Treacherous markets. But they did seem to catch their breath finally. Stocks are due for a big bounce.
By Wolf Richter for WOLF STREET.
The massive movements in the bond market and stock market – in the stock market over some fake news someone had planted – likely broke some traders’ digital necks.
Long-term US Treasury yields have been on a wild ride since March 27. Long-term yields plunged for days, meaning bond prices rose. This occurred as stocks plunged – a classic fear trade. But yields hit bottom Friday morning while stocks continued to plunge in a bad way. And Friday afternoon and Monday, yields snapped back brutally while stocks went haywire.
The 10-year Treasury yield jumped by 22 basis points in regular hours on Monday, the biggest jump since June 13, 2022, to 4.22%, after having shot up by 13 basis points intraday on Friday, from 3.87% at the low point Friday morning to 4.0% at the close on Friday. From Friday morning through Monday afternoon, the 10-year yield has shot up by 35 basis points.
In the evening of April 2, the 10-year yield had plunged from 4.20% to 4.04% when Trump explained in clear language what tariffs actually were: A tax on corporate profit margins that companies can dodge by shifting production to the US, which also caused stocks to plunge.
Plunging bond yields means soaring bond prices. But that entire yield-plunge from 4.20% to 3.87% has now snapped back, and bond prices got beaten back down.
The daily chart going back to the beginning of last year doesn’t show the intraday low point on Friday, and so it doesn’t show the violent intraday bounce-back on Friday, but it does show the action today:
Today’s move was the biggest since Monday June 13, 2022, which occurred after the CPI report on Friday June 10 had blown everyone’s doors off with a month-to-month spike of 1.0% (12.7% annualized) and a year-over-year spike of 8.7%. This was serious inflation. On June 15, 2022, the Fed showed that it finally took this inflation seriously as well by hiking 75 basis points.
And today’s move was the second biggest move since March 2020, when the Treasury market was in total turmoil:
This Thursday, the March CPI will be released. It could dish up another surprise that might give the bond market the willies. Accelerating too-high inflation over the longer term is something the bond market fears. It pulls the bond market into the opposite direction that the incessant recession talk has been pulling the bond market.
These are massive movements in the bond market, with yields first plunging (and prices soaring) for days on the recession-trade and the fear-factor, amid a bitter whiff of panic, and then with yields soaring (and prices plunging) as the whiff-of-panic trades got suddenly unwound in favor of renewed fear-of-inflation trades?
The stock market went crazy today.
Stock markets are also due for a big bounce. And they did bounce today from the intraday lows this morning, including a short-lived ferocious spike this morning on the fake news, spread through the financial media, that Trump would pause the tariffs.
As a result, driven by algos, the S&P 500 spiked by 8.5% from the morning low of 4,835 to the intraday high of 5,246 and then re-collapsed to 4,961 after the fake news was debunked, giving up most of that spike, all in a span of an hour. Just nuts. Trading volume set a record at 29 billion shares.
But it did catch its breath eventually and ended the day down just 0.2%. Dear SEC, are you looking into who planted this fake-news story? Nah, didn’t mean to bother you, I understand you’re too busy loosening up crypto regulations.
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Good, any snap back for 10 year yield to go back to anywhere near historical norm is a good thing IMHO. Last thing I want to see is 10yr to really fall off and mortgage rates goes way down and give any incentive for people to justify buying at still insane price level (especially in SoCal).
Plus would be S**tshow burger if Note/Bonds/Bills yield are all super low again and market is viotaile or on a long term bear ride…in that case it will be another TINA environment again..
Home prices for quality homes in quality locations aren’t coming down. Foreclosures will wreck the rest of the RE market
Not a lot of foreclosures yet, just regular selling, amid the biggest inventories in many years, now coming to a city near you:
Don’t hold your breath on those foreclosures ever coming. Equity levels are at an all-time high, so anyone who can’t afford their payments can just sell for profit.
Fear and greed.
I think there is less fear but much more greed. Overall economy may be not in a bad shape, but it is not a rose garden either. But the stock markets are in full bull run. It seems that nothing can stop them at all.
For the current and upcoming quarters, I foresee a slow down in real economy, accompanied with high inflation and high rates with a non-stopping bull run on stock markets. At least till the end of 2025.
Exactly. Barely a dent in the overall indices and all the financial sites were comparing it to “Black Monday.” What a joke. And now that the DOW is up a cool thousand, crickets.
“And now that the DOW is up a cool thousand, crickets.”
The Dow is now down 300 crickets. Things change fast in this show.
Fear greed index is below 4.
RSI in the teens.
There is definitely fear. That doesn’t mean the market can’t continue to plunge due to margin calls
CNN’s Fear and Greed gauge has been bouncing off the “Fear” stop for the last week. Currently at 6 out of 100. It’s like watching covid all over again.
