, calling for them to step back from ‘their sprawling and unfocused agendas’ on climate change and gender issues. ‘The IMF and World Bank have enduring value. But mission creep has knocked these institutions off course,’ Bessent said… The conservative Project 2025 agenda advocates the US — the biggest shareholder in the institutions — quit both.”
U.S./Russia/China/Europe/Iran Watch:
April 25 – Axios (Barak Ravid): “President Trump denied there’s any risk Israeli Prime Minister Benjamin Netanyahu will ‘drag’ him into war with Iran in an interview with Time magazine, because he will be ‘leading the pack’ for war if he can’t get a deal… Trump has repeatedly said his priority is to negotiate a deal, but that Iran doesn’t have much time before he will consider plan b to ensure Tehran never gets a bomb. Trump denied that he outright stopped Israel from striking Iran, saying ‘I didn’t make it comfortable for them, but I didn’t say no.’ ‘Ultimately I was going to leave that choice to them, but I said I would much prefer a deal than bombs being dropped,’ he said. Trump said he’s not worried Netanyahu will drag him into war with Iran and added: ‘I may go in very willingly if we can’t get a deal. If we don’t make a deal, I’ll be leading the pack’.”
Canada Friend and Ally Watch:
April 19 – Bloomberg (Erik Hertzberg): “Canadian Prime Minister Mark Carney is promising to run deeper deficits to cut income taxes and grow spending on infrastructure to reduce the country’s dependence on the US. Carney’s plan would push the federal government’s shortfall to C$62.3 billion ($45bn) this fiscal year and add C$129.2 billion in net new spending over the next four years if his Liberal Party wins the election… Canada’s net deficit as a percentage of gross domestic product is expected to be 1.96% in the fiscal year that started this month…”
Ukraine War Watch:
April 24 – Associated Press (Vasilisa Stepanenko and Samya Kullab): “Russia attacked Kyiv with an hourslong barrage of missiles and drones, killing at least nine people and injuring more than 70 in its deadliest assault on the Ukrainian capital since last July and just as peace efforts are coming to a head… The attack drew a rare rebuke of Russian President Vladimir Putin from U.S. President Donald Trump, who said he was ‘not happy’ with it. ‘Not necessary, and very bad timing. Vladimir, STOP!’ Trump wrote…”
April 23 – Financial Times (Guy Chazan, Christopher Miller and Lucy Fisher and Ben Hall): “President Donald Trump has attacked Ukrainian leader Volodymyr Zelenskyy for refusing to recognise Russia’s occupation of Crimea, accusing him of harming peace negotiations with Moscow. In a post…, the US president described the situation for Ukraine as ‘dire’. ‘He can have Peace, or, he can fight for another three years before losing the whole Country,’ Trump said. ‘We are very close to a Deal, but the man with ‘no cards to play’ should now, finally, GET IT DONE,’ he added.”
April 23 – Associated Press (Illia Novikov, Aamer Madhani and Jill Lawless): “President Donald Trump… lashed out at Ukraine’s president, saying Volodymyr Zelenskyy is prolonging the ‘killing field’ after pushing back on ceding Crimea to Russia as part of a potential peace plan. Zelenskyy… ruled out ceding territory to Russia… ‘There is nothing to talk about. It is our land, the land of the Ukrainian people,’ Zelenskyy said… Trump called Zelenkyy’s pushback ‘very harmful’ to talks. ‘Nobody is asking Zelenskyy to recognize Crimea as Russian Territory but, if he wants Crimea, why didn’t they fight for it eleven years ago when it was handed over to Russia without a shot being fired?’ he wrote on social media.”
April 23 – Politico (Stefan Boscia, Robbie Gramer and Veronika Melkozerova): “A London-hosted Ukraine summit was thrown into disarray Wednesday after top U.S. representatives pulled out at the eleventh hour and Ukraine pushed back at proposals from Donald Trump’s administration to recognize Russia’s illegal 2014 annexation of Crimea. The U.K. is instead hosting dramatically scaled-back talks after U.S. Secretary of State Marco Rubio and Steve Witkoff… withdrew from the gathering… The pair canceled in a last-minute about-face that underscores tensions between the Trump team and its European allies over the fate of the Ukraine-Russia war.”
