By admin 
The big picture: A stunning surge in the value of the Taiwanese dollar and other Asian currencies over the last week is a vivid example of how the Trump administration’s break from a decades-old system of global commerce will cause collateral damage along the way.
- The world is highly exposed to the U.S. dollar, so a shifting perception of the U.S. role in the world economy could have rapid and unpredictable effects across global markets.
- The flip side of persistent U.S. trade deficits is that many other countries accumulate massive stockpiles of Treasury bonds and other U.S. assets. To the extent that Trump is serious about trying to reduce the trade deficit, it implies major disruption to asset markets as well.
- Exactly how, when, and where that plays out is anybody’s guess. We’re not aware of anyone who predicted a currency market flare-up driven by Taiwanese life insurance this time last week!
Catch up quick: The Taiwanese dollar surged 10% relative to the U.S. dollar between last Thursday and Monday. It has partially receded since, but that’s still a much bigger and faster move than is usually seen in currency markets.
- It reflected the nation’s life insurance and pension funds rushing en masse to shift away from U.S.-issued debt and to hedge their exposure to the dollar.
- Taiwan’s huge stockpile of U.S. assets reflects its longtime trade surplus. As it sells semiconductors and other goods to American firms, it must somehow recycle the dollars it earns.
- The shift came against the backdrop of a steadily weakening dollar over the last month, which made the firms eager to protect against the risk of losses from their dollar-denominated assets falling further. But everyone rushing to the door at the same time made the situation worse.
Between the lines: It’s not uncommon for moderate economic and policy shifts to be magnified by crowded trades and financial market positions unwinding. The global financial system routinely turns small sparks into big conflagrations.
- It is worth remembering that, amid volatile trade policy and loose talk about purported “Mar-a-Lago Accords” or other efforts to reset global currency and debt arrangements.
Flashback: Following Trump’s April 2 tariff announcement, Treasury bonds fell sharply, a move that analysts partly attributed to the unwinding of the “basis trade” — in which hedge funds profit from the gap between Treasury securities and futures contracts tied to those bonds.
- In the fall of 2022, the U.K. government released a deficit-busting fiscal plan that caused the value of its bonds to fall, exacerbated by pension funds facing a cascade of margin calls and forced selling.
- A 1998 default on Russian bonds was the key catalyst for the collapse of the massive hedge fund Long Term Capital Management and East Asian currency crises.
The bottom line: These first gyrations in currency and asset markets triggered by U.S. policy swings aren’t enough to have much impact on the economy. But they’re probably not the last.
Full:https://www.cnbc.com/2025/05/06/pau…if-trump-cuts-china-tariffs-to-50percent.html
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From JC;
- The “degens” are extremely frustrated.
- This “Squeeze” is an all-timer.
- Facts change, human behavior does not.
I was on a late night Twitter Spaces I pop into sometimes on Friday nights when I’m going through my weekly charts.
Helps me tap into the madness of the crowds.
Last Friday, they were all in disarray.
They were talking about how markets are different now, that politics have changed how markets work.
“It’s different this time.”
Nope.
“It’s the same old situation,” to quote Motley Crue…
It’s always different.
It’s not just “this time.”
Price First, Crowd Second
I find myself in this Spaces a couple of times a month, usually on Friday nights after the family has gone to bed and I’m reviewing the weekly data.
I’ve shared with them, honestly, that I look to them for idea flow. Many times I fade them, sometimes I’ll agree.
But recently, I told them I thought the risk was to the upside in stocks – particularly China, small caps, and other speculative growth areas.
They did not agree. They were of the “dead cat bounce” mentality.
I’m not one of those anonymous lurkers online. So if I’m there you know I’m there.
Twitter gives you the option to enter these spaces anonymously. But, since I’m there and have a relatively larger following, they usually invite me up.
And I’ll share a few thoughts with the whole crew.
I appreciate their hard work, their consistency, their passion for markets, and their search for potential catalysts.
Many times I’ll disagree with a take I see. And, sometimes, I’ll act on it and take the other side.
But that’s OK. That’s what makes markets, and I appreciate their perspectives.
I also agree with some takes.
And, many times, I learn something.
This Spaces crew tends to include politics in their discussions.
And they are not particularly keen on President Donald Trump.
I’ve been at this every day for almost 22 years. The facts are different every time.
But human behavior stays the same.
The Trump administration is a huge question mark.
The president and his tariff policy have created historic levels of uncertainty among consumers and investors.
We know. We have the data.
And this isn’t the first time we’ve seen a “Trump Squeeze,” where the uncertainty he and his buddies create sparks a massive unwind to the upside.
Remember Trump Squeeze 1.0?
So many people thought Trump was going to crash the market, the last time he won the U.S. Presidential Election.
But 2017 ended up being on of the greatest and least volatile years in the history of the American stock market:
We saw the fear spike in November 2016.
And we’re seeing it again now.
People are scared. That’s good because we know how to use it to inform our trading.
We know when sentiment levels are this extreme, they don’t stay that way for long.
Consumers and investors change their minds… and optimism builds… as the prices of stocks rise.
Sentiment follows price.
Price moves first.
Then the crowd follows.
I’ll Go Anywhere for a Good Trade Idea
I was laying on the couch Friday night after peacing out from this Spaces shaking my head
These guys are angry AF. It makes sense based on what we’re seeing in the positioning data.
Over the past six months their heads have exploded whenever I’ve mentioned buying China.
I’ve been joining these Twitter Spaces for years now, and before that it was an app called “Clubhouse.” But, today, it all happens on Twitter.
I just tune in to see what the “degens” are doing – they refer to themselves as “degens,” short for “degenerates.”
They tend to call me out when I’m in and ask my thoughts on the market.
They almost always think I’m the crazy one…
Stay sharp,
So it’s the ‘smart money’ v the ‘dumb money’.
The dumb money is however largely constituted of the passive flows. The passive flows have been and would still seem to be the dominant capital flow within equities.
This is unlikely to change much unless the US enters a recession that has a rise (significant) in unemployment. Those passive flows in get reduced and the passive flows out begin.
Bonds:
For the second straight QRA, Bessent did not term out UST issuance. He cannot term out US debt without causing a US debt crisis. This is exactly what Yellen also learned.
The Fed has not sold any 10y+ USTs on net since 2010 despite the US having recently gone through the longest yield curve inversion on record. The only plausible explanation is LT UST markets are not nearly as liquid and deep as advertised.
From Barron’s
Any signal of higher-than-expected issuance now or in the future would have also jolted the bond market at a tricky time; bonds just suffered one of their worst selloffs in April after President Donald Trump unveiled tariffs.
…while also warning that the Treasury getting “too aggressive” with UST buybacks “could undermine institutional credibility”
Any substantial ramp-up of buyback activity could suggest the Treasury is intervening with the market functioning.
“An activist approach by the Treasury in managing yields could undermine institutional credibility,” wrote J.P. Morgan’s Managing Director Joyce Chang when summarizing thoughts by speakers at a recent J.P. Morgan investor seminar on the sidelines of the IMF/World Bank meeting.
Very close to that 5%.
The 5% mark is where bond market liquidity dries up and liquidity has to be provided by the Fed, Treasury or someone.
This is the working room that the US has in its war with China. This is why China can out last the US. The gap from 4.7% to 5% takes hours, possibly even minutes.
Stocks collapse in a bond market liquidity crisis.
Ultimately the real value of bonds must be crushed. Inflation via YCC or some-such.
Then stocks will be in that high, secular inflation that predominated 1949-1969.
Stocks in aggregate will perform well in nominal terms. Some even in real terms.
jog on
duc