I suspect some of the countries/people that store money in U.S. Treasuries and our stock market are “getting the hell out of Dodge.” Why would you leave money in a bank that doesn’t like you, that you can’t trust? The money leaves, prices go down.
But, but, but… why were they piling their money INTO Treasuries until Friday morning, if they want to get the hell out of Dodge?
Rumor was China selling $50B treasuries.
As for SEC chasing down the guy(s) who planted the 90 day pause, I wouldn’t be surprised if it come from inside the administration. Love to see their trading records these last few weeks/months leading into this….
I would be checking Nancy & Mitch.
“Rumor was China selling $50B treasuries.”
Another fake-news story, like the “pause.”
TDS on full display yet again.
Might as well suggest it was some person in the legislative branch that bought options and then released the fake news to make a quick buck….
Margin call forced selling of assets.
@Golden Dragon TDS? The leak came from within the White House. Whether you are for tariffs or not, this is the sort of chaos that eventually hurts many because businesses can’t change overnight. The market is doing amazingly well at holding value. This is nothing like 1987- absolutely nothing. While 10%, 20% and 25% can be handled with some negotiation and adjustments, 104% tariffs will hurt. The ignorance of the Constitution, the daily changing of reasoning and policies is that of an unhealthy person. He may have some good ideas, but leadership and communication skill are lacking.
Different groups may be doing different things: Domestic folks were selling stock and buying bonds, more impulsively, more panicky; foreigners, individuals, companies, and larger groups, could be slower and more prudent in their moves, lagging behind U.S. in thoughts and actions.
Just a guess; no data to support it. But we both know that a huge amount of foreign money is in U.S markets, and at some point they’re going to get POd if things continue going in the same direction.
Sorry, that’s not how government treasury functions work—it’s transactional not emotional. Your scenario only happens in Hollywood movies. Here’s what’s most likely happening. Higher US tariffs lowers imports. Lower imports reduces foreign dollar receipts. Reduce receipts means lower U.S. asset purchases. The preferred U.S. asset purchase is U.S. government treasuries. Foreign entities buy or sell U.S. treasury securities because it’s convenient, not because they like or dislike the U.S.
Bookkeeper
That may or may not be the case someday in the future. I mean who knows, plastic crystal ball from Walmart, etc.?
But currently, in reality, imports are SPIKING. So we have the opposite scenario of what you describe as reason for the current moves.
Stocks are due for a big bounce?
I agree, sometime in the next three to five years, when the recession is winding down, there may be a mild rally.
There has never been a recession that lasted that long. The great depression lasted for 3 years and 7 months.
I highly doubt we will have 2 quarters of negative growth.
I think it will a Dot.Com bubble type of crash field in part by some tariffs, overvalued stonks due to the AI “booms,” and some tepid investments.
The Dot.com bubble burst only caused a -.3% GDP decline.
Wolf I have RTGDA’s for years. Is this the forward motion you had hoped for? As a finance newbie I am very confused. Wouldn’t a fall in stocks equate to normal prices in things like housing and automobiles?
Stocks are in their own world. They inflated to ridiculous levels, and they were soooooo ripe to be popped.
Don’t get your snowflake panties in a knot. Nothing to see here folks, just a small global market correction for some random unknown reason.
Sarc?
Agree with Wolf. While Schiller’s CAPE ratios are very debatable, they were screaming that the S&P 500 was due for a big tumble.
The problem is that very little is cheap at that metric as to equities. There is stuff cheaper, some EM and some international, but that doesn’t help much in the near term as a global recession scenario murders everything.
If you have experience, you have some experience with riding out a big world downturn. If you do not have experience, here you go. If you find yourself trading, good luck to you but as you should find out that you should have allocated more of your portfolio into less volatile assets with less reward, like government bonds, cash, gold, etc. Not because they will give you more gains over the long run, but will keep you from doing stupid things when everyone is saying “THIS TIME IS DIFFERENT. SELL EVERYTHING. WE’RE ALL DOOMED.” and then you cough up years of returns to not feel bad.
The stock market is not the real world. It is it’s own casino, full of massive gamblers. When housing collapsed, the houses didn’t fall down – just the house of cards made out of printed money fell. They picked up the pile and started stuffing it into military, pharma and bitcoin not long after.
Buy the Rip and sell the dip. The USS Trump has the con. I’m here for every moment of chaos and uncertainty from the money market sidelines. Will Trump bully China 🇨🇳 into submission? How did we get in bed with a communist trade partner so deep? I want to invest in real estate in China. Wall Street has a bull in its China shop literally, Trump will break everything to prove his point, there is quite a difference between a correction and a recession. The VIX spread is $15 to $60. I’m a paper buyer again, Sam’s has the best 2 ply toilet tissue.
Gabby – mind the milling gored oxen as you journey…
may we all find a better day.
Thank you!
I just wish people had gotten this worked up when NAFTA was being negotiated.
Ross Perot was spot on.
