Wow part II! There is so much to unpack today. Also, apologies for hitting economics and finance so much lately, but I have never seen anything like this. Good news at the end though…
Inflation Cools!
March CPI inflation came in cooler than expected this morning (for the second month in a row), and rates plummeted! But now rates are climbing again despite crashing stocks (more on that below).
Confused Trump Supporters: Lag Effect Still a Thing; Recession Not Averted
Trump supporters are selling t-shirts that say: “I survived the Trump recession, 4/7/25 – 4/9/25.” But I fear they’re celebrating far too soon.
As Stephanie Pomboy, Jeff Snider, Ed Dowd, Lacy Hunt, Steve Hanke and others have been reminding us, a recession has been baked in the cake for a long time, as Leading Economic Indicators (LEIs) have been signaling a recession for many months now, unemployment has been climbing (triggering the Sahm Rule), the yield curve (a strong recession indicator) inverted long ago, oil and copper prices all but crashed, consumer sentiment is in the toilet, government stimulus and spending are getting rolled back, and the money supply contracted severely. So, tariffs or not, a recession remains very likely.
Trump supporters are also cheering because Trump cured inflation, brought down egg prices, and brought down energy prices. But once again, the lag effect reigns supreme. We would have seen much of that happen even if Trump were not President, as it takes months for policy changes to be felt in our huge economy.
Most Powerful Force on the Planet: The Bond Market
Trump supporters are claiming that Trump’s entire tariff plan was 4D chess intended to isolate China.
His detractors, though, are saying that the bond market forced Trump’s hand, and that is why he loosened up on tariffs.
While both of the above factors could have validity, I am more on the detractor side.
Mr. Trump and his cabinet were telling us to ignore the recent stock market correction because it would all work out, but there was something they could not ignore: the crashing bond market and increasing rates!
The bond market is extremely powerful because it is what actually moves interest rates (not central banks), and fast-rising rates can crush economies. And – it was likely spiking rates that ultimately forced Mr. Trump to back off on tariffs.
Stocks Tanking Again and Rates Are Climbing!
In my blog yesterday – The REAL Reason Rates Shot Higher – I explained that it was the forced selling of Treasuries that was pushing rates up, and we’re seeing the exact same thing today.
It is so surprising because normally when we see stocks tanking, money sloshes into the bond market and pushes rates down. But that is not happening today because so many hedge funds and central banks are forced to dump Treasuries on the market to raise cash to cover margin calls, shore up positions, and/or prop up their currencies.
Rates Will Likely Tumble After All the Dust Settles
The “good news” for those of us in the mortgage and real estate industries (but not so much for stock investors) is that the crashing stock market corroborates the recession fears espoused by the analysts I list above.
And at some point, the forced selling of Treasuries (that is pushing rates up) will stop, and rates will likely plummet and remain plummeted.
