Navigating Rough Terrain

Then we have the tariffs. The retreat was inevitable as they were hastily designed (the math didn’t math), imposing a tariff on an Antarctic island inhabited by seals and penguins. However, we are still “waiting for Godot.” There doesn’t seem to be a point to the tariffs, we are now hoping this administration is playing 4D chess. We will see. In the meantime, Treasury Secretary Scott Bessent admitted that “the tariff standoff with China is unsustainable.”

While all the above has taken place, the markets tied to the United States are acting like an emerging market. Stocks are down, bonds are down (rising yields) and the dollar is down. A look Brazilians, Argentinians and Mexicans are very accustomed to. The US is the largest debtor with more than $35 trillion of debt outstanding. With about a quarter of our debt held by foreign investors, tariffs on our trade partners created a reaction to sell our debt. In fact, after “liberation day” we watched the 10-year treasury yield jump by the largest amount in about 25 years. But the fears of foreign countries weaponizing our debt are a bit overdone. For one, because they own large amounts, they would need to find a buyer – a buyer that would expect a haircut. This would cause a major loss in value, that the foreign seller would not be willing to take.