Over the weekend, Trump announced that he would do what he has long said he will do and impose twenty-five percent tariffs on imports from Mexico and Canada and ten percent on imports from China. Like all freshman year economic majors know, broad-based tariffs will raise prices for Americans, as Irving Energy demonstrated in their release announcing they would pass the cost on to their consumers. After markets not quite panicked but weren’t exactly calm this morning, Mexico announced that they had achieved a one-month delay of their tariffs, and the markets rebounded some, but they still tell the same story as of this writing a couple hours away from the closing bell.
While markets are forward-looking in nature, this saga did throw a wrench into the very concept of smart money. There are assuredly many folks on Wall Street in deep, deep shit with their bosses today. Goldman Sachs just a couple weeks ago pegged the chances that Trump would do what he said he would do at twenty percent, while J.P. Morgan said over the weekend that, “the sustained 25% tariff on Canada and Mexico set to start this weekend is materially different than the tariff increases built into our baseline.”
This admission that full extent of Trump’s depravity was not priced into markets means that today’s reaction at the open is instructive, because firms everywhere are restructuring their exposure. Markets are upset, and are communicating a very clear and consistent message across crypto, stocks, gold, and bonds.
Capital Economics: “The resulting surge in US inflation from these tariffs and other future measures is going to come even faster and be larger than we initially expected…The window for the Fed to resume cutting interest rates at any point over the next 12 to 18 months just slammed shut.”
— Michael Derby (@michaelsderby.bsky.social) February 1, 2025 at 7:04 PM
We can start at the tail of the risk curve to begin painting this picture, as crypto got a-fucking-nnihilated over the weekend. Everything bounced later in the morning on the announcement that part of the stupid unavoidable shit has been avoided for at least a month, but the damage still has been done. All crypto save for Bitcoin is still way down from its highs, and measured from its peak on Friday morning to the very bottom it hit this weekend, Bitcoin dropped fifteen percent. Ethereum, the second largest crypto and the only one that’s close to Bitcoin’s market cap, fell nearly thirty-eight percent. Shitcoins got obliterated, as memes like PEPE fell in value by nearly half from their peak on Friday morning. Leverage got wiped across the board which fueled these deep plunges, as the co-founder of the Bybit exchange believes that “today real total liquidation is a lot more than $2 [billion], by my estimation it should be at least around $8-10b.”
Stocks got hit hard too before rebounding. The S&P opened up a gap down over one percent and nearly fell as much as two percent before Mexico surely saved some traders’ jobs. Nvidia gapped down three and a half percent, falling as much as five percent, while Tesla followed suit, gapping down three percent and falling as much as seven percent. These are big moves for trillions of dollars to be making, and I haven’t even reached the biggest or most ominous part yet.
Meanwhile, gold, considered the premier hedge for societal collapse for centuries, just keeps pushing new highs, which is also not the scariest part. In the most important market in the world, a very clear message has been sent that things could potentially be getting very real.
I know that we are all trained to have our eyes glaze over when we hear the phrase “bond market,” and as someone who took classes in pricing bonds, I can confirm that your instincts are correct. This stuff is beyond tedious, but one fact that you should always associate with the term is that at the very base of the bond market lies United States Treasuries. They are considered “risk-free” by the basic economic paradigm we live under and they are a $28.3 trillion market. This is the largest, most liquid market for anything in the world where the biggest, smartest money builds the entire global economy around United States government debt.
You don’t need a finance degree to understand the difference between loaning the U.S. government money for two years versus loaning it for ten years right now. Assuming this isn’t a monarchy, someone else will be president in ten years, but we are damn certain we know who the president in two years will be and who will be controlling the full faith and credit of the United States government. Just before publishing, all yields across all Treasuries jumped along with the entire market for everything but the dollar and gold, but they still hold the same dynamic from earlier when the two-year was up and the ten-year was down, the ominous sign the markets are sending Trump today.
As of this writing, yields on two-year Treasuries are currently up 1.33 percent while the ten-year is up 0.04 percent and the thirty-year is down 0.46 percent.
This means two things. First, as the two-year up by far the most demonstrates, the bond market is pricing in higher inflation under Trump’s trade wars. Second, past Trump’s (assumed) administration, it expects lower growth, because you don’t need higher interest rates if growth is slowing along with inflation, as the ten-year and thirty-year yields demonstrate. If the bond market thought that these tariffs and Elon illegally controlling the purse-strings for vital economic infrastructure would help the American economy, you would see the opposite dynamic, with interest rates on longer-term debt rising to protect against potential inflation that is brought along with growth. But you don’t see that happening, because these people are fucking idiots and are trying to make 1929 great again.
The ominous warning from the bond market today is exactly what high-level traders at places like Barclays and Morgan Stanley were betting on last year after the famed debate. If you add persistently high and rising unemployment to high inflation and low growth, you get stagflation, the absolute worst thing that can happen to an economy. Given that Elon Musk now controls $6 trillion of liquid money going straight into the economy, the capacity to create a serious systemic crash is quite literally in Elon Musk’s and Donald Trump’s hands, and the market is reacting accordingly.
UPDATE: Shortly after publishing, Trump announced that the Canadian tariffs he previously announced would also be subject to a thirty-day delay. In my book, this is confirmation that Trump spent a significant chunk of today getting yelled at by very rich people for being a stupid dumbfuck who’s trying to crash the economy.
GET SPLINTER RIGHT IN YOUR INBOX
The Truth Hurts