Middle East Watch:
April 24 – Bloomberg (Golnar Motevalli): “Iranian Foreign Minister Abbas Araghchi tells Iranian state TV that discussions with his Chinese counterpart Wang Yi in Beijing were ‘very good’ and the two countries have a ‘strong understanding’ on Iran’s nuclear program. ‘We had very good discussions about the US’s hegemonic and bullying policies and how to stand up to them,’ Araghchi says.”
April 23 – Associated Press (Ellen Knickmeyer): “Secretary of State Marco Rubio said… Iran must give up all nuclear enrichment if it wants to make a deal during talks with the Trump administration and head off the threat of armed conflict. Iran insists its nuclear program is for civilian energy use and says it does not seek to make weapons-grade uranium to build atomic bombs. ‘If Iran wants a civil nuclear program, they can have one just like many other countries can have one, and that is they import enriched material,’ Rubio said… But Iran has long refused to give up its ability to enrich uranium.”
April 23 – Reuters (Jonathan Landay): “Iran is ringing two deeply buried tunnel complexes with a massive security perimeter linked to its main nuclear complex, a report said Wednesday, amid U.S. and Israeli threats of attack. The Institute for Science and International Security released its report based on recent satellite imagery as the U.S. and Iran prepare to hold a third round of talks this weekend on a possible deal to reimpose restraints on Tehran’s uranium enrichment program.”
Bubble and Mania Watch:
April 23 – Financial Times (Eric Platt, Joshua Franklin and Will Schmitt): “Jane Street’s trading revenues almost doubled last year and boomed during the tariff-induced turmoil of the first quarter of 2025, as it generated profits rivalling those of Goldman Sachs and Morgan Stanley. The group, which operates in equity, option and fixed-income markets, generated $20.5bn of net trading revenues in 2024, up 94% from 2023… Jane Street expects to report net trading revenues of about $7.2bn in the first quarter, up more than 60% from the same period a year ago. That would exceed the $6.7bn in first-quarter trading revenues reported this month by Morgan Stanley and brings Jane Street within striking distance of the $8.6bn earned by Goldman.”
April 25 – Bloomberg (Jan-Patrick Barnert): “Foreign investors have sold $63 billion of US equities since the start of March, Goldman Sachs strategists estimate, noting that the data from high-frequency fund flows suggest that European investors have been driving the selling, while other regions have continued to buy US stocks. ‘This dynamic poses a substantial risk to equity valuations because foreign investors entered 2025 with a record 18% ownership share of US equities’…”
April 23 – Wall Street Journal (Juliet Chung): “The wealthiest have gotten richer, and control a record share of America’s wealth. New data suggest $1 trillion of wealth was created for the 19 richest American households alone in 2024. That is more than the value of Switzerland’s entire economy. It took four decades for the top 0.00001% of Americans’ share of total U.S. household wealth to grow from 0.1% in 1982—when 11 households made up that rarefied group—to 1.2% in 2023, according to an analysis by Gabriel Zucman, an economist at the University of California… and the Paris School of Economics. In one year, by the end of 2024, the share of total U.S. household wealth for the modern 0.00001%—those 19 households—jumped to 1.8%, or about $2.6 trillion. That is the biggest one-year increase on record…”
April 20 – Bloomberg (Biz Carson): “Insiders including Meta Platforms Inc.’s Mark Zuckerberg, Oracle Corp.’s Safra Catz and JPMorgan… Co.’s Jamie Dimon cashed out shares worth billions of dollars before President Donald Trump’s tariff announcements roiled markets. Zuckerberg sold 1.1 million shares worth $733 million in the first quarter… All of the sales were in January and February when Meta’s stock was still trading above $600, hitting a peak of more than $736 on Valentine’s Day. The social-media company’s share price has since slid by 32% amid the broader market selloff. Another top seller was Catz, Oracle’s chief executive officer, who unloaded 3.8 million shares worth $705 million before the tech giant’s stock fell more than 30%.”
