hello my friends today is March 1st and this is Markets weekly so this past week was a very exciting week in markets as we worned a couple weeks ago we seem to be in the process of topping so first let's talk about what happened the past week and secondly let's talk about why March 4th is emerging as a focal point that could determine the trajectory of the markets in the next few weeks okay first looking back the past week you know we we had a few down days and we had a big jump on Friday
but overall it seems like at least looking at the major indexes we are losing momentum now the S&P 500 is only a few per below all-time Highs but it's been somewhat range bound over the over the past few months so you can see those moving averages uh slowly plateauing and trending lower that is reason for caution but when you look at investor sentiment investors have become pretty bearish even though we are not far from time highs this survey of shows a huge jump in bearishness and judging by reaction on social media there are also many
retail investors that are unhappy as well I think part of that reason is because that even though on the index level we don't see big losses looking beneath the index level some of the more speculative plays have been doing very poorly looking at Palin here for example paler absolutely skyrocketed the past few months uh but you know in a short amount of time is down 30% looking at another very speculative and famous asset Bitcoin is also down 10% in a short amount of time and of course everyone's favorite Nvidia even though we had earnings that
at least met expectations you know looking at moving averages is very clear it's losing momentum as well so a lot of the Investments that have been working very well these momentum trades over the past year have not been doing well and we can imagine that investors that are really exposed to them have have not been fairing well now these have become so popular that you even have all these levered ETFs sprouting up at trying to capitalize on the momentum and these levered ETFs have done very very poorly so it's easy to see how investors could
could be feeling uh fairly negative even though the big indexes only show very modest declines but aside from that though taking a step back the broader picture that suggests that growth is slowing now we can see that in the PMI numbers we can see that in sentiment surveys and we can see that in the Atlanta GDP now which now forecasts a shocking uh decline now to be perfectly clear a lot of that is really just due to Imports it seems like a lot of businesses are worried about tariffs and so are front-loading their Imports now
the way GDP is calculated is that well GDP is trying to measure the goods and services the country produces one way to measure that is to basically figure out what everyone is spending right because uh you know one person spending is another person's income if you can tally up what everyone is spending you get a good idea of what the econom is producing however some of that spending goes to uh foreign producers so that spending that actually doesn't uh doesn't isn't part of GDP so it's not goods and services produced in this country when you
have a lot of imports well that's spending that's a lot of spending that goes abroad that has to be subtracted from GDP and so that front loading of tariffs say maybe you wanted to buy a bunch of Machinery later on the year decided to frontload that in the first quarter instead or the fourth quarter of last year then that that's going to have an impact uh on on GDP and that will probably be Unwound over the coming quarters so again don't be too worried about that negative print but aside from that though other survey datas
does suggest slow in GDP and so there's reason for caution and you can see this in interest rates as well you can see the 10year yield has decline notably after hitting a local high at 4.8% now in addition to that I think there is I think increased uh confidence that maybe doge is going to do is going to do it make a dent in fiscal spending now fiscal spending of course it's it's very large and unsustainable everyone agrees on that so having less fiscal spending would be good for the longer term health of the country
um the government accountability office themselves estimates that we could have as much as $500 billion in annual fraud not waste fraud uh in the budget so youan is working hard to to try to shrink the government spending now there's this interesting chart by Anna Wong of Bloomberg economics looking up and tallying up what Doge has done so far and it looks like they've done about $100,000 100,000 in layoffs again that's from the buyouts and the very public um terminations of agencies like us Aid and so forth but Anna makes a very interesting point in that
you know this kind of doesn't show the whole picture though because a lot of the size in the federal government is not in its U you know direct employees but also through this big complex of Grants if you look at the federal employment over the past few decades strangely it's been about 2 million for some time now that doesn't make sense as after all we know the government is growing we know the economy is growing so how is employment kind of around 2 million so a big reason is that it seems like many agencies in
the federal government decided that a better way uh to to operate is to instead of hiring people directly just to hire a lot of contractors now contractors can be fired at well whereas it's very difficult to fire uh federal employees and sometimes contractors can do a better job as well now there's this interesting work by Brookings and this is from a few years ago that shows that even though the direct employment of federal employees is only 2 million if you the contractors and everyone else it's it's several million more and these contractors are paid through
grants and other forms of spending so as Elon is cutting federal employees he's also you know cutting things like um grants and spending and so forth and it's very public about that on the Doge Twitter handle which everyone should check out and that's likely going to have a bigger impact on unemployment and growth uh than the market is thinking and so as the federal government shrinks in its spending that that's definitely going to have in the short term some growth impacts and perhaps the market is reacting to that as well again this is all up
