The Breakdown - Are We Headed to the Mar-a-Lago Accords?

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, April 8th, and today we are talking about the Mar-a-Lago Accords. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, well, stocks continue to digest the implications of tariff policy, but are no longer in freefall. Yesterday's trading session didn't, after all, feature a Black Monday-style crash, but that doesn't mean that volatility has calmed down. The opening saw a small sell-off followed by a tepid rebound, and suddenly, at around 10 a.m., the S&P 500 gained 3.4% in seconds.

Starting point is 00:00:57 Bloomberg characterized the news as coming from an obscure social media account who tweeted, Hasett says Trump is considering a 90-day pause in tariffs for all countries except China. Kevin Hassett being the director of Trump's Council of Economic Advisors. The so-called obscure social media account was none other than news aggregator Walter Bloomberg. Crypto Twitter is very familiar with his news summaries, which range from extremely helpful to downright misleading. In either case, his tweets are always algorithm bait, and many crypto traders have been blown out of leverage positions by a stray headline. This headline captured the attention of Wall Street and was repeated on CNBC's telecast,

Starting point is 00:01:29 but later turned out to be deeply misleading. Ten minutes later, the White House called the report fake news, and the market reverted in an instant. As you may know, all Walter Bloomberg does is published a news feed from a Bloomberg terminal. The headline was based on Reuters reporting on a CNBC characterization of a Fox News interview with Hacet, so we're talking really about three degrees of distortion here. The actual source had Hassett responding to a question about a 90-day pause by stating, I think the president is going to decide what the president is going to decide. Peter Tuckman, a senior trader at Trade Moss, who witnessed the event from the floor of the New York Stock Exchange, said that when traders,

Starting point is 00:02:02 quote, realized this headline wasn't right, everything sold off again. Now, every everyone is getting their butts kicked. This is madness. Justin Wiggs, the managing director in equity trading at Stiefel Nicholas added, the velocity of the moves was just staggering. It felt swifter than anything I ever experienced during COVID and the financial crisis on a trading desk. Chris Murphy, the head of derivative strategy at Susquehanna commented, the upside risk is just as scary when markets rip 8% on a truth social post or false headline. This is one of the most volatile events in stock market history and traders have a mandate to participate. But that doesn't mean that anyone is having any fun. David Newhouse or the founder of Livermore Partners said,

Starting point is 00:02:35 I would say it's classic market chaos right now. Unless you're ahead of the curve on the headline, you're not going to make any money. I'm holding tight right here, watching for things to die down to determine whether it's a buying opportunity or time to get out. On behalf of all the crypto traders who have been whipsod by errant tweets over the years, all I'll say to the Wall Street folk is welcome to the party. The trading session ended with both major indices basically flat on the day. Volatility remains at a five-year high, but for now the S&P 500 is only down 17% from all-time highs,

Starting point is 00:03:03 narrowly avoiding a technical bare market. The same can't be said for crypto assets, with total crypto market cap now down 30% from the December peak. Yes, indeed, the first crypto president has managed to cut the value of the asset class by a third in his first three months in office. Bitcoin and most of the majors actually had a pretty decent showing on Monday. Bitcoin regained 80,000 on a 2.5% gain, and most major all coins had solid single-digit percentage gains. On-chain analyst checkmady sees the light at the end of the tunnel, tweeting, almost 100% of short-term holder supply is now underwater and holding losses. This represents over 25% of the Bitcoin supply.

Starting point is 00:03:36 We've now reached the lower bound of the 75K to 86K air pocket I started describing back in December. Wild times, folks, sit tight. Considering many were expecting a 20% crash, circuit breakers going off all day, and utter devastation for the stock market, things could be a lot worse. Most of the damage was limited to active Wall Street traders trying and failing to keep up with markets moving at Twitter speed. Still, the bounce on Walter Bloomberg's tweet demonstrates that everyone

Starting point is 00:03:59 is hanging out for a conclusion to this self-imposed crisis. Speaking of which, yesterday also featured the start of global negotiations on trade, and unfortunately things aren't going so well so far. The EU has proposed a zero-for-zero deal on industrial goods where both parties reduce their tariffs to zero and commit to free trade. When asked if eliminating all tariffs was enough, Trump told the media, no it's not, they're screwing us on trade. Assuming no deal can be reached, the EU is also preparing to retaliate with 25% counter-tariffs. They will target a range of U.S. goods, including diamonds, eggs, dental floss, sausages, and poultry. Israeli Prime Minister Benjamin Netanyahu met with Donald Trump at the White House to do his deal in person.

