The main macro question today: Can risk assets achieve escape velocity without quantitative easing?
There is a moderate mood of risk aversion this morning following Wednesday's daily reversal, ending a two-day rally and reaffirming the exhausting 'tariff roulette' that characterizes today's markets.
This follows @USTreasury @SecScottBessent's statement that Trump did not unilaterally offer to lift U.S. tariffs on China. Beijing demanded that the U.S. cancel all unilateral tariffs and rejected talks on a trade deal, maintaining a hardline stance despite @realDonaldTrump's recent softening tone.
In addition to softening his tone recently regarding China, focusing 180 degrees on the removal of Federal Reserve Chair Jay Powell, exempting consumer electronics from tariffs on China, and imposing a 'liberation day' tariff for 90 days, @POTUS is considering cuts to auto tariffs that industry executives warn will severely impact profits and jobs.
It is worth noting that volatility is inversely proportional to the amount of leverage used in market-neutral hedge funds and the amount of risk taken by systematic strategies like CTAs. So the answer to today's main macro question is "yes," but with a caveat: we must continue to be right in our view that the bond market broke President Trump on April 9.
According to our morning memo 4/10: "Finally, the fact that 'Trump's position' has been exercised - or at least rolled until July 9 - due to pressure in the Treasury bond market has both positive and negative implications. On the positive side, it paves the way, at worst, for retesting the lows in the meantime, and at best, a sustainable upward trend from here. On the negative side, it confirms the increasing imbalance between supply and demand driven geopolitically that we have been warning about in the Treasury bond market."
Elsewhere, Trump said on Wednesday that he opposes raising taxes on millionaires to help fund his economic plan, warning that such a move could drive wealthy Americans out of the United States. "I think it would be very troubling because millionaires would leave the country. Other countries that did that lost a lot of people. They lose their wealthy. That would be bad because the wealthy pay the tax."
House Speaker Mike Johnson (Republican from Los Angeles) said on Wednesday he does not expect the Republican tax bill to raise income tax rates on millionaires, reaffirming traditional party resistance. "We have fought against this idea. I am not in favor of raising tax rates. Our party is the party that stands against that traditionally."
According to our morning memo 4/23: "Investors need to abandon the Paradigm-A-to-Paradigm-B framework and instead anticipate a new destination: Paradigm C - characterized by all the financial generosity of model A, plus further tax cuts benefiting the wealthy and corporations significantly, and the removal of restrictions to support the replacement of American workers with artificial intelligence and automation. Investors must also take on the $5.5 trillion in tax cuts and $1.5 trillion in spending reductions in the reconciliation process among Congressional Republicans. Nothing stops this train. That is why the KISS portfolio-building process, systematic and 100% nonpartisan, features stocks, gold, and bitcoin - no bonds. Why would you want to be long in the bonds of a country addicted to financial and monetary generosity?"
Supporters of the millionaire tax within the Republican Party say it could help mitigate Democratic attacks ahead of the 2026 midterm elections. By 2026, it could have been 12 years since the last time the House of Representatives did not flip during a midterm election. By just a 5-seat margin (220-215), the House is sure to shift to Democratic control next fall, increasing pressure on the Trump administration to contain the economic fallout from its policy missteps.
According to the morning memo 4/16: "Risk assets are likely to retest their lows in the coming months as GDP, sales, and earnings estimates intensify toward economic reality. If the U.S. avoids an actual recession/NBER - and we believe it will depend on everything we can observe today through the ongoing leading indicators of the business cycle - the retest should hold or narrowly pierce it at worst. Investors would be remiss not to buy the potential retest dip as President Trump may have already lost the trade/capitalism war he started and shifted to the growth-friendly, market-friendly phase of his economic agenda as a result."
Finally, everything is going according to our plan. We still believe it is likely to retest its lows in stocks given the anticipated slowdown in growth that will be realized in the hard data for Q2 and Q3, reaffirmed throughout the Q2 earnings season this summer. Moreover, we are still in a sweet spot for refinancing global debt. However, we still believe investors should buy the retest pullback with both hands as we struggle to see how the stock market achieves new lows considering our core thesis that the bond market broke President Trump on April 9. This remains our North Star, and we are eager to keep drinking pumpkin spice.
According to our report 4/12 on the current century: "Geopolitical stress in the Treasury market is accelerating the transition from 'American exceptionalism' to the United States being an emerging market in terms of capital flight risks. President Trump may operate under the assumption that the U.S. is 'too big to fail' and may find out from foreign creditors that this is not the case. Markets thought Lehman was 'too big to fail' as well. This transition has many profound implications for asset markets: 1) The rest of the world has much greater negotiating leverage than anyone in the Trump administration would like to publicly acknowledge, increasing the likelihood of broadly reducing reciprocal tariff rates in deals that President Trump would celebrate as 'victories,' but likely to be less effective than the phase one Chinese trade deal and USMCA negotiated during his first term - we would not be here today if the 'art of the deal' had actually succeeded back then..."
It is unlikely that Bitcoin will retest its lows as the slowdown in growth will lead to an advance in the timing of Federal Reserve easing - a greater upside risk for the cryptocurrency market than for the stock market at the current turn given the prerequisite of excessive exposure to U.S. stocks among institutional investors - many of whom have not yet made significant reallocations to their local and international markets, but if the dollar's bear market continues.
We believe it will happen. Confidence in the currency market is earned, not allocated, and U.S. policymakers have a long way to go to regain the valuation premiums that have been priced into the U.S. dollar and broader U.S. assets.
According to our morning memo 4/11: "The dollar fell to its lowest in six months amid growing concerns about the status of its global reserve currency. Gold rose another 2% to a record above $3200 an ounce, and the euro also rose more than 1%, reaching its highest level in three years as global capital allocators reassess their excessive exposure to dollar-denominated assets amid geopolitical concerns (the trade war and the militarization of the U.S. defense umbrella) and fiscal policy concerns (over $5 trillion in additional tax cuts funded by debt). These exaggerated moves in the global currency market are consistent with our call to accelerate de-dollarization that we have been preparing 42 Macro clients for since the summer of 2023 through investment analysis during the fourth rotation system, which we have shown in the appendix of each monthly disclosure report since then."
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-Captain$BTC