April 25 – Los Angeles Times (Roger Vincent): “Tenants hunting for office space in the Los Angeles area are in the driver’s seat as vacancies plague many landlords trying to fill their buildings with people. The greater Los Angeles office rental market started the year with a turbulent first quarter and historically high vacancies… Countywide… overall office vacancy reached a new high of 24.2%, real estate brokerage CBRE said. When ‘shadow’ office space that is leased but not occupied is considered, overall availability is more than 29% — about triple what is considered a healthy market balance between landlord and tenant interests.”
AI Bubble Watch:
April 24 – Wall Street Journal (Jennifer Hiller and Katherine Blunt): “The U.S. needs massive amounts of electricity to power the AI race, but it is getting harder to deliver. Investors and developers are putting financing decisions on hold as they try to determine how much more their projects will cost to complete. About 28% of planned wind, solar and battery projects have been delayed or canceled, according to an Atlas Public Policy analysis… That is about 42,000 megawatts of capacity, roughly on par with the existing solar, storage and wind energy in California. Delays and cancellations had been growing but recently accelerated…, which provides a snapshot of existing and planned power generation across the country.”
Inflation Watch:
April 24 – Wall Street Journal (Editorial Board): “Californians these days dread receiving a letter from their home insurer as much as from the tax man. Insurance rates are skyrocketing, and they may have to increase much more to correct for years of government price controls. That’s the message from a new American Enterprise Institute (AEI) report that compares risk-insurance rates in the states… AEI housing expert Ed Pinto calculates that median insurance premiums (not including flood, earthquake, personal injury and property coverage) have risen 90% in California over the last six years, compared to 59% nationwide, 47% in Texas and 54% in Florida.”
Federal Reserve Watch:
April 22 – Wall Street Journal (Nick Timiraos): “President Trump is signaling that he will blame the Federal Reserve for any economic weakness that results from his trade war if the central bank doesn’t cut interest rates soon. In the process, he might also be seeking to delegitimize the historically independent institution in a way that could undermine its effectiveness… Trump repeated last week’s demand that the Fed reduce interest rates now. ‘There is virtually no inflation,’ he said, blasting Fed Chair Jerome Powell as ‘Mr. Too Late’ and ‘a major loser.’ He also accused the central bank of lowering interest rates last fall to influence the 2024 election. ‘Powell has always been ‘To [sic] Late,’ except when it came to the Election period when he lowered in order to help Sleepy Joe Biden, later Kamala, get elected,’ he wrote.”
April 24 – Bloomberg (Amara Omeokwe): “Federal Reserve Governor Christopher Waller said firms may begin laying off more workers if aggressive tariff levels are reinstated by the Trump administration, and he’d support rate cuts if there’s a significant rise in unemployment. ‘It wouldn’t surprise me that you might start seeing more layoffs, a tick up in the unemployment rate going forward if the big tariffs in particular come back on,’ Waller said… ‘I would expect more rate cuts, and sooner, once I started seeing some serious deterioration in the labor market.’”
April 22 – Reuters (Ann Saphir): “Federal Reserve Governor Adriana Kugler said… that with U.S. import tariffs significantly larger than expected and likely to put upward pressure on prices, the central bank ought to keep short-term borrowing costs unchanged until inflation risks recede. Kugler said she is carefully watching how the Trump administration’s trade, immigration, fiscal policy and regulatory changes impact inflation and the labor market, but the ‘significantly larger’ than expected tariffs clearly had her attention. Fed policy is ‘well positioned’ to respond to changes in the economy, she said. ‘Thus, I will support maintaining the current policy rate for as long as these upside risks to inflation continue, while economic activity and employment remain stable.’”