Starting point is 00:04:35 Israel had already eliminated all tariffs against the U.S. ahead of last Wednesday's announcement, but were still hit with 17 percent tariffs. Netanyahu pledged to go further, stating, we're going to also eliminate trade barriers, a variety of trade barriers that have been put up unnecessarily. This doesn't seem to have been enough for Trump, who said he wouldn't pause Israeli tariffs. In comments to the media, he said, we're not looking at a pause. We have many, many countries that are coming to negotiate deals with us, and they're going to be fair deals. In certain cases, they're going to be paying substantial tariffs. There will be fair deals. We've been ripped off and taken advantage of by many countries over the years and can't do it anymore. The traditional

Starting point is 00:05:08 joint press statement was canceled, which is never a good sign in foreign relations. One of the few nations not coming to the table is China. Yesterday, a Beijing military spokesperson said, if the United States follows through with escalating its tariff measures, China will resolutely take countermeasures to safeguard its own interests. The so-called reciprocal tariffs imposed by the United States on China are entirely groundless and constitute a typical act of unilateral bullying. China had already imposed a 34% counter-tariff on Sunday. Trump responded with an additional 50% tariff bringing the total over 100%. Simultaneously, Beijing had slowly begun to weaken the yuan, with the soft peg floating up over the past few days. Yesterday saw the yuan traded a new post-financial

Starting point is 00:05:46 crisis high of 7.3 to the dollar. It is becoming clear to folks that Trump should be taken seriously and literally when he frames the actual trade deficit rather than tariffs as the problem. The EU and numerous other countries have now proposed completely free trade, but that doesn't seem to come anywhere close to satisfying the president. In an interview with CNBC, White House Trade Advisor Peter Navarro explained how he sees the world, stating, let's take Vietnam. When they come to us and say, we'll go to zero tariffs, that means nothing to us because it's the non-tariff cheating that matters. Navarro included the examples of Chinese products being routed through Vietnam, intellectual property theft, and a value-added tax on domestic consumption.

Starting point is 00:06:21 The point here is that the administration views a wide range of policies aside from tariffs as quote-unquote cheating and views the trade deficit itself as the quote-sum of all cheating. Now, not everyone in the administration is quite as intransigent as Navarro. Yesterday, Secretary Scott Besson tweeted, following a very constructive phone discussion with the government of Japan, the president has tasked me and the U.S. trade representative to open negotiations to implement the president's vision for the new golden age of global trade with Prime Minister Ashiba and his cabinet.

Starting point is 00:06:48 Japan remains among America's closest allies and I look forward to our other. upcoming productive engagement regarding tariffs, non-tariff trade barriers, currency issues, and government subsidies. I appreciate the Japanese government's outreach and measured approach to this process. Now, one of the major critiques of the tariff policy is that the objective isn't clear. Ben Hunt of Epsilon Theory tracked the narratives around the tariff as they evolved. He found that reshoring manufacturing, protecting domestic industry, and replacing the income tax were big narratives at the beginning of the year. More recently, the narrative has evolved to include border protection, pressuring other countries to lower their tariffs, and forcing allies to pay

Starting point is 00:07:19 for their own defense. Some of these narratives are contradictory, and it's not at all clear if the desired outcome is zero tariffs in free trade or heavy protectionism with sky-high tariffs in place. If reshoring manufacturing is the goal, then it's going extremely poorly so far. News articles are replete with examples of capital-intensive projects being canceled or postponed due to uncertainty and cost-overruns. For companies that don't already have facilities in the U.S., reshoring involves imported construction materials and machinery, which are all impacted by tariffs. Bloomberg is now reporting that administration officials are debating the merits of an exporter tax credit to negate the harm of tariffs on the manufacturing sector. The credit would compensate them for the cost of retaliatory tariffs imposed as a result of this trade war.

Starting point is 00:07:59 Trump enacted a similar policy during his first administration to compensate farmers for Chinese tariffs on ag products. Estimates vary as many of the programs were at-hoc, but it appears that over $30 billion was spent to bailout farmers. Spencer Hakeemian of Tulu Capital Management commented, and here come the bailouts to keep these companies afloat. So not only will American consumers pay the tariffs, but American taxpayers will now be bailing out American companies to keep them afloat. Economic illiteracy of the highest degree. Now, of course, reasonable people can differ on whether support for the manufacturing sector is worth it. But I think that the policy being decided on the fly, rather than as part of some pre-existing

Starting point is 00:08:33 plan, speaks to the general sense of how the tariff rollout is being handled. Today's episode is brought to you by Crypto Tax Calculator. If you're looking for accurate crypto taxes with no guesswork, check out Crypto Tax Calculator. get accurate CPA-endorsed tax reports with full support for IRS rules. For those who have fallen down the on-chain rabbit hole, CTC has you covered with more than 3,000 integrations. They have full support for defy staking in NFTs. Import directly to TurboTax or H&R block or share securely with your accountant.

