Money Rehab with Nicole Lapin - It's Not a Trade War— It's a Yield War. Here's Why That Matters

Episode Date: April 10, 2025

We are all feeling the market whiplash— today, Nicole explains why that whiplash is happening, and the possibility that the stock market crash was not collateral damage, but the point all along.

So I just went to the grocery store and I actually flinched at the cost of eggs. And I don't even really eat eggs. That's how bad it is. Everything feels more expensive. And so I'm hearing from a lot of money rehabbers right now that their credit cards are getting a lot of exercise right now. But the last thing I want for any of you is to go into credit card debt. Enter Chime Credit Builder Card. This is a secured credit card with no annual fees. You can build credit with money you set aside and avoid interest or expensive debt. Plus you can get access to my pay

and get up to $500 of your pay before payday with no mandatory fees. Start building credit with your everyday purchases and regular on-time payments with no annual fees, interest or credit check at chime.com slash MNN. And then when you go to chime.com slash mnn, as in Money News Network, you'll start thinking about all the doors that will open once you start building your credit. Like lower rates on loans. Who doesn't want that? Turn your everyday purchases

into steps toward your financial goals with Chime Secure Credit Card. Get started today at chime.com slash mnn. That's chime.com slash mNN. Chime feels like progress. The Chime Credit Builder Visa credit card is issued by the BankCorp Bank NA or Stride Bank NA. Spot me eligibility requirements and overdraft limits apply. Out of network ATM withdrawal and OTC advance fees may apply. Late payment may negatively impact your credit score. Results may vary.

My pay eligibility requirements apply. Credit limits range from 200 to $500. Go to chime.com slash disclosures for details. So I have written, count them, five books now. But each time I'm in the writing process, I stay at an Airbnb. I love to stay at an Airbnb. When I was actually first launching this show, I was at an Airbnb in Arizona. It was so peaceful. It was stunning. I could be productive and comfortable. The Airbnb was also surrounded by a ton of javelinas. If you know Arizona, you know they're like wild pig creatures.

But honestly, I love them too. Being away for work, for fun, or both is a perfect opportunity to host your space on Airbnb. And if you think that hosting is overwhelming, I have a solve for you. With Airbnb's co-host network, it's easier than ever before to host. It's also a great way to earn some extra cash, which I know we all love. Now you can hire a quality local co-host to take care of your home and your guests. They can do everything from creating your listing, to managing reservations, to messaging guests, and even providing on-site support.

So if you've got a secondary property or an extended trip coming up and you need a little help hosting while you're away, you can hire eight co-hosts to do the work for you. Find a co-host at airbnb.com slash host. I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. So a couple of years ago, I got into a really bad car accident. I was rear ended, my car was totaled, and the whiplash I experienced then is only second to the whiplash I experienced in the markets this week.

I mean, you guys, are we good? Holy freaking moly. We all know what happened yesterday, so today I'm going to tell you why it happened so we can all strategize for what happens next. Plus, I'll share some context around why this market crash might have been potentially on purpose. But first, let's just follow the numbers. 10% – that's how much the S&P 500 fell in just two consecutive trading days, April

2nd and April 3rd. 2200 – that is how many points the Dow Jones Industrial Average lost on April 4th alone. 8% – that is how much the S&P 500 came back yesterday. And nearly 2500. That is the number of points the Dow jumped yesterday. On Monday I did an episode about why the markets dropped. And wow, I cannot believe that episode just came out on Monday because it feels like 100,000 years ago. But anyway, we already did that, so let's talk about why it rallied yesterday. It actually starts with a false rally that happened a few days earlier. On Monday, a tweet caused the market to add back trillions of dollars in value. The problem was, the tweet had completely wrong information.

