Three words: “Dead Cat Bounce”

Trump and his minions engineer a collapse of the stock market, in a timed “pump and dump” scheme, with a twist. The insider trading will make a few people exceedingly rich at the expense of the ‘working class’ who still have anything in their 401k retirement accounts. Those accounts took a hit, but will have bounced back a bit in this jump yesterday.  But the real damage has been done, and there is only one long-term direction for the Amerikan markets.

If anyone thinks there will be a single insider trading investigation that goes to fruition, then they clearly are not living in Trump’s Amerika. Anyone who made money off this will split a few his way (or to the Department Formerly Known as DoJ) and it will all go away. All, except for their massive profits at the expense of the rest of the country. 

 

This will not help the country at all. If anything, it makes matters even worse. If Trump had the balls to stand by his grotesque tariff regime, then the world might have said, “Well, we’re going to have to do something” to appease him. But no, he caves, reinforcing that he is weak but belligerent and will strike out without aim or reason.  

So world leaders will simply agree that they will ignore anything that comes out of Trump's mouth, and will back off from giving the historical automatic support for Amerikan policy, economic, political or military. When Amerika goes to war with Iran, all of Amerika's allies (read: Israel ONLY) will support the action. The rest of the world will sit back, watch, and make tut-tut noises. Especially Europeans who have had enough.

 

Thus, the expectation that the US under Trump cannot be trusted will remain and be reinforced. Bonds will continue to be sold by foreign governments increasing the cost of government borrowing, and companies will continue to not invest in production capacity in Amerika. Jobs will be lost and inflation will continue. With each spasm of retribution and retreat, trust in Amerika will erode. Tourists will shun Amerika unless they are like-minded, and even they will approach the customs and immigration desk with trepidation. The rest will just stay away. 

 

And all of that will badly damage corporate profits, which will kneecap future earning projections, which will drive down share prices. The only good news out of any of this is that while the US of Amerika will continue to suffer, the rest of the world will still be able to sell to Amerika (though at a slight premium that will be carried by the consumers and not the producers). They will increase the low-tariff trade between each other. 

 

European tourists will stay in Europe or go to Asia, not the US. Travellers between anywhere and Latin America will travel on flights that bypass the US of Amerika, bringing a (small) boost to the European and Asia airlines. At the same time “US flag carriers” will suffer on all international routes.  

 

Trump Tariff Tumble (TTT) has only just begun

It has been an interesting couple of days. The US markets dropped by more in two days than in any two-day period in history, and the rot will continue. Even a sort-of-good jobs report for March did not help the markets. I cannot understand the jobs report, as it coincides with the first month of big layoffs in the federal government and the ripple effect of cancelled government contracts and grants.  

 

Year-to-date, from before Trump was inaugurated to yesterday, the US markets have given up everything and lost significant ground. Savings and investments are being devastated. 

 

 

 

The Dow Jones Industrial Average (which really represents a relatively small number of very large companies) is down almost 10%, while the Nasdaq (technology companies) and the Russell (a broader range of companies) are both down almost 20% from January 1st. Those falls will undermine any company's ability to access capital and push up borrowing costs. For those that have fallen further than the averages of the groups, they may reach a point at which banking covenants are being breached, and debt will either need to be repaid or refinanced at significantly higher rates – if they can access the capital markets at rates they can afford.  

 

 

 

$6 trillion wiped out. Real money? In a way, yes, and in a way, no. Share values are not ‘real’ until you sell your shares, or until you use them as collateral. And that is where the hurt happens. The use of shares as collateral for loans and lines of credit, with requirements that the nominal value of the shares does not fall below a certain level. What that level is, is known only at the individual contract level, but a 20% drop in the nominal value must bring many contracts close to covenant levels. 

 

If the shares are leveraged at a 25% premium, and the share value drops by 20%, those leveraged positions are getting pretty close to having to be closed, and that will spur a round of liquidation to cover leverage positions. And the cycle continues downward. 

Across the insurance industry, falling share values impact solvency and could put some insurance companies in a position of requiring additional capital from shareholders - more debt at unpleasant rates.

 

The Financial Times said: 

 

Hedge funds have been hit with the biggest margin calls since Covid shut down huge parts of the global economy in 2020, after Donald Trump’s tariffs triggered a powerful rout in global financial markets. 

 

Wall Street banks have asked their hedge fund clients to stump up more money as security for their loans because the value of their holdings had tumbled, according to three people familiar with the matter. Several big banks have issued the largest margin calls to their clients since the beginning of the pandemic in early 2020. 

 

The margin calls underscore the intense turbulence in global markets on Thursday and Friday as Trump’s tariffs announcement was followed by retaliatory duties by China, and other countries readied their own responses. Wall Street’s S&P 500 share index was set to post its worst week since 2020, while oil and riskier corporate bonds have sold off heavily. 

 

(https://archive.is/HEuGt#selection-2149.0-2165.245) 

 

Monday might have a bounce in values. A “Dead Cat Bounce” followed by more selling on Tuesday? Or a stabilising of positions with a belief that the pain has been taken and future share value levels have been met? The fact that the tariffs were so much worse than expected, and that international response to the tariffs is still developing, suggests that there is more ‘downside’ ahead. 

 

Yes, this could be a full-scale rout of markets. 

 

All fund managers around the world are going to be asking themselves exactly the same questions over the weekend.

• Is this over?
• Have we seen the worst?
• Are potential international responses ‘priced in’ to the markets’ lower prices? 

 

Answer ‘no’ to any of those questions, and there will be more selling pressure to come. 

 

The Amerikan perception that the only trade in the world that matters is bilateral with the US is, frankly, stupid. Yes, the total volume of global trade will fall, and economic activity around the world will fall. But at the same time, trade between nations will continue, and much of the trade that was bilateral with the US will become multilateral between countries.  

 

Huge pain coming, in the US of Amerika and globally.