U.S. Economic Bubble Watch:
April 23 – Yahoo Finance (Josh Schafer and Myles Udland): “US economic activity continued to sink this month amid uncertainty around tariff policy. New data from S&P Global… showed its flash composite PMI output index, which captures activity in the services and manufacturing sectors, fell to 51.2 in April, hitting its lowest level in 16 months. Manufacturing activity rose to 50.7, up from 50.2 in March, while services activity fell to 51.4 from 54.4… Sentiment about the year ahead fell sharply, reaching the lowest level since July 2022 and the second-lowest since September 2020. Meanwhile, prices charged for goods and services ‘rose at the sharpest rate for just over a year,’ S&P Global said…. Manufactured goods saw an ‘especially steep increase,’ associated with higher tariffs.”
April 21 – Associated Press (Annie Ma): “The Education Department will begin collection next month on student loans that are in default, including the garnishing of wages for potentially millions of borrowers… Currently, roughly 5.3 million borrowers are in default on their federal student loans. The Trump administration ’s announcement marks an end to a period of leniency that began during the COVID-19 pandemic. No federal student loans have been referred for collection since March 2020… ‘American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,’ Education Secretary Linda McMahon said.”
April 21 – New York Times (Stacy Cowley): “After a five-year pause on penalizing borrowers for not making student loan payments, the federal government dropped the hammer. It instructed its loan servicers to start reporting late payers to credit bureaus at the start of the year. The result: Millions of borrowers saw their credit scores plunge in recent months, and loan servicers are warning that a record number of borrowers are at risk of defaulting by the end of the year. Only one-third of the 38 million Americans who have borrowed money to pay for college or graduate school and should be making payments actually are…”
April 24 – CNBC (Mike Winters): “Young Americans are sounding the alarm about their finances, with roughly 2 in 5 people under 30 saying they’re either ‘struggling to make ends meet’ or ‘getting by with limited security.’ That’s according to a survey of 2,096 adults ages 18 to 29, conducted by Harvard’s Institute of Politics… The survey found that among that age group, financial insecurity most affected women, Hispanics and those without college degrees. The likelihood of struggling financially drops for different levels of education, the survey found: 50% of those not in college and without a degree. 35% of current college students. 29% of college graduates.”
April 22 – Wall Street Journal (Imani Moise): “The largest credit-card companies are preparing for the economy to get worse… Already, delinquencies are rising and are now in line with levels from before the pandemic. JPMorgan… and Citigroup added money to their rainy day funds to cover expected future losses. Retail-card issuer Synchrony has tightened its lending standards. U.S. Bancorp is chasing a more affluent customer base that could better withstand a downturn… ‘The focus right now is on the future, which is obviously unusually uncertain,’ JPMorgan… finance chief Jeremy Barnum said on a call with analysts.”
April 24 – Associated Press (Matt Ott): “U.S. applications for jobless benefits rose modestly last week as business continue to retain workers despite fears of a possible economic downturn. Jobless claim applications inched up by 6,000 to 222,000 for the week ending April 19… The total number of Americans receiving unemployment benefits for the week of April 12 declined by 37,000 to 1.84 million.”
April 19 – Yahoo Finance (Claire Boston): “All the ingredients for a busy spring homebuying season were there: Buyers had more inventory to choose from, mortgage rates were holding steady, and showings and mortgage applications were picking up. Now, the volatility that gripped financial markets after President Trump announced sweeping tariffs on US trading partners… threatens to upend it all. Consumer confidence has plummeted as buyers fear the tariffs will lead to inflation and a recession. Prospective homebuyers, fretting about their job security and investments, are rethinking their searches, and sellers are worried too.”
