From Goldman Sachs, Sunday evening:
We are lowering our 2025 Q4/Q4 GDP growth forecast to 0.5% and raising our 12-month recession probability from 35% to 45% following a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty that is likely to depress capital spending by more than we had previously assumed. …
If most of the April 9 tariffs do take effect, then the effective tariff rate will rise by an estimated 20pp once those increases and likely sectoral tariffs take effect, even allowing for some country-specific agreements at a later date. If so, we expect to change our forecast to a recession.
Couple of Fed things –
The Board routinely has a conference call on Mondays. At times like these, some corners of the financial market begin to squeak about “emergency Fed meetings”. There may be a meeting, and there may be an emergency, but those two don’t add up to an emergency meeting. Not today, anyhow.
At times like these, there is naturally discussion of emergency rate cuts. As part of that discussion, there is always someone who warns that an emergency cut would make things worse by scaring market participants:
https://fortune.com/2025/04/07/emergency-fed-rate-cut-panic-trump-tariffs-economy-recession-jerome-powell/
FOMC minutes reveal that even some Fed officials have worried about scaring investors with emergencey action, if memory serves. I’m not aware of a Fed rescue ever hurting market performance in the short term. Happy to hear from others if they know of such an instance. The problem with rescue is longer term, when market participants take risks in anticipation of rescue.
More on margin calls :
https://www.kitco.com/news/off-the-wire/2025-04-07/hedge-funds-capitulate-investors-brace-margin-calls-market-rout
The article reports an estimate that margin debt is at its lowest point since 2023. It’s not clear if that means before or after the recent round of selling. Since 2023 is after the carnage of 2022, that’s good. I don’tthink “margin debt” as usually defined covers private equity, though I could be wrong. Private equity is a big part of the market these days.
Bloomberg puts the value of equities lost in the Orange Crisis ™ at $9.5 trillion, though today’s volatility makes that a estimate fragile. Anyhow, the U.S. imported $4.1 trillion last year, with the trade deficit at just less than $1 trillion. There is no direct trade-off here, but these figures do provide a sort of investor-class sacrifice ratio for the felon-in-chief’s vanity. The actual sacrifice ratio will include job and income losses, business losses, homes lost, lost influence in the world…
Question for history buffs: Has the center of a regional or global trading system (Rome, Great Britain, the Hansa, the Huns, Venice…) ever withdrawn voluntarily from that role before?
Next question: Do we know what happens when the central power in a regional or global trading system withdraws, even if withdrawal is not voluntary? OK, that’s a rhetorical question. We bloody well do know, and it ain’t pretty.
Now, what would happen if the central power in the global financial system changed all the rules by defaulting on its sovereign debts? The closest analog I know of is when the U.S. refused to back international dollar claims with gold. Aren’t some historians convinced that the Great Depression and WWII were in part the result of that decision?
We’re lucky equities are holding up as well as they are, given history and all.
This looks like what has pulled stocks back from the brink:
https://thehill.com/homenews/senate/5236142-congress-tariff-bill-trump/
Republic Senators have sribble down a bill to take back tariff authority from the White House.
Baffling, you won this round. Congrats.
It’ll get vetoed by Trump (if it even manages to pass the House) and the Trump Fanboys in the House will never go against him in any significant numbers, so it won’t pass… but it’s a start.
Only a temporary win unless congress gets veto proof vote.
I am still fluxomed by the 10 year yield staying higher than expected. Is somebody selling large quantities? China? Somebody facing a margin call? Yields should have dropped more in this chaos. Something murky going on, i think.