Yesterday's piece had warned about the curious drop in Treasurys and rise of interest rates. It was a dire sign that the global economy and markets far beyond Wall Street were going bad.
The Trump administration recognized the danger and, just fifteen minutes after I had published my post, pulled back (archived):
The economic turmoil, particularly a rapid rise in government bond yields, caused Mr. Trump to blink on Wednesday afternoon and pause his “reciprocal” tariffs for most countries for the next 90 days, according to four people with direct knowledge of the president’s decision.
Asked to explain the decision, Mr. Trump told reporters: “Well, I thought that people were jumping a little bit out of line. They were getting yippy, you know, they were getting a little bit yippy, a little bit afraid.”
Behind the scenes, senior members of Mr. Trump’s team had feared a financial panic that could spiral out of control and potentially devastate the economy. Treasury Secretary Scott Bessent and others on the president’s team, including Vice President JD Vance, had been pushing for a more structured approach to the trade conflict that would focus on isolating China as the worst actor while still sending a broader message that Mr. Trump was serious.
This does not mean that the trouble has ended.
Who is going to invest, into what, while any day, at any moment, the most basic economic conditions may change in completely unpredictable directions:
Asked on Wednesday how he would decide on any further exemptions, Mr. Trump said: “Instinctively, more than anything else. I mean, you almost can’t take a pencil to paper. It’s really more of an instinct, I think, than anything else.”
By admitting that Trump acknowledges that he is the real problem.
How can I decide to invest in a new car when by delivery date the tariffs and interests involved might have changed in unforeseeable directions? On what basis can I trust Trump's instincts? I can't and won't. The same will hold for much bigger investment decisions.
For once the Washington Post editorial is getting it right (archived):
The bond markets forced Trump’s hand. By moving their money out of dollars and selling U.S. Treasury bonds, investors told Trump what his closest advisers would not about the perils of starting trade wars with all other countries at once. Trillions in value were wiped out in equity markets, and the financial system blinked red with indicators of contagion.
Finally, bond yields began to forecast calamity — especially the alarming sell-off of 10-year Treasurys. In times of panic, these bonds usually attract investors. Their failure to do so this time reflected declining confidence that the U.S. government would repay its debts.
…
After Trump finally announced the tariff pause, the S&P 500 closed up 9.5 percent and the tech-heavy Nasdaq gained 12 percent. The news is indeed worth rejoicing. But keep in mind that the 90-day pause will last only until July 8, and in the meantime the trade war with China might continue to escalate. In other words, investors, business and consumers will still be living with uncertainty. For the long term, Trump and his team are well advised to come up with a less volatile economic strategy.
Until Trump settles on a predictable course the global carnage will continue.