A regular guy, Walter Bloomberg, the name is just a weird coincidence he has no affiliation to the other Bloomberg, tweeted that Kevin Hassett, President Trump's director of the National Economic Council, said that Trump was considering a 90-day pause on his controversial tariff proposal. So Walter said that Kevin said that Trump said that he was considering a 90-day pause on tariffs. But he wasn't at the time. The origin of the tweet is even more of a he said, he said. When we go deeper into this rabbit hole, the real origin of this mix-up was a tweet that Bill Ackman, famed hedge fund manager, investor posted on Sunday. The tweet was very long, but the highlights were, quote, the president has

an opportunity to call a 90-day timeout, negotiate and resolve unfair asymmetric tariff deals, and induce trillions of dollars of new investment in our country. And the president has an opportunity on Monday to call a timeout and have the time to execute on fixing an unfair tariff system. Alternatively, we are headed for a self-induced economic nuclear winter and we should start hunkering down." Then on Fox News, Kevin Hassett was asked about whether Trump will do a 90-day pause in response to Bill Ackman's plea and Hassett said, quote, you know, I think the president is going to decide what the president is going

to decide. But then he went on to talk about how effective the tariffs were, so… not a no, but certainly not a statement about any semblance of a plan to pause tariffs. And then on Monday, CNBC aired on TV in a banner that read, HASSET says Trump is considering a 90-day pause in tariffs for all countries except China, which was totally misconstrued from the Fox interview and the CNBC reporters on air quickly corrected it. But then it was too late. Reuters picked it up, which was what then caused Walter Bloomberg, not that Bloomberg, to tweet. The full story is Walter Bloomberg said that Reuters said that CNBC said that Kevin Hassett said that Trump said

he was considering a 90-day pause on tariffs because of what Kevin Hassett said about what Bill Ackman said. Are we following? It was basically a crazy, crazy game of telephone, and the White House channels started sharing Walter Bloomberg's tweet and denied it right away. But at that point, it was too late. The market had rallied 10% on the tweet. So imagine the market's surprise when just two days later, Trump did announce a 90-day pause on all reciprocal tariffs except for China, which got slapped with more tariffs. The grand total, by the way, for China is now 125%. So net-net reciprocal tariffs still apply to Chinese goods, but for all other countries only a

10% universal rate applies, not the additional tariffs based on that complicated-looking tariff formula that Trump whipped up on Liberation Day. And I said imagine the market's surprise, but I mean I am not surprised at all. I said imagine the market's surprise but I mean I am not surprised at all. I said last week when I talked to James Altucher that at some point Trump I thought would say psych, this has all been a big bargaining chip. That's not exactly what the president said when he made the announcement. What he actually said was that he did this because people were getting quote, yippy. In response, the market rallied big time.

This time because of real news. So, what happens next? This is a relief rally. Investors are relieved that a vast majority of tariffs are being walked back. But when the dust of this announcement settles, China still is a really important manufacturing and trading partner. And so with these tariffs, it's hard to imagine a scenario where we can just jump back into a bull market. And it kind of reminds me of this thing I've seen kids do when they have bad news to tell their parents. Say they broke a lamp or something. And so they make up a worse story to tell their parents,

like sorry mom and dad, the dog ran away. Just kidding. Good news is the dog is totally fine but the bad news is I did break a lamp. The knee-jerk reaction is relief that the news isn't that bad but the parents still get to be mad about the thing that went wrong. I think this latest news on tariffs will be kinda like that. We're enjoying our moment of relief that tariffs are not that far reaching but once we take a deep breath and settle into what remains, the market will go back to throwing a tantrum about the tariffs on Chinese goods. So why keep the tariffs at all? Everyone thinks Trump's new tariffs are about punishing China or reviving American

manufacturing and that the stock market is just collateral damage. But that's not the entire story. The collateral damage might be, in fact, the whole point. Here's the deal. As you know, the United States has a giant debt problem. As I'm recording this, the national debt is $36.2 trillion, and even though I'm publishing this episode tomorrow, really just three hours from now, the debt will still be higher by the time you listen to this.