April 24 – Associated Press (Alex Veiga): “Sales of previously occupied U.S. homes slowed in March, a lackluster start to the spring homebuying season as elevated mortgage rates and rising prices discouraged home shoppers. Existing home sales fell 5.9% last month from February to a seasonally adjusted annual rate of 4.02 million units… The March sales decline is the largest monthly drop since November 2022… Sales also fell 2.4% compared with March last year… Home prices increased on an annual basis for the 21st consecutive month, although at a slower rate. The national median sales price rose 2.7% in March from a year earlier to $403,700, an all-time high for March, but the smallest annual increase since August.”
April 23 – CNBC (Diana Olick): “Higher interest rates, as well as concern over where the broader economy is headed, is causing mortgage demand to drop sharply… Applications for a mortgage to purchase a home fell 7% for the week and were just 6% higher year over year.”
April 23 – Bloomberg (Molly Smith): “US mortgage rates rose again last week, reaching the highest level since mid-February… The contract rate on a 30-year mortgage climbed 9 bps to 6.90% in the week ended April 18… That followed a 20 bps jump in the prior week, marking the biggest back-to-back increase since early November.”
April 22 – Wall Street Journal (Deborah Acosta): “Florida is contending with a condo crisis, and the ballooning costs of ownership are a big reason why. Retirees Rob and Karen Dickson moved from upstate New York to Punta Gorda, Fla., in 2021. They paid $319,000 for a condo…, overlooking a golf course inside their gated community. After nine holes, they would have lunch at the club and then go for a swim. ‘It was wildly affordable,’ Rob said. But then their ownership costs began to rise. Two years on, their insurance rates doubled after a hurricane, and the unit was hit with a $7,200 special assessment to pay for building upgrades, which they paid in four monthly installments after insurance covered $2,000 of the cost. Their HOA fees soared by 25% to nearly $800 a month. Now, these fees are up to $1,000.”
April 21 – Financial Times (Amanda Chu): “Donald Trump’s global trade war is threatening a corner of America that voted in droves for the Republican president last year: oil-producing North Dakota. It might also upend the president’s plans to boost fossil fuel production in the state that launched America’s shale revolution. Trump’s tariff rhetoric triggered an oil price sell-off… The escalation raised concerns across the US shale patch, some of the reddest parts of America… ‘It’s just scary,’ Tracey Dolezal, a commissioner of Dunn County, one of the top oil-producing areas in North Dakota’s Bakken basin, told the Financial Times. The county received nearly $40mn in oil and gas taxes last year, more than half of total revenue.”
April 21 – Associated Press (Michael R. Blood): “Los Angeles Mayor Karen Bass… proposed laying off more than 1,600 government workers in an attempt to close a nearly $1 billion budget gap amid a slumping economy while the city contends with the costly job of rebuilding a seaside neighborhood leveled in a January wildfire.”
China Watch:
April 25 – Bloomberg: “China said it will ‘fully prepare’ emergency plans to ward against increasing external shocks, taking a patient approach in defending growth as a deepening trade war with Donald Trump piles pressure on the world’s No. 2 economy. The decision-making Politburo led by President Xi Jinping also pledged Friday to set up new monetary tools and policy financing instruments to boost technology, consumption and trade, according to a readout published on the government’s website. Such steps could allow for faster deployment of low-cost credit for investment in targeted areas.”
April 24 – Bloomberg: “China’s central bank is boosting cash injection via one of its policy tools as it seeks to safeguard the world’s second-largest economy from the impact of punitive US tariffs. The People’s Bank of China will conduct 600 billion yuan ($82.3bn) of one-year medium-term lending facility on Friday to maintain ample liquidity in the banking system… This will result in a net cash injection of 500 billion yuan via this tool in April, the largest since December 2023… ‘The operation unleashes a signal of supportive monetary policy stance’ as the economy embraces challenges in the trade environment, said Wang Qing, chief macro analyst at Golden Credit Rating.”
