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From JC;

Wow what a week to be an investor in stocks. The broadening of participation all over the world continues. Meanwhile, the pessimism is stronger than ever. I'm noticing the most angry of people are the ones who want stocks to fall because they don't like the Trump and all his buddies. But their anger is not the market's concern. If anything, it's just more fuel to drive stocks much higher, which would enrage them even more. It's pretty hilarious to watch actually. Laughing is good for you. But laughing at people who haven't bothered to count and actually see how well stocks are doing, is all the more amusing. You know, you can dislike Trump, and still recognize how strong this bull market continues to be, and how much stronger it's getting week over week. Here is one of the most important stock market indexes in the world. I would argue that after the S&P500, Dow and Nasdaq, this one is right there behind it, and arguably right along there with it in the same category of importance. EFA represents developed markets outside of North America. So think a ton of European stocks, United Kingdom, Japan and Australia. New 18-year highs this week after completing this multi-year base:

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Now, when you dig down to see what's inside a lot of these indexes, you'll find a ton of exposure to the Financial sector, more than you might expect. If the world was about to come to an end and stocks were completely falling apart, the European Bank index fund would not be breaking out to new all-time highs. And that's exactly what's happening:

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This was the greatest week ever for Developed Markets Ex-North America relative to the S&P500. This is literally the definition of rotation. Best week ever:

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If we were about to enter into a global recession, and there are real issues in the stock market, would Germany be making new all-time highs? Would China be breaking out of a multi-year base to new multi-year highs? The answer is no. All this strength means is that this bull market is getting broader, stronger and with more upside participation:

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You can fight this sort of thing if you want. But historically, during bull markets it pays much better to be buying stocks, not selling them. Go back and see for yourself. It's crazy that with how well stocks are doing, market sentiment is down in the dumps. Money Market funds just hit $7 Trillion. How is that even possible? Money is flowing faster than ever into cash, just as more stocks than ever are going up in price. Meanwhile, when you check in on individual investors in America, we're seeing some of the most pessimistic readings in stock market history. The only other times you can compare this to, is after massive declines and near the end of bear markets. We're just a few % points away from all-time highs in the major U.S. Indexes, and more countries than ever are now participating in this bull market. In fact, with investors getting more and more scared with each week that goes by (we have the data), you actually saw fewer stocks on the NYSE closing this week at new 52-week lows than you got the week before. And last week's new lows readings were actually fewer than the January spike. So literally, the market continues to improve week over week, and it's only getting stronger, yet investors are just getting more angry and more scared. The ones who are scared about the Trump and what they're doing in Washington are leading the charge of anger and frustration. We love that. The more pessimistic these folks get, the stronger the next leg higher for this bull market is likely to be. So thank you angry folks. We are forever grateful. Just yesterday we took profits on two more long positions that just doubled. The doubles continue to come again and again.

President Trump's dismantling of the U.S.-led global order has injected deep uncertainty — and perhaps fresh opportunity — into China's timeline for a potential invasion of Taiwan, Axios' Zachary Basu reports.

• Why it matters: U.S. officials have long been fixated on 2027 as the year Xi Jinping would be ready to move on Taiwan, citing military modernization goals tied to the 100th anniversary of the People's Liberation Army.

[ATTACH=full]194957[/ATTACH] Trump — while acknowledging a Chinese invasion would be "catastrophic" — has been purposely opaque about whether the U.S. would defend Taiwan in such a scenario.

• "I never comment on that," Trump said this week when asked if it was his policy that China will never take Taiwan by force. "I don't want to comment on it because I don't want to ever put myself in that position."

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Screenshot via X

Beijing has stepped up its saber-rattling toward Taiwan, pledging at the annual National People's Congress this week to "firmly advance the cause of China's reunification" and boost defense spending by 7.2%.

• In a sign of mounting tensions, China's embassy in the U.S. warned this week that "if war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we're ready to fight till the end."

The big picture: U.S. presidents have had a long-running policy of "strategic ambiguity" on the question of military intervention to protect Taiwan. But under Trump 2.0, it has become a true mystery.

• Trump's approach toward Ukraine has dispelled the notion that he would defend Taiwan solely for the sake of shielding a democracy from authoritarian aggression.

[ATTACH=full]194959[/ATTACH] Zoom in: Unlike Ukraine, Taiwan plays a pivotal role in the global economy, with its crown jewel chip-maker, TSMC, manufacturing more than 90% of the world's most advanced semiconductors.

• Global dependence on TSMC has long been considered a powerful deterrent against Chinese aggression, but Trump has treated the company's dominance as a personal affront.

"Taiwan took our chip business away," Trump told reporters last month. "We had Intel, we had these great companies that did so well. It was taken from us. And we want that business back."

Stephen Miller — who is both White House deputy chief of staff for policy and President Trump's homeland security adviser — has amassed a historic portfolio of West Wing power. On top of that, a legal group he co-founded is helping drive policy changes from the outside, through legal complaints and lawsuits against corporations, Axios' Alex Thompson writes.