Over the course of the next year, the US has to refinance nearly $9 trillion of debt, reason being outstanding Treasuries are maturing so they need to be rolled over to a new rate. When a lot of these Treasuries were issued, interest rates were close to zero. Today, the 10-year Treasury yield is over 4% and every single basis point adds billions in interest. Because remember, for us, Treasuries are an investment. But for the government, Treasuries are loans and therefore part of the national debt. So if yields on Treasuries went down, that would benefit the government and curb the debt. This is critical. Famed investor Ray Dalio says that if yields don't go down, we could

have a sovereign debt crisis like Greece in 2008. We all remember this. After years of excessive government spending, chronic budget deficits, and structural economic weaknesses, investors lost confidence in Greece's ability to repay its debts. By 2010, Greece was effectively shut out of international credit markets and required multiple bailouts from the European Union and the International Monetary Fund. In exchange, Greece had to implement harsh austerity measures like tax cuts and public sector cuts, which deepened the country's recession, led to widespread unemployment, and sparked massive public protests. Greece has made significant progress since the height of its debt crisis,

but its recovery is still very much a work in progress. Greece has exited its bailout programs, returned to the international bond markets, and is seeing positive GDP growth again. In 2023, the country's unemployment rate, once over 27%, has fallen to around 10%. Not amazing, but definitely better than 27%. That said, the scars of the crisis remain. Greece still carries one of the highest debt-to-GDP ratios in the EU, over 160%, though much of that debt is long-term and held by EU institutions under favorable terms. Wages and pensions remain lower than pre-crisis levels and structural issues like an aging population and a relatively small industrial base continue to challenge long-term

growth. So yes, Greece has recovered from the crisis in the sense that the economy is not a disaster, it is stable, the markets are functioning, and investor confidence has returned somewhat. But there's still a long road ahead to full economic resilience. And we do not want to be on that road. I never ever want to see the United States at a 27% unemployment rate ever. So our current treasury rates pose a problem. And to help our debt crisis, we need to get yields down. There are two ways, generally, that yields go down. First, people flock to bonds. And when there's more buying activity, the prices go up and the yields go down. You've

heard my seesaw metaphor on bonds before, so you know the drill. It's basically supply and demand. Interestingly, we usually see yields go down when stocks crash. That happens because after a market dip, we typically see a flight to safety. Investors scramble toward bonds, prices go up, yields go down. So that's the trend normally. And obviously we just saw stocks crash and yet yields are up. The best explanation I've heard is that investors during this most recent dip sold a lot of bonds to cover losses in stocks and that's why yields have gone up and not down. But anyway, method one is for yields to go down, people flock to bonds, and method two is for the Fed to lower rates.

That's where tariffs come in. Yes, they spike inflation in the short term, but they also choke growth. And a slower economy pressures the Federal Reserve to cut rates. That's what happened after the COVID crash. So let's rewind the tape. Remember when President Trump said that he'd demand the Fed lower interest rates? Well, he can't actually tell the Fed what to do. But he can try to force their hand. So some think he's engineering market panic on purpose, using tariffs as a weapon to pressure the Fed. And if he were, would he ever admit that? Of course he wouldn't. That would ruin the plan. This isn't just economic chaos, it's

a high-stakes game of chicken between the President and the Fed. Will Powell cut rates first or will Trump fold on tariffs? This isn't a trade war, it's really a yield war and your wallet is in the middle. For today's tip you can take straight to the bank, please watch the bond market. If yields keep climbing, that refinancing problem gets worse. Second thing to keep your eye on signals from the Fed. And not to toot my own horn, but I'm going to help you with that because in a couple of weeks, I'm going to have Austin Goolsbee of the Federal Reserve Bank of Chicago on money rehab right before the next Fed session to help you understand

what you can expect when the Fed makes its next announcement. Any hint of rate cuts could send markets into another tailspin or another sugar high. And lastly, keep an eye on China. If they escalate, President Trump might too. And then we are right back where we started. When you give a mouse a cookie. you give a mouse a cookie. Money Rehab is a production of Money News Network. I'm your host, Nicole Lapin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes.

Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions, moneyrehabatmoneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me and follow us on Instagram at MoneyNews and TikTok at MoneyNewsNetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment

you can make.