Divided Nation, Fragile Market
Divided Nation, Fragile Market
The most newsworthy thing to emerge from the president’s address to Congress last night took place before he ever took the podium.
Holding up that sign is Rep. Melanie Stansbury (D-New Mexico) — a third-term Congress member from Albuquerque.
The most newsworthy thing is that the Democratic Party is still on its heels after the 2024 elections.
Or to put it more bluntly, they still don’t get it.
Really, who other than the most committed Democratic partisan is energized by that hoary old recycled-from-2017 message?
Look, you can oppose many of this president’s policies — goodness knows I do — and still understand that “normal” is what a plurality of the electorate soundly rejected four months ago today.
Ahead of the speech last night, Paradigm’s own Mason Sexton told his readers that the address “will further expose the deep divide and political polarization that exists between the two parties.
“‘A recent survey by Pew Research has shown that ideological thinking ‘is now much more closely aligned with partisanship than in the past.
“‘As a result, ideological overlap between the two parties has diminished: Today, 92% of Republicans are to the right of the median Democrat, and 94% of Democrats are to the left of the median Republican. Partisan animosity has increased substantially over the [past two decades].’
“Each party's share of a highly negative view of the opposing party has more than doubled since 1994. Most of these intense partisans believe the opposing party's policies ‘are so misguided that they threaten the nation’s well-being.’”
[That’s literally the language the Pew pollsters use when querying everyday folks.]
Perhaps you got a sense of that divide from the mailbag section in yesterday’s edition — featuring reactions to the Trump-Zelenskyy fracas last Friday. One side labeled Trump “a petulant, amoral schoolyard bully” while another described Zelenskyy as “an entitled dwarf in sweatpants.” (More where that came from later in today’s edition…)
Wherever you stand, know this: Partisan divides have consequences in the markets.
Too soon to say what the precise fallout from last night’s address will be. But Mr. Sexton says this much is certain: “It will be sharp, sudden and disturbing to the natural order of things.”
Credit where it’s due: Mason called the minor meltdown that hit the market at the start of this week. On Monday he said: “We continue to believe that a ‘retest’ of the 1/13/25 low is likely by late March or early April and that we could see a ‘big down day’ on or about March 12.”
Yesterday’s sell-off fulfilled that forecast: While the S&P 500 took a 3% spill in two days, readers of The Map pocketed a 3% gain in the same time frame.
Looking ahead, he says “a major correction is unfolding, and this is just the beginning.
“We remain concerned about the macro risks, technical signals and cyclical pressures suggesting that this market is far from stable.”
For several weeks, we’ve told you how March 20 is a date Mason has circled on his calendar. That’s only 15 days away now.
Follow the Bouncing Tariff News
On the day after Trump’s speech, the big market story is another potential pivot on tariffs.
As we mentioned yesterday, 25% tariffs on Canadian and Mexican imports are now in effect. But some of them might be lifted as early as the time you open this email.
Reminder: The Canadian and Mexican tariffs aren’t about trade as much as they’re about drug trafficking, especially fentanyl. It appears they’ll be adjusted if the White House thinks there’s progress on that front.
Said Commerce Secretary Howard Lutnick to Bloomberg TV this morning: "My thinking is it's going to be somewhere in the middle. So not 100% of all products and not none.”
But don’t expect a similar pivot with the new 10% tariff on Chinese goods — which definitely got Beijing’s back up.
“The fentanyl issue is a flimsy excuse to raise U.S. tariffs on Chinese imports,” says a brusque statement from the Chinese Foreign Ministry. “Anyone using maximum pressure on China is picking the wrong guy and miscalculating.” (The whole thing is worth a read.)
During his speech last night, the president confirmed he will impose “reciprocal” tariffs on all nations effective April 2. "Whatever they tariff us, other countries, we will tariff them. That's reciprocal - back and forth. Whatever they tax us, we will tax them.”
Trump’s warm relationship with India’s Prime Minister Modi notwithstanding, he called out India by name: "India charges us auto tariffs higher than 100%."
While traders await the latest word on the Canadian and Mexican tariffs, the major U.S. indexes are slipping a bit.
At last check, the S&P 500 is down 0.4% to 5,755. The Dow’s losses are more modest, the Nasdaq’s steeper.
Gold is holding its own at $2,921 while silver has rallied big — up 55 cents as we write to $32.47. And the HUI index of mining stocks is up 2.8% to 322.