in the air um doge is still in its early phases and subject to many legal challenges but it does seem like there is some determination to reduce government spending in the short run that's going to have an impact on growth but eventually everyone is going to the economy restructure and the laid-off contractors and federal workers will go and find work elsewhere in the private sector now these all of this of course slowing growth uh cuts fiscal fiscal restraint and all that it's all Weighing on the markets as well as um the retrenchment of over leverag
place but I think a big thing is looking forward is the increasing Prospect of tariffs as we get closer to April 2nd so secondly let's talk about the state of tariffs now remember just a few weeks ago president Trump suggested that he would put 25% tariffs under iipa laws on Canada and Mexico and at the last moment decided to not do it or suspended for one month and now that time is coming again uh and so there is again concern in the market about whether or not president Trump will come in and put those tariffs
on he has been suggesting publicly uh that he will do so although again he could always postpone it later but even regard but even without these iipa tariffs we also know that very clearly on April 2nd we're going to have the reciprocal tariffs whereas at that time there will be enough investigation and paperwork for the administration to carry out section 301 tariffs where they will uh Place tariffs that are equivalent to whatever other countries are tariffing the US now this could be substantial for some countries for example India is very famous for having large tariffs
on other countries if the US were to reciprocate that means much higher tariffs on India so we don't know how this is all going to turn out but it is I think something the market is thinking about now looking carefully so again this very interesting chart from Bloomberg suggesting that if tariffs were to go the March tariffs on Canada Canada Mexico and China again president Trump also says that they will he wants to Levy an additional 10% tariffs on China in addition to the 10% he put on February now those tariffs did go through whereas
the Canada and Mexico tariffs did not go through in February if that were to happen well the the the the total tariff rate on on Imports the effective Terr rate on Imports um from um the US Imports is going to go up a lot based on the study from Bloomberg now what would it take for for tariffs to not go into effect on Canada and Mexico uh it's hard to say really um this could be a negotiating employee but from my observation president Trump is quite serious in welcoming Canada into the Union this past week
he had a or is it the past two weeks he had a dinner uh before the governor's Association So speaking to all 50 governors in the US and that meeting he discussed um the prospect of Canada becoming the 51st state and at his cabinet meeting the past week his first canate meeting he also discussed welcoming Canada into uh the union so it does seem like that is something he serious about and that can be a motivation behind tariffs but I think something new has also been reviewed the cast couple days and that is a prospect
of creating Fortress North America Now secret Besson has suggested that maybe you know Canada could match the tariffs that us put on China and that's seems to be something that Mexico is willing to do as well I I do think one very interesting proposal that the Mexican government has made is perhaps matching the US uh on our China tariffs I think it'd be a nice gesture if the Canadians did it also so in a way we could have Fortress North America from the flood of can from the flood of Chinese Imports is coming out of
the most unbalanced economy in the history of modern times so another way out seems to be if Canada and Mexico would match us tariffs on China so this way in effect creating Fortress North America and freezing China out of the North American Market at least unless they have some kind of trade concession so that is a way out of this uh dilemma now it looks likely though that even if president Trump were to punt on tariffs on Canada and Mexico he would still be raising tariffs on China another 10% now Bloomberg looked at this and
suggests that if Trump goes through then the tariffs imposed on China are going to be much higher than the ones that he did in his first trade War so we're only in you know the early months of the Trump Administration and or already the tariffs on China are going to be higher than they were the last time around and one additional Rinko is that uh they now are not allowing the $800 di Minimus exception whereas in the past if something was shipped from China that was valued at less than $800 they would not be subject
to tariffs now that has gone away as well that was a big beneficiary to say um small online businesses that were selling out of China so the massive increase in tariffs potentially in just a few days with China and maybe Canada and Mexico is definitely Weighing on the market and even more importantly what happens on April 2nd so this is something that we have to look to look forward to even if we get a reprive on March 4th you know in a few weeks we're we're definitely going to have big tariffs now none of this
should surprise anyone these are things that have been well telegraphed over literally years so I'm not really sure why anyone should be surprised and if it were to happen though my base case is that the market would not like this didn't like it in 2018 and so we could have a bit of a shake off so again everything is going to be on March 4th and then April 2nd but in the meantime I think um we should also be careful that nothing goes in a straight line either up or down okay so that's all I
prepared to today thanks so much for tuning in remember to like And subscribe and also uh I have actually been invited to testify before uh the house monetary policy task force on Tuesday so if you guys are interested welcome to tune in to that it will be live streamed on YouTube and I will tweet out the link on Tuesday so very excited to be on Capitol Hill this will be my first time all right talk to you all next week
