Why Trump Blinked, What it Means, and What Happens Next

Macro Risk, Capital Flight, and Havens,

Hi! How’s everyone? Welcome back old friends, welcome new ones, and today we’re going to talk about…Trump, his climbdown, tariffs, Havens, how to think about the economy, where it will go and how not to Sink With This Ship.

It happened in an eerie, almost ominous way. In sessions, over the last few days, I was advising many of you, deeply concerned, some even Wall St professionals with deep financial experience, to cut back your exposure to US bonds, fast and hard. And then—wham!—the bond market started melting down, just like I warned. That happened faster than even I predicted. Bang.

Now, that isn’t about me being some kind of oracle. I want that to be a cautionary example, that all of you learn from. (Also, don’t tell anyone, but there’s a bonus Snowy pic at the end of the post today.)

So today I’m going to teach you what happens next, why, and how to stay ahead of the curve. You are becoming the Adults in the Room our institutions don’t have. Now you must keep being that.

And that was what forced Trump’s hand, as you might have heard by now. But let’s delve into it, because we nearly had a…

The (Short) Road to Financial Crisis

We nearly had a major, major financial crisis. This is the part you don’t know. What “the bond markets” freaked out means is that we were maybe three days to a week away from possible bank failures to ATMs going dry.

Why did the bond markets start to collapse? For the very reasons I’ve been warning you of. There was a technical one, which was that losses in the stock market were so severe and widespread that bonds started to needed to be sold to cover losses. But more than that was a general, widespread loss of confidence.

In the US itself.

So what happened was something like this. Whatever few sane minds were left in the Oval Office probably desperately tried to warn Trump that we were indeed likely just a few days away from bank failures and maybe even ATMs going dry. That if the catastrophic fire-sale of US government bonds didn’t stop, the consequences would be ruinous on that scale.

And so even Trump “blinked,” as people are saying.

So what happens next? And how should you think about all this?

Don’t Be Lulled Into a False Sense of Confidence

Don’t.

What happens next is very simple. What does your gut say? That any of this is nearly “over”? Of course it’s not.

Imagine a series of thermonuclear missiles, frozen up in the sky, at the cruising altitude of a jet. Dropping maybe an inch a day.

That’s where we are now, after the “90 day reprieve.”

And what many people seem to have forgotten is that the tariffs have hardly gone away. It’s just the second or third layer that got the “reprieve.”

But in fact there are still tariffs of 10-25% on the entire world from America right now. And tariffs aren’t additive. They apply to everything in a thing, so for example, all the microchips and whatnot in a computer, or all the steel and electronics plus gas to run a car. They multiply, and they multiply fast.

So we are in no remote sense back to “normal.” America has still declared economic war on the world, in the lunatic way of launching a kamikaze attack on itself. The thermonuclear missiles are poised right there, a few thousand feet above your head.

And some of the bombs are already going off. Tariffs apply right now. They’re already wrecking the industries of states like Michigan, which are heavily dependent on, for example, autos.

So don’t be lulled into a false sense of confidence. A “90 day reprieve” on a thermonuclear war is not a good thing. It’s just slightly less of a very, very bad one. Where we are now is still uncharted territory, and the general principles I’ve been teaching you still apply.

I’ll come to those in a moment, but first let’s examine all this so you really understand it.

Markets Still Haven’t Priced in Macro Risk

What does that whopper of a sentence mean? Something very simple, that you can observe happening right now.

When Trump “paused” the second and third layers of the tariffs, the markets “surged.”

Markets, and I’ll teach you more about this in coming posts, are bipolar or borderline, maybe, as personalities. They veer between euphoria, and catastrophization. Both tend to be manic phases.

So what happened “in the markets”? They exploded upwards, as the tariffs got “paused.” And today, they’re sinking all over again.

Why? Because they forgot, yesterday, go ahead and chuckle, in their euphoric relief, that there were still actually a whole lot of tariffs, that were going to do a whole lot of damage. Didn’t factor it in, didn’t remember it.

But today, reality dawned all over again, and there they are, sinking, because of course, nothing is back to normal. The economy is still going to sink like a stone, and people are still going to lose their life savings, and so on, because Trump has still declared economic war on the world, by using the average Americans’ savings and assets as his weapons.

What I want you to understand is that markets are foolish. Don’t worry about what they do on a daily basis, unless it’s a day like Liberation Day. Understand the long term trends. Those trends must always prevail. The market cannot beat them. Nobody can beat them. Not even Trump can beat them, which he just learned the hard way, when the world decided to flee US bonds in terror, which is a form of capital flight. Remember how I warned you about that?

Now I am teaching you again, and this lesson really matters. So let me say it again. Pay little attention to the daily noise. If you understand the long term trends, you will be able to see what “the markets” will do far in advance. “The markets,” after all, are just the guys managing your money.

Have they been doing a good job of it lately? That is the question you must ask, and learn to answer.

And that’s what today’s next little lesson is about.