The whole world drank in the high tide of the globalist faith in conjoined markets. The USA’s uni-party was all in. Eastern Europe lined up, then Russia. Russia’s shock therapy to attempt a jump-start to instant capitalism crumpled into oligarchy, then Putin. China was more cool and calculating. We got tons of cheap stuff and cheap credit for several decades. Then, the hangovers. Now, a dismantling?
“The USA’s uni-party was all in.”
True – but the interesting thing is just how much heat (and for how *long*) the uniparty was willing to take it – even as the US real economy rotted away and more and more voters were suffering.
Very, very little course correction from 2002-2016 despite obvious macro deterioration and foreign intl trade game playing (looking at you, import strangling Chinese policy and exploding trade/fiscal deficits).
Usually a *lot* of political opportunists pop up to start screaming about necessary changes in policy/politicians during such conditions.
(“Boy, we sure could use a man like Richard Gephardt again!” a la All in the Family)
But for 15 pretty bad macto years, it was mostly political crickets (thanks illusion inducing ZIRP…) until Trump 1 (The Orange Threat).
And the Establishment still managed to claw back with Old Joe.
Until Trump 2 (The Revenge).
It really is amazing how long it has taken the US – common man and (snort) Elites alike – to focus on intl trade dynamics and their consequences.
ZIRP was a helluva drug.
Great synopsis. The drunken sailors loved zirp, low inflation, and cheap stuff from China. The establishment was able to keep most in a haze while the foundation was being eroded away right beneath them.
Ross spoiled Bush’s landslide in 1992 and elected Clinton. Reminiscent of Roosevelt electing Wilson in 1912.
3rd party messes things up. Best to challenge from within the Party.
Perot quit in the middle of the campaign, but then eventually reentered the campaign, and this hiatus and subsequent U-turn doomed any chances he might have had.
But he had no power base, and had no party backing in Congress or anywhere else, and if he’d won, he wouldn’t have been able to shake up anything. Congress would have been unified for once and shut down any efforts to fiddle with the status quo.
Perot’s VP, Mr. Why Am I Here, didn’t help him much. I was never a globalist. I always thought comparative advantage was bs. NAFTA is/was anathema. It did not consider military defense or patriotic issues. I told a meeting I had with European planners of the EU to use the dollar, not some new currency. That was met with their dead silence. I always prefer a bunch of small states, not some bureaucratic union like the EU. It was fun travelling in Europe before the Euro. Lots of different cultures, funny money, few MacDonalds, still recovering from WWII, fairly cheap, no immigrant problems, nice people, not many tourists.
“But he had no power base, and had no party backing in Congress or anywhere else, and if he’d won, he wouldn’t have been able to shake up anything. Congress would have been unified for once and shut down any efforts to fiddle with the status quo.”
(Tragically, the status quo is self-destruction of the US).
All true – hell, the Plum Book indicates 6000+ Presidential appointee positions alone – that’s *just* the executive branch.
That’s how many, staunch, intelligent political allies any reformer needs to have any remote hope of not being torpedo’ed by the Establishment bureaucracy.
Riding herd over 3 million self-righteous Federal employees, 6 million kickback-paying Federal contractors, and 50 state governments where the institutional psychopathy is simply writ small(er).
Not to mention every corporate/bureaucratic interest in the US that only manages to survive due to unsustainable subsidies.
(One example – US military with 50% losing record, $850 billion budget, more than double that of 2000. For context, Walmart feeds and clothes 30% of the US population for just $450-500 billion.)
@Sporkfed
Correct. People claim that the whole NAFTA/WTO/Trade Deficit is “not a crisis”, because it has been going on for decades.
Tell that to the millions of unemployed voters in the Midwest.
Good point.
“Horrible trade deficit worsening for 50 years…so it can’t be a crisis since roving, starving cannibal gangs haven’t eaten my iPhone salesman’s liver.
Yet.
(Fed says – “Don’t worry, be happy! We have a technology that prints livers.”)
Hey, when is the new iPhone coming out? It will be my seventh new one in seven years…
America wasn’t always this sh*tty.
And it wasn’t like 50% of the population hasn’t been screaming about it for decades.
Voted for him for that reason. The sucking sound from Mexico.
The most fatal sucking came from DC and its utter, utter inability to provide anything resembling oversight or an ability to course correct, for decades.
Did that fake news come out from ‘faux noise’ first? Yup, just as I thought…
Actually, it was CNBC
It came from a social media account with a pseudonymous source. Reuters and one other mainstream news source (can’t recall which, but wasn’t FOX) cross-quoted from that.
Faux mutt, The fake pause story came from an X post and passed on by CNBC & Reuters. Don’t you just hate rumors?
With plunging equities, and Admin’s push to lower rates, the sudden plunge in bonds is surprising. Foreign sellers? Possibly some over-leveraged entities deleveraging?
