Trump will be forced into a Deal

We’re teetering on the edge of a scenario that's starting to resemble 2008. But let's not panic yet TRUMP WILL BE FORCED TO MAKE A DEAL.

Flashbacks to 2008

Right now, credit spreads are exploding upward, signaling fears of corporate defaults. Investors are fleeing corporate bonds for the "safe haven" of government treasuries. Only problem? Those government bonds are also tanking. Typically, when recession risks rise, bonds rally—but not this time. The bond market, as we’ve seen lately, is a tricky beast with its own rules.

Trump's Gameplan Gone Wrong

Part of Trump's initial strategy was to intentionally slow the economy to scare investors into bonds, pushing interest rates lower. Instead, interest rates surged higher, completely blowing up his plan. To curb the chaos, he paused tariffs for 90 days, causing the stock market to have its best day in two decades.

But here's the kicker: it was just a massive short squeeze, not the start of a genuine recovery.

Inflation Isn’t the Only Problem

Despite excellent inflation reports recently—both CPI and PPI numbers were solid—the market barely responded. Why? Because tariff-driven inflation fears overshadow the good news. The University of Michigan even reported rising inflation expectations, spiking interest rates further.

And now, a liquidity crunch in the treasury market is threatening to bring back the ghosts of the March 2023 banking crisis (remember SVB?). Last time, the Fed stepped in fast. Now, they're hesitating because tariff-induced inflation expectations are complicating the scenario.

Trump’s Tough Spot

Trump needs someone—a big buyer—to step up and scoop up U.S. treasuries. With more buyers, interest rates drop, helping the government handle its debt. But right now, investors are demanding higher yields to compensate for increased risk.

In fact, we've just witnessed the biggest weekly jump in the 30-year rate since 1987. Rumor has it, China, one of the biggest holders of U.S. debt, is retaliating by dumping treasuries. Others point to leveraged hedge funds blowing up their positions, adding fuel to the fire. Either way, Trump desperately needs a buyer to stabilize this mess.

Chaos in Every Corner

Usually, chaos pushes investors toward the U.S. dollar, but even that's weakening sharply. Investors seem to be losing faith across the board: stocks down, bonds down, dollars down, and even oil down. The only bright spot right now? Gold.

The Silver Lining

But here's some underreported good news: inflation genuinely appears to be breaking, and this opens the door for the Fed to start easing monetary policy again. If Trump pivots quickly to lower tariffs, inflation could cool faster, and the Fed could step in as the primary buyer of treasuries, calming the market and pushing rates back down.

Trump may be a risk-taker, but he isn’t aiming to trigger a global depression. His negotiating strategy often involves extreme pressure followed by a swift pivot. The takeaway? Wait for maximum pain, then consider buying the dip.

Market Technicals to Watch

Right now, markets are rebounding from oversold levels, but keep an eye on critical indicators:

• More stocks trading above their 200-day moving averages
• Stocks hitting new monthly highs
• High-beta assets outperforming low-beta
• Cyclicals outperforming defensives
• Bitcoin catching momentum
• IPO stocks outperforming
• VIX dropping below 28

Historically, peak VIX usually signals a bottom—but remember, like in 2008, markets can bottom months after volatility peaks. The pandemic showed us a sharp V-shaped recovery because inflation quickly collapsed and the Fed intervened strongly.

What's Next?

Trump's massive gamble is ongoing, and nobody truly knows how it'll play out. Global central banks are panicking and increasing money printing, but the Fed—the biggest player—is waiting cautiously. If tariffs spike and linger, a deeper recession becomes more likely. But if Trump strikes a deal and tariffs roll back, markets could rally hard.

Stay tuned