The World Wobbled, Cracked and Then Burst Into Flames

U.S. stocks fell in after hours trading as President Donald Trump unveiled sweeping tariffs of at least 10% and even higher for some countries, raising the risks of a global trade war that hits the U.S. economy. (CNBC)

The S&P ETF has fallen more than 3%, as of the time I’m writing, an hour after Trump’s tariff announcement, and the Nasdaq ETF is down more than 4%. Of course, I’ve many times seen stock futures open way negative only to turn green in the hours after the open as the smart money starts moving in to sweep away the rubbish left by the overnight futures traders, etc. So, we’ll see what actually holds, but I don’t think that would be very smart money if it tried to sweep this away! My expectations are for a dismal day, Tuesday, for those flickering lightbulbs who decided it was brilliant to bid stocks up during the first half of this week.

Exceptions from this dim-bulb category will, of course, be allowed for those who had to buy stocks as a legally binding requirement due to end-of-quarter fund rebalancing as I wrote about, but those weren’t the ones bidding the market up before the close. That business should have already been finished. This morning's sunshine was from the greedy looky-loos who couldn’t restrain their irrational optimism as they looked around for what they thought were new bargains to buy on the dip. As for the exceptions granted, the 60/40 split 401K investment fund forces you, as a fund manager, to slice your own throat because the smart move would have been to run to gold or silver or, at least, go all cash; but, as for those who bid up the market … I can’t even shake my head enough at their folly.

Sad are the market maniacs and mavens who thought they’d take one last ride up the big hill. Sadder still are they likely to be coming down it to find the tracks are out right after the top, though market ignorance apparently knows no bounds, so who knows? One more time around for all the old times? (I think not.)

The ultimate direction, however, is clearly down and then down some more and then down a lot more unless Trump wakes up from his own nightmare and says, “Belated April Fools, Everyone. I just timed it for April 2nd so you wouldn’t suspect it.” Again, who knows? The president loves a big surprise.

Markets and businesses do not. So, I doubt they would even react well to finding out this was just a bad dream.

Recession air-raid sirens are now screaming

As if the market’s screams were not enough, the Atlanta Fed’s projection of GDP for the first quarter of 2025 took an even more hair-raising plunge, landing now down in what would be the deepest start to a recession we’ve had, other than the Covidcrash cliff dive when the world turned off all economies for a month of experimental fun: (This time, I’m not even sure why we're turning everything off.)

Atlanta Fed

Minus 4%, if it really pans out that way, will be quite the cliff dive from the last quarter above 2%. And the worst part is that none of what is showing there had anything to do with the recent tariff announcement, which came after the update of GDPNow. Moreover, the announcement shouldn’t have any effect on GDPNow because the first quarter is over, so the imposed tariffs cannot have any effect on Q1, though the Atlanta Fed promises another update. No, that action against the economy gets to wait for Q2’s real GDP report.

The mere anticipation of things to be feared causes fear

As depicted in that graph, the Great Crash (as this chaotic economic mess may come to be known) does, however, already include significant effects on the economy in the first quarter that came from anticipation of Trump Tariff War 2.0. Those would be such things as hiring decisions and employee quitting decisions where surveys indicated results were due to a lot of concern about what tariffs would do to employment as well as what DOGE would do to employment and what tariffs would do to business. It would include business expansion decisions and new business formation decisions that decided to hold off until they found out what the new lay of the land was really going to be. It would include all the feelings of chaos in arriving at this point and how those feelings affected the way people do business.

Mr. Johnson, whose American company I used as an example of businesses that may be pressed into such a corner they have to shut down, got the bad news I said may be coming for him. If you read the previous editorial, you may remember Johnson switched from getting the display cases he sells from China to sourcing them in Vietnam due to the US tariffs on Chinese goods. I suggested, that gambling may do even worse for him, and it did. Bigly! Trump, this afternoon, held up a graphic showing that he hit the most popular China alternative—Vietnam—with the biggest tariffs of all those showing on his graphic—46%! That’ll teach ’em.

These broad tariffs leave American businesses with no place to duck for cover if they cannot find the product/part they need here in America. Sure, over time, companies may form that will manufacture such products here (at higher prices than were formerly had elsewhere), but creating a functioning factory often takes a couple of years in the best of times. Even retooling existing factories to seize opportunities may take months. In the meantime, a lot of economic ruin will have already happened, and fair part of that will be stuff that never comes back (as we saw with the Covidcrash).

A less destructive way to do these sweeping tariffs would have been to announce them as something coming next year and give American businesses plenty of time to figure it out; but that, of course, might mean resistance builds to such a level that they never happen. Anyway, this is what we got.

The White House unveiled a baseline tariff rate of 10% on all countries that goes into effect April 5. Even bigger duties will be charged against countries in coming days that levy higher rates on the U.S.

“We will charge them approximately half of what they are and have been charging us,” said Trump in a press conference from the White House Rose Garden. “So, the tariffs will be not a full reciprocal.”

So much for Trump’s clearly stated promise that the tariffs would go into effect immediately. Some did; most did not, and Canada and Mexico got hit with none at all. I would suppose that is so Trump can give Canada time to consider joining the union—time to watch and tremble: “You know, you can avoid what is coming if you just join the United States [and give up all your sovereignty to a nation that can’t be trusted anymore and is filled with political divides so sharp they slice daily between friends and family].” Even so, the market, to the extent that trading happens after hours, plunged.