Maybe the bond rally was way overdone and based on nothing other than fear, and now it got unwound. Inflation didn’t just suddenly go away last week, on the contrary. So by that logic, bond yields should have risen last week. I mean we can come up with all kinds of reasons why the market did what it did. In the end, markets do what they do because they do it.
Unexplained (unexplainable) volatility simultaneously enables and disciplines short-term trading strategies.
Or, stated more memorably:
“ …over relatively short investment intervals, and, indeed, over a number or fairly long, unprosperous intervals, the market has exhibited a tendency to take the money of anyone who would presume on its generosity.”
— James Grant, The Trouble With Prosperity: The Loss of Fear, the Rise of Speculation, and the Risk to American Savings (1996)
I put about 10% of my dry powder in at the close on Friday; I will take another nibble if I see 4500
Trillions of dollars left the stock markets. Where did it go? Some definitely went to bonds, but now that’s leaving too? Where are all these dollars going? That’s the 64 trillion dollar question.
Interesting times.
Not a single dollar “left the stock market” during the selloff. When someone pulls dollars out of the market by selling shares, someone else puts into the market the exact same amount of dollars to buy those shares. No way around that.
What happens when prices decline is that the value of the holdings declines for ALL investors, and the value just vanishes. Trillions of dollars in value just vanished on the same principle as trillions of dollars in value just appeared when prices got pushed up.
This is a huge fundamental principle in finance, and I’m surprised anyone who has been on this site for years is still asking, “where did those dollars go?”
Interesting considering that when I sell a position I definitely take those dollars and do something else with them. But yes, someone else had to buy, just at a much lower price.
Buy low, sell high, same as it ever was.
They didn’t “Buy at a much lower price”. They bought at the same price you sold at.
The trillions weren’t real to begin with. Paper profits only become real profits when you sell. Take a look at Schedule D from the IRS. IRS only cares what you paid for it when you bought it, and what you got for it when you sold it. In between, it doesn’t care how high or how low it got.
Just wait till the bonds/credit rating agencies start to downgrade the US Treasuries…. than the fun will start for the Trump administration…
🤣❤️ The credit rating agencies!!! LOL, S&P downgraded Japan four notches to A+, and Moody’s four notches to A1, and Japan’s government borrows at a much lower interest rate than the US. Sovereign credit ratings are essentially meaningless.
Here is my color-coded cheat sheet for credit ratings by the three US ratings agencies:
https://wolfstreet.com/credit-rating-scales-by-moodys-sp-and-fitch/
People still believe in credit rating agencies after the liar loan scam?
I guess the old saying about “one being born every minute” is still true.
The foolish are the ones who try to manipulate or corrupt credit rating agencies not naive people who trust institutions that are supposed to be ethical.
@Wolf
Credit Rating Agencies?
HAHAHAHAHAHAHA!
Corruption, meet ineptitude. . .
An honest question: Wolf writes: “In the evening of April 2, the 10-year yield had plunged from 4.20% to 4.04% when Trump explained in clear language what tariffs actually were: A tax on corporate profit margins that companies can dodge by shifting production to the US, which also caused stocks to plunge.”
Would this mean that any item previously manufactured overseas, increase in cost in the future, even if moving to the US? Whether that cost increase is a product of a tariff, or the increase in manufacturing costs associated with making it in the US? Example, item A costs $10 and its production country had a 50% tariff placed on it, so it now cost $15. Or we can manufacture it in the US but it will raise the price 30% (I’m using somewhat arbitrary values here)? I guess I’m just wondering if we will be paying a lot more in the future for anything not already manufactured domestically.
I explained this in detail before. Read this – the “10 basics of tariffs,” what they are and how they work:
https://wolfstreet.com/2025/01/13/some-basics-about-u-s-tariffs-and-what-trumps-new-economic-team-said-about-tariffs/
The raw economic value of making something in a Third-World Country versus making it in the US tends to be a wash: The Third-World country has much lower labor costs, but there are various hassles involved. (Local corruption, transportation costs, lower labor productivity, tariffs, etc.)
Most companies are content to stay where they are, unless something dramatic happens.
Examples of “something dramatic”:
A major strike at a US auto plant predictably results is production moving to Mexico, or at least Alabama.
The US political class notices that unemployed Blue Collar workers who live in the Swing States are very, very pissed off. Trump’s people say that “We will raise tariffs to WHATEVER IT TAKES to get those jobs to move back here.” It looks like he is serious, so the jobs are starting to come back.
Imagine that!
Yesterday’s stock market decline at the open was reversed only by bogus news. Calculations to establish the impact on forward company balance sheets must be frantically ongoing, perhaps never more so than now.
I see a spike in false narratives, historical fact abuse, miscalculations and missteps. Unforeseen consequences must be accumulating in the background.
The bond market is stirring and may terminate this poorly devised plan. The Fed has adeptly distanced itself.
Is it going to be a recession and or only inflation or stagflation ? That is on the markets mind.