• Why it matters: Miller is a central architect of Trump's "flood the zone" strategy for sweeping transformation. America First Legal, which Miller co-founded after serving as a senior White House adviser in Trump's first term, is helping carry out his mission to make DEI programs illegal — on the argument that they violate the civil rights of white people.

[ATTACH=full]194960[/ATTACH] America First Legal has been aggressively filing complaints and lawsuits to try to make the federal bureaucracy comply with the new president's executive orders.

• The group has become a private enforcement arm of the White House's assault on DEI — or as it has billed itself, a right-wing version of the ACLU.

In early February, the group petitioned the Education Department to investigate five school districts in Virginia for allegedly not complying with Title IX, which doesn't allow sex-based discrimination.

• The group petitioned the Labor Department to investigate whether outside federal contractors are following Trump administration rules.

America First Legal also has been filing and threatening lawsuits against corporations — including Apple — over their DEI policies.

Paraphrasing FDR, there is an argument that we have nothing to fear from tariffs, save tariff fear itself. There are arguments that the cost might not be that high, but forecasting is maddeningly difficult because US policy is so inconsistent. Thursday, the US lifted the 25% tariffs on Mexico and Canada three days after it imposed them. This was what many wanted to hear, but amped up the uncertainty and volatility surrounding trade policy.

The cost of tariff uncertainty is growing very visible, most clearly in a continuing sell-off for US stocks, which has now left the Nasdaq Composite down more than 10% from its recent peak (the popular definition of a “correction”). The Bloomberg Magnificent 7 index, including the dominant tech groups, is down 16%, and has just dropped below its 200-day moving average for the first time in more than two years:

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The latest edition of the Federal Reserve’s Beige Book, its qualitative collection of anecdotes garnered by regional branches, was published this week and showed that the central banks’ contacts were talking about tariffs far more than they had in December (when the election result was known). Virtually nobody is talking about recession. The data in this chart counts the number of mentions for each word, compiled by DataTrek Research:

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That’s strong prima facie evidence that tariffs are causing worry, and may already be changing executives’ behavior. Moreover, the Baker Bloom and Davis index of trade policy uncertainty, derived from analysis of media mentions, has just spiked to the highest in the 40 years since its inception. Current anxiety dwarfs the concerns that people had as the original Nafta treaty was coming into effect, or during the first Trump administration. China’s entry to the World Trade Organization, with hindsight by far the most significant trade change in this era, didn’t register:

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Meanwhile, when businesses have a clear idea that tariffs are about to be levied on goods they want to buy, they are bringing purchases forward and stockpiling untariffed goods. This was wholly predictable, and helps to explain why the latest US trade deficit, published Thursday, was the highest on record. That had much to do with the rush to send gold bullion to the US, which has little effect on the real economy. However, the spectacular widening of the US trade deficit with Canada shows that businesses are already taking evasive action. Canada is now in the eye of the tariff storm, when only recently many had assumed that it would be exempt. That’s led to a remarkable buying spree as Americans stockpile Canadian goods:

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As tariff proposals generate this upheaval, lobbying of the administration to change course has gained momentum. The plan is now for a reciprocal tariff system in which all importing levies will be matched one-for-one by tariffs on imports of the same products to the US. It’s growing clearer that the potential revenue to be gained is much less than had been thought, largely because the US has less cause for grievance than it believes.

UBS Group AG conducted a massive research exercise of the trade between the US and 30 of its largest trading partners, analyzing 96 categories and 86,000 product/partner pairs. Reciprocal tariffs wouldn’t raise that much money, or have that big an economic impact. UBS estimates that lifting US tariffs to the level of its partners would only equate to a weighted average increase of 1.65 percentage points (0.8 for developed markets and 2.2 for emerging), and generate only about $18 billion to $32 billion in annual revenue.

Reciprocity will often mean raising tariffs on goods that the US doesn’t import anyway. If a trade partner is exporting a product, UBS argues, it’s unlikely to be importing it. That's the whole point of comparative advantage. So this is a complicated nightmare that would significantly affect a number of countries. The biggest losers would be in Asia, led by Vietnam. Mexico, which has long had reciprocal arrangements under its trade treaty with the US, would barely notice:

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The UBS exercise also reveals that the US is not particularly hard done by. The following chart shows the amount by which each country would need to raise tariffs to achieve reciprocity. Japan, and a number of European countries, would need to lift them by more than the US:

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UBS’s punch line is: “Closing tariff gaps at the product-trading partner level amounts in tariff terms to a blanket tariff increase of 1.65% by the US. This is roughly an order of magnitude smaller than the 10% blanket tariff that candidate Trump was threatening to impose on the world.” So a reciprocal system, to be unveiled April 2, represents a major climbdown dealing with a problem that is not that serious. You can’t easily argue that it’s worth the uncertainty that it is creating. And if this is what indeed results, there’s no need for stocks to sell off like this. The market is, however, sending a clear message that it wants clarity on tariffs, and that it would prefer to do without them altogether. The question, growing ever clearer, is whether the Trump administration will stand up to the market.

jog on

duc