Traders in the oil market seem to be betting that tariffs will put a hurt on global trade and thus on global demand for crude: At last check a barrel of West Texas Intermediate is down over 4% to $65.45. At that price, crude is testing a low that held consistently last fall. If it cracks, our Jim Rickards’ forecast of sub-$60 oil could come about even sooner than he expects.
No joy in crypto-land with Bitcoin a hair below $88,000.
You Can Profit From Mr. Market’s Overreaction
“I love buying high-quality companies that get dragged down by news that has nothing to do with their business,” writes Davis Wilson at our sister e-letter The Million Mission.
Companies that are largely immune to tariffs sold off yesterday and the day before, along with everything else.
“Tariffs hurt companies with heavy international supply chains,” Davis reminds us — “industrials, automakers and retailers with global sourcing will feel the squeeze.
“But some companies are almost completely insulated from these policies, yet their stocks are falling anyway.”
Among the companies Davis has in mind are Facebook parent Meta Platforms. “It doesn’t manufacture goods, and its revenue comes from businesses buying ads. Tariffs don’t change its business model. With unmatched scale, AI-driven ad targeting and record earnings growth, Meta is an unstoppable force in digital advertising, driving higher engagement and monetization.”
Other names in this bucket are Uber Technologies (UBER) and Fannie Mae (FNMA) — which Davis described last month as a rare opportunity to make five times your money without buying options.
“If you already own these stocks, sit tight,” he says. “And if you don’t own them yet, consider this your buy alert.”
Follow-up: Reprieve for Small Business
Small-business owners now have an indefinite reprieve from onerous new regulations.
“The U.S. Treasury Department said it won’t take enforcement action against American companies for not divulging ownership information under the Corporate Transparency Act,” per The Wall Street Journal.
Passed in 2021, this law requires up to 32 million small businesses to file a new form about their “beneficial ownership” with FinCEN, the Treasury’s Financial Crimes Enforcement Network. It was yet another attempt by the feds to stop “money laundering” via anonymous shell companies.
As we mentioned here in January, the deadline to comply was New Year’s Day. But as of Dec. 2 last year, fewer than a third of businesses affected by the law had gotten around to submitting the paperwork.
The National Federation of Independent Business tried to challenge the law in court with no success. Technically the law remains in effect. But in a statement on Sunday, the Treasury said it won’t enforce any penalties against U.S. citizens or companies that run afoul of the law.
That’s not as good as outright repeal — which would take an act of Congress — but it’s not a first for a Trump presidency. Enforcement of the “individual mandate” to buy health insurance under Obamacare was suspended during the Trump 45 years. (And it’s being dialed back again now.)
Mailbag: Ukraine, Income Taxes
About that polarized response I mentioned earlier to the Trump-Zelenskyy meeting…
“Unsubscribe me. I feel dirty just reading your bull****,” says one reader. “Trump is Putin's bitch and are you such a fool you can't see it?
“It was disgusting and immoral what happened. And you give investment a bad name. What is your Russian name? Trump acted like the thugs from the KGB. Please stop the bull**** just ‘cause you wanna get rich and you don't give a **** about anybody else but yourselves.”
On the flipside, “Trump should end the war by making new alliances with Russia,” counters another.
“Russia has more minerals than Ukraine anyway! Zelenskyy and his Ukraine government are extremely corrupt. We should not be supporting them in any way. We should also get out of NATO and bring our troops home from Europe.”
Dave responds: To the first reader, I realize you’re gone now — but if Ukraine’s cause is that important to you, there’s nothing stopping you from kitting up and hopping the next plane to Kyiv. Sounds like they could use the help about now.
To the second reader, why on earth should Washington pursue an alliance with Moscow? I realize many conservatives look kindly upon Putin as some sort of anti-woke icon or protector of Christendom or whatever… but come on.
George Washington’s warning in his farewell address about “sympathy for a favored nation” really applies to both sides here…
“I agree with James Altucher that a consumption tax should replace the federal income tax altogether,” a reader writes after yesterday’s Bullet No. 1.
“Before 1913 (when the 16th Amendment was ratified, authorizing federal income tax, the federal government got its income from revenue tariffs and use/excise taxes.
“But if the 16th Amendment is not repealed, we would end up with both federal VAT and income taxes, like in Europe.”
Dave: You are absolutely right and I’ve said as much now and then for several years.
Ditto for Trump’s occasional musings about replacing the income tax with tariffs, harking back to those pre-1913 days. It would have to come with repeal of the 16th Amendment.
Of course, there’s a related issue which my old colleague Jeffrey Tucker pointed out a few weeks ago. He gets the last word today…