My guess is recession because companies will try to keep business by not raising prices, shrinking profits.
“Only the strong survive.” Could it be a race to the bottom?
I will post an article shortly on the booming sector in goods — in part due to frontrunning maybe.
We’ve already seen this in Q1 new vehicle sales, the best Q1 since 2019, on a combination of big tax refunds and frontrunning:
https://wolfstreet.com/2025/04/03/our-drunken-sailors-are-back-new-vehicle-sales-surge-in-march-after-rising-in-january-february-best-q1-since-2019/
It’s hard to have any kind of a recession if this type of boom in goods is ricocheting through the economy. Someday there may be a frontrunning hangover, supporting a recession or stagnation, but not yet.
This is not over. China is the big player in this tariff tussle and is coming out fighting.
China can put a world of hurt on the US economy, such as it is by blocking key materials and refusing to buy certain US goods, like corn and soybeans.
The recent stock and bond market drops were simply cautious investors selling stocks and buying bills and bonds.
I feel certain more damage is coming our way.
The Chinese economy will go into a tailspin if its goods cannot be sold to the US, often via Vietnam and other countries, such as Mexico. The Chinese economy is hugely dependent on selling its production to the US. It got around the last batch of tariffs by routing those products through third countries. So now that loophole is getting narrowed. For China, this is even more important as its biggest economic engine, property development, has collapsed.
Don’t forget that Chinese steel also flooded the Canadian market which allowed Canadian steel to be shipped to the US.
Without that Chinese steel entering the Canadian market there would be a limited amount exported to the US.
In 2023, Chinese exports to the U.S. accounted for roughly 3% of China’s total GDP
1. You can double that when you count the exports to third countries that then re-export to the US, such as Vietnam and Mexico.
2. And that’s just “exports.” What is a big part of the economy (and GDP) is “investment” by businesses and governments into factories, manufacturing equipment, transportation infrastructure, ports, port automation equipment, etc., plus the spending by all these people, from engineers and CEOs down to sweatshop laborers, that work on and in factories, manufacturing equipment makers, makers of port automation equipment, etc. etc. And the chain goes on from there.
3. By losing part of the exports to the US, the Chinese economy will take a big hit. People are naïve to think that China – whose economy is dependent on manufacturing for exports and on property development (which has collapsed) – is going to float above this somehow. That’s just Chinese propaganda.
i mentioned it in another article, but i have to say it floors me how the media spends so much focus and time on the stock market, as though its rise and fall has any real bearing on the american people outside of the very wealthy.
It’s part of the distraction apparatus — kind of like all the heat and light generated in the media over monetary policy when the real action is fiscal policy.
Franz G,
Ever heard of a 401k? As in, most common retirement plan? Most Americans have. And most have stocks there. And, most expect to live off it for a large segment of their lives.
yes, i’ve heard of it. it looks like you bought into the media bs. the average 401k balance in america is around $135k. for all age groups, the “average” is way way higher than the median, meaning that the top skews the averages. i don’t know if it’s true that “most” expect to live off it for a long time (i suspect it’s not), but i do know that long-term care in the u.s. for one person for a single year can cost $100k.
over 90% of stocks are owned by the top 10%, and 50% by the top 1%. the inflation caused by “wealth effect” spending of the rich and the societal instability caused by such extreme wealth disparity far outweighs any benefit that the average person gets from his 401k.
in other words, the country would be better off if stocks dropped by 50%. the rich would have to pull back, and goods and service providers would stop catering to them so much, like has happened with new cars for example, and the economy would be better for the average person, even if his $130k 401k is now only worth $65k.
the total lies and bs that 401ks are so important to the average american that the government should move heaven and earth to maintain the asset bubble is truly demonic.
“The median 401(k) balance varies by age and income level. For individuals under 25, the median 401(k) balance is $2,816.
For those aged 25 to 34, the median balance is $14,933.
For the age group 35 to 44, the median balance is $35,537.
For those aged 45 to 54, the median balance is $60,763.
For individuals aged 55 to 64, the median balance is $87,571.
For those 65 and older, the median balance is $88,488.”
If your are under 45, you are not even in the game, based on median. At older ages, you are barely hanging on, based on median.
Using “median” or “mean” balances for 401ks as a reflection of household “median” wealth for retirement is bad statics.
There are many, many Americans with multiple 401k, IRA, Roths, 403, etc. plans. Many, many US households have two adult members, so two sets of each type of account already. If a household has a few hundred or a few thousand dollars in an old 401k or IRA from a previous job or previous brokerage/bank/etc., it’s easy to lose track of them and not roll them over into the main account.
That doesn’t mean that an account with $500 dollars is a household with only that for retirement savings, but that they have that, plus everything else that they might have. The “median” and “mean” account balance numbers are useless for estimating household wealth for retirement.