What’s likely spooking traders is that these rates will end up being much higher than expected for many nations. For example, the effective tariff rate for China will now be 54%. Traders had hoped a 10% rate would be a universally applied cap, not a starting baseline rate.

In fact, because Trump did not put every one of his tariffs in place immediately as promised and certainly did not end the business uncertainty as promised but kept that wide open, the chaos and all the damage that it comes with will continue:

“What was delivered was as haphazard as anything this administration has done to date, and the level of complication on top of the ultimate level of new tariffs is worse than had been feared and not yet priced into the market,” said Art Hogan, chief market strategist at B. Riley Wealth Management….

“If he would have come in with just the 10%, I think the markets would probably be up quite a bit right now,” said Larry Tentarelli, chief technical strategist at the Blue Chip Trend Report. “But because the tariffs came in bigger than many expected, I think what that does is it creates more downside volatility right now.”

And that ruckus, of course, is all happening in response BEFORE any other nations have announced what they are going to do in retaliation. Imagine what happens then.

The broad-based S&P 500 was down for five out of the past six weeks because of the heightened uncertainty caused by Trump’s varied tariff announcements, which have been rolling out since February.

Well, expect it to go down a sixth week now!

The last three days stocks had rebounded on hopes Trump would not announce a severe tariff plan on the risk it would tip the economy into a slowdown and raise inflation.

A dimwit bet at best. It may even be that this partial roll-out will be worse than if TheRump had come up with a single plan that spelled everything out at worse levels than the current plan because it means to businesses and investors that the guessing game as to where the stable ground lies is going to go on for some time as the earth’s economic plates continue to bump and grind far into the months ahead.

We certainly didn’t need any of this when already facing recession fears last year hot inflation for two years that was already back to rising and a toppling, top-heavy national debt that is being downgraded in the face of real interest that has risen everywhere even as the Fed has been trying to lower it, and all the job terminations necessary to pare down government to cut the debt at a time when we already have gaping national divisions while much of the nation has been talking openly for a few years about real civil war as we now deport millions of cheap laborers. Some of this had to happen; some did not; but we didn’t need tariff wars to top it all off nor need it all to happen at the same time. Let’s just load ourselves with as much as we can possibly bear, and alienate all our allies and trading partners at the same time, start a new war or two, and see how that goes for us!

It’s absolute chaos everywhere.

“Hope for a softer tariff policy has turned out to be misplaced. The new tariffs could take some steam out of international trade. Tariff announcements are not good news for trading partners, and the administration is likely to leave these in place for some time,” said Helfstein. “Expect market volatility to persist in the coming months as tariff data works into economic data.”

That’s the closest thing there is to bedrock right now: the one thing you can expect with certainty is a lot more uncertainty and instability. First, you will see the direct recoil in markets from the recent announcement. Then you will see various jolts from the announcements of other nations as their retaliation arrives in spurts. Then you’ll see what Trump does in retaliation against all of that, one nation at a time, after each nation levies its best retaliation, as Trump has already promised to retaliate against retaliation. Then you will feel the deeper inner tremblings—the kind that makes your diaphragm quiver—that come from all the economic data that starts to come in one piece at a time, creating its own impacts just by the knowledge it imparts as each new piece of falling data arrives.

Update:

After writing most of the above, I had to go about my regular job for a few hours. By the time I came back to polish away the typos (hopefully), Dow futures had joined the devil’s parade to hell, digging their way down 1,000 points into the infernal abyss; the S&P futures dropped to wind up down 3.6%; and Nasdaq futures did a nice 4.5% belly flop. I kept all the facts above as I had already written them to reflect how quickly things had already changed for the worse.

Zero Hedge also sent me the following, which I found to be a more than solid confirmation of exactly what I had written earlier in the day (leaving all the facts above as they had been stated) and previously:

Goldman Panics: This Is Much Worse Than Expected

In the odd case someone was lucky enough to pull a Bessent and not to look at US equity futures in the past several hours, we have some bad news: Trump's 'liberation day" ended up being just that, and as of this moment traders feel greatly liberated of much of their net worth.

Here is what I wrote:

So, coming up is “Liberation Day,” Tariff-Day, which is the day your money will start to be liberated from your wallet.

ZH continued by describing the market lunacy I wrote about above where fools who are ready to depart from their money bid the market up, of all things:

But the rugging by Trump was especially brutal because while risk assets did eventually crater … futures actually spiked higher at first on flashing red headlines that Trump would institute a 10% tariff floor. The "efficient" market, in its infinite shoot first ask questions never wisdom, interpreted this as the final shape of Trump's trade war and assumed this would be the extent of the announcement... and boy was it wrong: the president was just getting warmed up, and the very next minute Trump unveiled an ungodly barrage of reciprocal tariffs against literally the entire world, including some cases of near triple-digit reciprocal tariffs which will lead to a historic emerging markets shock...

So, fools were separated from their money. I hope my readers, on the other hand, have heeded my often-repeated predictions for 2025 about this market crash and the immediate recession because this day was just the warm-up act for the months to come, and every step is proceeding on track.