I’ve learned that it’s difficult driving a race car with clown shoes on your feet.
Costco Pants and Tariffs: The idea that tariffs are inherently good might be the Costco pants of international trade theory -- everything feels comfortably, nice and snug, fitted perfectly against that mid-life cheesecakey girth.
But there’s something suspicious about those “size 34’s,” whose magically stretchy fabric is clearly made from recycled fat guys’ pajamas – they’re at least stretchy enough to fit William the Refrigerator Perry. And there’s a non-zero chance they’ll fall right off you if you so much as walk quickly. And you know what they say? “Ain’t nobody wants to be pantsed in Costco with a sample of tuna-on-crackers in each hand.”
Care Bear Hegelianism: There’s a much-shared meme showing a guy in a tree cutting off the branch he’s sitting on. It’s meant as a rebuttal to the blind faith in change for the sake of change. I asked an AI image generator to make me a picture of this today but it refused to show someone falling out of a tree!
It’s not unusual for the first try to be a bit off with these AI images, so I asked it to correct the error.
(Also… hey wait -- are those Costco jeans?)
It’s a “violation of content policies” to show a guy about to fall out of a tree.
The Care Bear generation is ruining the world.
So, mockingly, I moderated the request below.
There we go. Nobody gets hurt ever, no matter how ridiculous their actions.
You are so special.
The Proof is in the Pantsing: Even when you buy a used toaster at a garage sale, at some level its price is related to the US 10-year T-bill. Everything is. A T-bill is a promissory note from the largest economy in the world and normally provides a relatively solid footing for assets looking for shelter in a financial storm. Key word there is “relatively.” If the stock market is seen as particularly risky, and T-bills are paying 4 or 5%, why risk the market with your entire portfolio? How much should a corporation have to pay the market for its public debt? How does that corporate debt relate, risk-wise to the broad taxation capacity underlying a US T-bill?
during the 2008-2009 financial crisis, which originated in the US, the world market flocked to the T-Bill for safety (eventually).
But… umm… oh oh: The chart below shows the T-Bill yield this year so far. Note that over the few days of April since global tariffs were announced on April 2, yields were still falling – So far so good. Confidence intact, at first.
Over the first few days after April 2, the usual response repeated – despite the US being ground zero of the storm, people sheltered in the T-bill, pushing its price higher and its yields lower. That’s still good right?
But it became evident that this was all becoming a stretch too far. I’ve circled the inflection point in the chart below, showing a sudden non-subtle turn in sentiment toward the US T-bill this week, in the midst of the tariff turmoil. Confidence in the US T-bill was clearly wounded.
The next day or thereabouts, suddenly it was common wisdom to place a 90-day pause on most global tariffs.
Reconning.
As we’ve noted before, governments don’t find fiscal (and trade/financial/economic) discipline, bond markets force it on them.
Here’s RBC Wealth Management's latest investment newsletter.
Tariff pause: Reasons to exhale and get back to basics
While considerable uncertainties remain, the tariff pause has given investors room to breathe. We explain why the details associated with the tariff saga are less important than overall investment strategy, and why investors should think about their long-term strategic allocation as an anchor during periods of extreme volatility.
Regional developments: U.S. trade policy has hampered Canadian business sentiment; Tariff changes drive U.S. bond market moves; Italy embarks on a charm offensive as a new coalition is born in Germany; Asian equities rebound following tariff pause announcement
More here: Global Insight Weekly.
Feel free to contact me with any questions and/or to discuss investment ideas.
Enjoy your weekend!
Mark