The above said, saying that their accounts are all in stocks is ALSO wrong, as many Americans own all sorts of stuff in their retirement accounts, including bonds of all sorts. They also have all sorts of stuff owned outside of their accounts, like real estate, CDs, and so on. Stock prices going up or down may or may not be important to each American on a case-by-case basis.
Don’t take my post as a call to keep stock prices high, but I think Americans will be fine if stocks go up, sideways, or down for a bit.
thurd2, exactly. cody, this is true, although i think the statistics i saw were across multiple accounts. in any case, my point hasn’t changed. the benefits of the stock market inure to a very small few.
Franz
Very well said. I find it hilarious that NPR is nothing more than a Stock market tout these days. I guess people really are that stupid.
Frank G-
With stock market wealth concentrated in the top 10% or top 1% — many of whom are business owners — might not a significant drop in stock prices effect hiring and layoffs, leading to a general decrease in employment levels in the 90% ranks?
Also, when the rich suffer a significant decline in net worth, don’t they curtail or postpone some spending activities? (And don’t forget: the Keyne’s “multiplier effect” works in reverse).
To assume passive acceptance of a significant reduction in net worth seems overly optimistic, IMHO.
Respectfully.
john h, that’s fine, but then the economy will adjust. obviously, this extreme level of wealth concentration is poisonous to society. the last few years has shown that.
what you seem to be arguing for is inflating stock prices just to keep keynesian demand up. if that’s the case, and stock prices should always be high, why not have the fed print money and buy stocks directly?
clearly, it’s not all positive.
Franz G
I’m in favor of unmanipulated market price discovery.
The point I was trying to make is that falling stock prices will impact the BOTH the big fish and the smaller fish, though in different ways. Very few in the economy escape the fallout of a 50% repricing.
Anecdote from 29 crash: ‘Our family had a hardware store. When the October Crash hit, my dad said: ‘Good. About time those leeches got it in the neck’ Six months later we lost the store.
Anyone who thinks the ‘real economy’ is insulated from the stock market is expressing a wish for an alternate reality to this one.
Whether that would be desirable is a different debate.
The opposite happened in the 2000-2002 dot com bust, which is much more representative of the modern economy. The stock markets tanked but the recession was short and shallow except in a few tech heavy places. The automatic stabilizers (unemployment insurance, social security, bank deposit insurance, etc.) make the real economy much more resilient than following 1929. I don’t think it’s necessary to prop up stock markets out of some unfounded fear of 1929.
You skipped over the real estate bubble. But hey, only 7,000,000 families lost their homes.
That’s like your boat sinks in the middle of the ocean and a lifeboat miraculously comes along and pulls you onboard only it’s filled with starving pirates that haven’t eaten in a month.
IOW, some rescue!
Waiono,
I didn’t skip over the real estate bubble, it was a separate catastrophe caused in large part by the mortgage finance bubble. You’re conflating separate events for some reason I don’t know. The GFC had nothing to do with the dot com bust other than it was inflated by the Fed holding rates too low in the wake of the dot com bust. However, the global financial system blowing up and, as bad as it was, not resulting in a second Great Depression supports my contention the modern economy is different than in 1929.
Your analogy makes no sense given the period of time between the dot com bust and the GFC, and the intervening policies during that period which led to the GFC.
rojo
“The automatic stabilizers (unemployment insurance, social security, bank deposit insurance, etc.) make the real economy much more resilient than following 1929.”
I disagree. One bubble replaced another and by design. It was not an accident…unless you think the folks running Wall St, the Fed and the federal oversight bureaucracy are clueless. TheCon dot TV is a great 5 part postmortem documentary that lays it out. Not many folks are interested 20 years after the economy was taken out, shot and the middle class robbed and left by the side of the road.
I think the fed running bonds up to an all time high was just another grift….or “gift” to Wall St. if you will. Yes, some have made a lot of funny money and for many it is being whittled away every month due to inflation…such as HOA condo fees tripling, home insurance doubling and more, property taxes through the roof….Really nowhere to hide at this point.
Waiono,
If you don’t understand why automatic stabilizers make the economy more resilient today than 1929, we can agree to disagree.
Was the hardware store in the Dust Bowl?
what rojogrande said. also, while there will be some short term pain as much of the economy is built up around the rich’s wealth effect spending, it’ll adjust over time. it always does.
hell, it might mean that car manufacturers again focus on making average new cars the average person can afford, and not making all of their margins on $110k souped up pickup trucks.
“Traders die broke”…Jesse Livermore
Jesse Livermore died broke, didn’t he, from a self-administered dose of lead in a hotel rest room circa 1940? But a very few radical risk-taking traders become tech moguls and US presidents. And that allure, like lotteries, attracts the masses. The first one to agree with that would be said president. It has driven land rushes and gold rushes and mortgage bubbles and so much else in US history.
This may be a good time for people to go back and read Warren Buffett’s story/article/essay on America’s trade deficits and how he would “fix the problem”.