The General Principles You Should Understand Now

I’ve been trying to teach you a series of general principles to really help you get your head around this historic tragedy, which is going to cause many, many Americans to lose everything they worked their lives for.

This week, you could see them all at work.

—American assets, I warned you, would all fall in tandem. All of them. The stock market. The dollar. Bonds. Now, everyday money managers refuse to accept that, and I’ve heard from you what your money guys say about me, don’t worry, I’ll put up a little formal bio soon so they can understand exactly who I am in terms that make sense to them. They have never experienced all asset classes falling at once.

But they did. And they did for a very simple reason, which is that the world doesn’t and can’t trust America anymore.

—That is a long term trend. It doesn’t really matter what the markets do on a daily basis. Some days will be up, some down, but over the next year, two, five, the markets have to price in this loss of trust and confidence in America itself.

—The loss of confidence in America has implosive depth. What that means is that when large investors “lose confidence,” in this global ones, they can do so for many reason. They might not trust an approach, or they might not believe in a group of companies, or what have you. This is different. It’s as deep as it gets. This is about not being able to trust American institutions anymore. The rule of law. Basic rights. Democracy becoming autocracy. In that kind of society, people’s freedoms are at risk, and so are capital’s.

So for all these reasons, America is still very much headed towards an implosive phase.

What does that turn of phrase mean?

Not Better or Worse, but Slower or Faster

Right now, you’re still thinking, perhaps, in terms of “better or worse.” Is it better or worse that the lunatic put a “reprieve” in place? Is it “better or worse” this or that market didn’t melt down today?

That’s the wrong way to think about it.

The correct way to think about it is in terms of faster or slower.

Let’s take the bond markets. The meltdown was averted. But only for now. Confidence is still eroding, every single day. Trust is still being shattered, every second. Would you trust Donald Trump to pay you back? Good luck with that, because the leaders of all the world’s major organizations, from countries to companies to funds, are asking that question right now, and shuddering at the answer.

So the meltdown’s been averted for now, but that’s not saying much. It is still very much going to happen.

The same is true of the stock market, for example. It “surged” yesterday, in euphoria, in relief. But it’s going to keep on sinking, for a very simple reason, which is that tariffs are still in place on the whole world, Americans will pay the price, the economy will shrink, and people will get much, much poorer.

See the similarity?

The question here, and it’s the only question, really, is one of time horizons. Not magnitudes.

If a market loses 25% of its value in a day, we call that a “crash.” But what if the same thing happens over six months? A year? Two? You see, in the real world, the effect is precisely the same, in the end. But it’s harder to see this case clearly, where a crash is so dramatic that we all instantly snap to attention. So how much attention are you really paying?

This is the path America’s on. The magnitude of what’s happening is not changing. It is still heading for something like a Depression Level Event. It’s institutions don’t function, there are no functioning guarantees the world can trust, and the world is still going to withdraw from America. That will send markets down, profoundly.

The only question is time horizons. And for you, that creates an opportunity, if anything.

Use This Window, While It’s Open

Right now, you have a window. A short one.

To get out of the way of this mess.

It’s a very, very short one, because, well, how long do you trust a personality like Donald Trump, impulsive, narcissistic, grandiose, needy, vain, to be able to endure his own “90 day reprieve?” Personalities like that want instant gratification, and I’d bet every day he’s not fully nuking the global economy is like torture for him.

Meanwhile, you have a time period in which you can still get out of the way.

Just like I warned you, all of America’s asset classes began to fall in tandem. In ways that nobody much expected. Right down to bond market meltdown, and dollar depreciation.

Now there will be a brief period of…not stability. That’s not quite the right word. Let’s call it “dynamic stability,” which means that the bleeding won’t stop, but the blood flow won’t at least sort of explode. At least hopefully not. You never know when the Sweeney Todd of the Oval Office is going to nick an artery, after all.

So the bleeding won’t stop. You’re still going to lose, every week, every month, quite a lot, just like most Americans are. But in that window, you can still get out of the way.

After that window closes? You won’t be able to. At least not much, and not very well. When the next wave of this arrives, and it will arrive, in many, many ways, then the window will close. It will arrive when Trump loses his patience, but also in a panoply of other forms. When large organizations decide they’ve had enough. When large countries coordinate to withdraw from America. When other markets and institutions offer capital far less risky places to be, and that’s already happening.

Be ahead of this curve. Do not get trapped on the Sinking Ship. Find your Havens. I care about you guys and I teach you for that reason.

Over the next few days, if I have enough time, I’m going to launch a little way to help you guys even more, I’ve discussed it with some of you in sessions already. Many thanks, I’ve been amazed and humbled to meet you. It helps lift my spirits in these difficult times.

As always, please reach out if you need help or advice. If you need a follow-up, but you’re (justifiably) annoyed the schedule’s booked out to infinity, just get in touch, and I always try to squeeze you in relatively fast.

Lots of love,

Umair (and Snowy!)

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BONUS SNOWY PIC!!!!!!