April 18 – Bloomberg: “China expanded government spending at the fastest rate for any first quarter since 2022, ramping up support for an economy bracing for foreign demand declines as a trade war with the US intensifies. The combined expenditure in the general public budget and the government fund account, China’s two main fiscal books, rose to 9.26 trillion yuan ($1.3 trillion) in the first three months, an increase of 5.6% from the same period a year earlier…”
April 23 – Financial Times (Ryan McMorrow and Chan Ho-him): “Factories in China have begun slowing production and furloughing some workers as the trade war unleashed by US President Donald Trump dries up orders for products ranging from jeans to home appliances. With most Chinese goods now facing US duties of at least 145%, some factory owners say American customers have cancelled or suspended orders, forcing them to cut production. About 15% of all Chinese exports last year went to the US.”
Central Bank Watch:
April 23 – Bloomberg (Mark Schroers): “European Central Bank President Christine Lagarde threw her support behind her US counterpart, saying Jerome Powell is doing what’s required as Federal Reserve chief. ‘I am reassured by the talent and the competence of the chair of the Fed,’ she said… ‘And I know for a fact that he’s putting all his efforts and all his discipline into delivering on his mission’… Lagarde said that she has ‘enormous respect for Chair Powell — and I know that he’s doing exactly what is expected of him to serve the American people and financial stability, which goes together with price stability.’”
April 23 – Bloomberg (Tom Rees): “Bank of England Chief Economist Huw Pill has raised doubts over the way quantitative easing was used as a ‘sledgehammer’ during past crises, a day after one of his colleagues said the central bank should take a more targeted and measured approach in future… Pill also said that policymakers are ‘alive’ to recent market volatility and ready to change the program to reverse QE if needed… Pill said there is a case to using a more targeted approach to ‘cut out the tumor’ for future threats to economic and financial stability. ‘Whether we act as a scalpel or whether we act as a sledgehammer, I think, will become a very important question,’ he said. The comments suggest the BOE is considering a far more constrained approach to using QE in future crises amid scrutiny over the ballooning of its balance sheet over more than a decade between the financial crisis and the pandemic.”
Europe Watch:
April 23 – Financial Times (Olaf Storbeck): “Business confidence in the Eurozone plunged in April after Donald Trump’s sweeping tariff announcements… The flash estimate for Hamburg Commercial Bank’s composite Eurozone Purchasing Managers’ Index, compiled by S&P Global, showed that business confidence in April fell to its lowest level since November 2022… ‘The drop in confidence was widespread, both in terms of sector and geographical coverage,’ according to the flash estimate, which is the first survey since Trump’s ‘liberation day’ in early April.”
April 22 – Financial Times (Valentina Romei and Sam Fleming): “The UK government suffered a double economic blow… as annual public borrowing came in almost £15bn more than expected and private sector activity contracted at the fastest pace in more than two years. The borrowing figures put pressure on chancellor Rachel Reeves to raise taxes in her autumn Budget to balance the books…”
Japan Watch:
April 24 – Reuters (Makiko Yamazaki): “Core consumer prices in Japan’s capital rose 3.4% in April from a year earlier…, accelerating for the second straight month and making the central bank’s task of balancing risks from higher U.S. tariffs and rising prices more challenging. The increase in the core consumer price index (CPI)… was faster than a median market forecast of 3.2% and followed a 2.4% gain in March. The Tokyo core CPI rose above 3% for the first time since July 2023.”
Emerging Market Watch:
April 25 – Bloomberg (Andrew Rosati): “Brazil’s annual inflation accelerated to the highest level since mid-February 2023 in a report coming days after central bank directors assured investors that tight monetary policy is working. Official data… show consumer prices rose 5.49% from a year ago…”
Geopolitical Watch:
April 25 – Associated Press (Aijaz Hussain and Rajesh Roy): “Indian and Pakistani soldiers briefly exchanged fire along their highly militarized frontier in the disputed Himalayan region of Kashmir…, as tensions soared between the nuclear-armed rivals following a deadly attack on tourists. India has described the massacre in which gunmen killed 26 people, most of them Indian, as a ‘terror attack’ and accused Pakistan of backing it.”