Published in Fortune Magazine in November 10, 2003.
Interesting article / idea, thanks for sharing it.
Is there still appetite for US Treasury debt internationally? If international buyers want to fight tariffs by boycotting Treasury auctions, won’t that cause rates to rise?
yes, yield would rise, and eventually those longer-term Treasuries would have a yield that is high enough to where even I would find them appealing. Currently, longer-term yields are way too low.
I agree with your points , but doubt that rates will ever go considerably higher . Rates did go slightly above 5% late last fall, but that is still not high enough for me .
Higher long term rates would have a number of deleterious consequences
1. It would negatively affect the present value of both current assets and future cash flows thus lowering the value of assets
2. Relating to number 1, it would lower
the P/E ratio of publicly traded stocks , possibly causing a crash in equity markets
3. It would raise the cost of debts incurred in the future
4. It would raise mortgage rates , resulting in higher costs to purchase a home
Among the results of higher mortgage rates are higher foreclosure rates , lower housing prices , and problems at those banks active in the mortgage business .
5. It could create demand for bank insurance for deposits over 250,000. We had a small taste of this problem with the Silicon bank fiasco a few years ago .
Many stocks and houses are way overvalued. Substantial price reductions in both would be good, not bad, stopping this wealth illusion that has perpetuated our ignorance. The USA has been incurring far too much debt for far too long. This overspending which has been made worse by rate suppression through dollar devaluation is what needs to be reduced. The bill will come due and America will pay for it in many ways.
“Dear SEC, are you looking into who planted this fake-news story? Nah, didn’t mean to bother you, I understand you’re too busy loosening up crypto regulations.”
Excellent editorial, Wolf
Does anyone else find it odd that hundreds of billions are won or lost on how the latest phone call went?
No, it’s not odd. It’s just the normal condition. Maybe a trillion or two were won and then lost on a fake news item that originated on X yesterday. The market is driven by algos that don’t think and by people who think their trading apps are video games. What else do you expect? Rational thought 🤣?
Yes, rational thought, due to markets that are always and forever efficient!
/sarc
Stocks just dropped over a 1000 points today from today’s high. The big boys couldn’t keep it up.
If China decided to dump all of their Treasuries tomorrow, what would happen to the Bond market?
Yields would rise.
China holds about $760B of the ~$28T publicly traded Treasury market. So about 2.7%.
I’d happily help absorb China’s fire sale – say 5% on a ten year until things settle down in a few days.
China would never “dump all of their Treasuries”. As soon as they started selling, the price would drop. The more they sold, the more the price would drop, the more they would lose. Of course, they could be insane, so I guess they might do it. Anyway, to answer your question, prices would drop like a rock and yields would skyrocket.
That is a possibility that any serious bond trader must factor into their calculations .My guess is that it would send TLT ( 20 year bond ETF) from its current price of ~90 to the mid 70’s . but there is no way to really tell.
That brings up a problem in ETFs that are not present in mutual funds Prices for sellers in mutual funds are determined after the close , while sellers in ETFs can sell continuously on the way down during the day. This is somewhat similar to the “negative GAMMA “ of an option position
MW: U.S. stocks were up big. They’re now trying to stay in the green.
Reuters: Trump awaits ‘call’ from China, but aides say deal not likely before 104% tariffs hit
U.S. President Donald Trump said on Tuesday that he is waiting to hear from China before duties of more than 100% take effect, but other administration officials said they would not prioritize negotiations with the world’s No. 2 economic power.
Global markets steadied after days of carnage prompted by Trump’s sweeping levies, which have raised fears of recession and upended a global trading order that has been in place for decades. U.S. stocks posted gains after a bruising selloff that has wiped out trillions of dollars since last week.
Trump has already implemented a 10% tariff on almost all imports to the world’s largest consumer market, and targeted tariffs of up to 50% on many trading partners are due to take effect on Wednesday.
China has refused to bow to what it called “blackmail” and vowed to “fight to the end” after Trump threatened to ratchet up tariffs to 104% in response to China’s decision to match “reciprocal” duties Trump announced last week.
If tariffs are a tax on corporate profits to be reduced by producing in USA, then Trump and R’s in Congress need to reduce the corporate tax rate. That Trump is not making moves to do so indicates these tariffs are truly meant to be negotiated
Wolf, do you think that Treasury basis trade could have contributed materially to this move? What’s your general opinion about it? Are you thinking in doing an article about it?
There’s a lot of speculation about this move, that maybe a hedge fund became a forced seller to unwind a basis trade position. I dunno. I think the 10-year yield had dropped way too far, and very fast, and the next wave of investors lost interest at these low yields, and so to find more investors, sellers had to offer higher yields. A 10-year yield below 4% at these inflation rates is just gross. I have no idea why anyone even touched it. And not many did, which is why the yield came back to about 4.33% now, and maybe heading higher to a range where it belongs. Huge demand will be unleashed when it goes over 5%. There is a big pile of demand waiting like a coiled spring to buy at 5%-plus, which is why the 10-year yield has trouble making it over 5%.
yes, quite the after hours fireworks in Bondland
It’s funny how in all those wall st. movies they portray bond traders as somewhat goofy, boring, etc.
I’m guessing bond traders are currently running at very elevated heart rates. Just when they thought it was safe to fold up the laptop for the day, tnx up another 10 basis pts after hours.
They did come very close to inverting the yield curve last week but the 20 and 30 yr bonds held them off until reinforcements arrived.
What continues to amaze me more than anything on social media and places like CNBC tv is the severe downplaying of inflation potentially ripping to the upside all over again and these people simple not caring about how inflation is going to destroy many lives in the future.
Well, the 10 year US treasury is now back to 4.35 while stocks continue their nosedive.
So all the tariff noise to lower rates is just that, noise. Trump and his republicans better take a hard look at future inflation expectations and the 10 year right now, because neither one is doing what they want it to do.
And the housing market all the while will continue to see supply explode higher with prices cratering lower. Just look at the supply taking off since January of this year when supply should be going downward nationally right now during these months.
Looks to me a bear steepener. Rising inflation and rising long term rates. And that is going to bring pain to those holding on to depreciating assets and not holding cash. Although Ive said all along the inflation fire is just getting started.
With all the angst directed against Trump these days, perhaps those opposing him should focus on influencing Powell. An emergency 50 pt hike would really stir the pot.
how much of those inflation expectations are because of the bs lies from the media about tariffs being 100% inflationary?
10 yr and 30 yr US treasury yields blowing out to the upside. Bear steepener…
There has been all kinds of speculation as to what would lead the US into the recession over the years. The 10 year US treasury can and at some point if it gets high enough will break the back of both the US housing market and stock market.
Keep playing with inflation fire and watch what happens in the future with long term yields. The bond market and the banks run the show here, not the stock market or the real estate market or Republicans or Democrats although politicians will certainly make the problems worse with bad decision making.
Tariff trade war is throwing all kinds of gas on this fire. I happen to disagree with Wolf however. If inflation gets unanchored a 2nd time, we are going to blow right through 5 on the 10 year US treasury. And everyone’s real estate portfolio is going to sink faster than titanic.
The only difference this time around. If the fed dares to lower rates with rising unanchored inflation, you should be able to figure out what happens next with the price of goods.
are long term yields on bonds spiking because countries are unloading US treasuries as a result of the tarriffs? not sure i’m following why it is spiking so quickly in a matter of a few days.
Maybe they spiked because they were too low. I think at these inflation rates, a 10-year yield below 5% is unappetizing, and below 4% is gross. When enough people think that way, yields will come up to them and they can buy and yields stop rising. Bond buyers need to go on buyers strike at the current yields, that’s what I think.
Is China unloading long term Treasuries to punish us for the Tariffs we placed on them? This could have a big impact on interest rates and mortgage rates if true.
If China sells some or all of their $760B in UST then they will have US dollars, which they’ll need to either hold in banks (making less interest than they did on the UST) or spend them on … something.
China has been unloading Treasuries for years. And nothing bad happened.
https://wolfstreet.com/2025/03/18/who-holds-the-ballooning-us-government-debt-even-as-the-fed-and-foreign-holders-unloaded-treasury-securities-in-q4/
It is all good! Making imports much more expersive might help some stop spending money on crap they don’t need in the first place.
Higher interest rates could get people to save more.
A huge drop in the markets might get people to see it for what it is. A dumping ground for so so companies. Why would any well run and profitable company, want to go public or not bought by private eqiity.
Inflation might get people to save more and watch their spending.
The we are the world crap is over and Americans will be better off without it.
The list goes on and on! Recession, embargo, no foreign ownership, and deportation, are like music to my ears.
Wolf wrote near end of this article:
“Dear SEC, are you looking into who planted this fake-news story (about tariff pause)? ”
Two days later it’s now an apparent reality? I guess we should hold off with the SEC and thank the person who leaked the inside info early????
What a whiplash!
Wolf, where is the last treasuries update on who owns the debt? Could not find it on the website.
Thanks!
Generally , you can find all government debt stuff the in the category, “Debtor Nation,” which has a link in the left column (or on mobile in the hamburger menu).
https://wolfstreet.com/category/all/debtor-nation/
Specifically to your question, here is the latest, from March 18:
https://wolfstreet.com/2025/03/18/who-holds-the-ballooning-us-government-debt-even-as-the-fed-and-foreign-holders-unloaded-treasury-securities-in-q4/
It sounds like some foreign bond holders (including Japan and China) may be selling some of their bonds to inflate bond yields…
If they do this, it will be brutal for the US economy and the US markets.
You’re abusing my site to spread internet BS rumors. Japan specifically and clearly debunked this BS.