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Starting point is 00:10:09 Meanwhile, political support for Trump's tariff agenda appears to be collapsing. In late March, a Wall Street Journal opinion poll found that 77% of Republicans thought tariffs would be beneficial and help create U.S. jobs. However, according to a Ugove poll conducted at the end of last week, 42% of Republicans agreed with the statement, voters understand tariffs or taxes they'll pay on anything from abroad, and they'll hold Republicans responsible. TLDR, Republican voters are still generally in favor of tariffs, but they recognize there will be consequences at the ballot box. Several large donors, meanwhile, are starting to get extremely

Starting point is 00:10:41 outspoken. We already covered Bill Ackman calling for a 90-day pause to reconsider the policy. Now Ken Ligone, the co-founder of Home Depot, is giving some incendiary quotes. He said the 46% tariff on Vietnam was BS, and he didn't censor that, and that the additional tariffs on China were, quote, too aggressive, too soon, and don't give serious negotiations a chance to work. He commented, I don't understand the goddamn formula. I believe he's been poorly advised by his advisors about this trade situation. Elon Musk, meanwhile, has been tweeting clips of Milton Friedman advocating for free trade over recent days, seemingly breaking with the Trump camp on this issue, and Stan Drucken Miller, the mentor of Secretary Besant, weighed in in a rare Twitter post, stating,

Starting point is 00:11:19 I do not support tariffs succeeding 10%, which I made abundantly clear. This was in response to a stock trading influencer implying that Druck is in favor of using these tariffs to increase revenue. Now, Trump himself doesn't need the support of these wealthy donors, assuming that we're not going to try to get elected for an unconstitutional third term, but there are, of course, many Republican lawmakers who could be out of a job after the midterms if this policy doesn't work out well. Now, one way that this could all end is if Congress reasserts itself and takes away the keys from the president. The bipartisan Senate bill is being pushed that would require congressional approval for any tariffs and allow the Congress to end tariffs at any time. Seven GOP senators

Starting point is 00:11:54 have signed on to the bill. A statement of White House policy issued yesterday said, if passed, the bill would dangerously hamper the president's authority and duty to determine our foreign policy and protect our national security. It added that the president would veto the bill if it lands on his desk. Senate Majority Leader John Thune told the media, I don't think that has a future. The president has indicated he will veto it. I don't see how they get it to the floor on the House. He added that Senate Republicans haven't discussed the legislation, but he thinks that lawmakers are largely, quote, waiting to see what's going to happen next. And so, it doesn't really seem like political pressure, negotiation, or Congress are going to bring

Starting point is 00:12:26 into tariffs, so what would the resolution look like, assuming Trump continues to take his plan to fruition? Tumath Palahapatia of the All In podcast tweeted, My current best view, Trump lets tariff reactions play out for a few weeks, sees the trend of capitulations, and is emboldened to keep going. He fields offers from everyone, negotiates with no one, then brings everyone to Mara Lago in a month or two and puts an offer on the table. Breton Woods 2.0. It's simpler and more effective to have one grand bargain than negotiate piecemeal with 80-plus countries. I'm focused on figuring out what terms matter most for the Mar-a-Lago Accords. I have a few in mind, which are obvious and would king make the U.S. I don't buy this whole

Starting point is 00:13:03 end of U.S. hegemony. This is the moment to go for the jugular and establish world order around America. Now, the Mar-a-Lago Accords were an idea put forward in a paper by Council of Economic Advisors Chair Stephen Moran last year, called a user's guide to restructuring the global trading system. The paper advocated for slow and escalating use of tariffs to slowly rebalance global trade. That part isn't playing out the way that Moran drew it up, but the rest of the paper has some insights into what the endgame could look like. Moran's key point is that the U.S. has provided a security umbrella and financial stability in the form of the global reserve currency without compensation for decades.

Starting point is 00:13:37 Yesterday, Moran made a speech at the Hudson Institute laying out the administration's demands. He explained that the global public goods of the security umbrella and the global reserve currency are costly to maintain and called on the world to sign on to burden sharing. Moran said, President Trump has made it clear that he will no longer stand for other nations free riding on our blood, sweat, and tears, whether in national security or trade. Now, the cost of maintaining global security are obvious measured in the sacrifices of the men and women in uniform. But regarding the financial side, Moran commented, the reserve function of the dollar has caused persistent currency distortions and contributed along with other countries' unfair

Starting point is 00:14:07 barriers to trade to unsustainable trade deficits. These trade deficits have decimated our manufacturing sector and many working class families in their communities to facilitate non-Americans trading with each other. Emphasizing the N. Goel Moran stated, the best outcome is one in which America continues to create global peace and prosperity and remain the reserve provider, and other countries not only participate in reaping the benefits, but also participate in bearing the costs. By improving burden sharing, we can enhance resilience and preserve the global security and trading system for many decades into the future. He specifically listed five forms of burden sharing countries could adopt.

Starting point is 00:14:38 First, accepting tariffs without retaliation, acknowledging that this is payment to finance these global public goods. Second, to open their markets and buy more from America. which he framed to stopping unfair and harmful trading practices, third, boosting defense spending and procurement from the U.S., fourth, investing in factories in America, or fifth, finally, simply writing a check payable to the U.S. Treasury. Some are comparing this to the Nixon speech in 1971, when the president closed the gold window and ended the first Breton-wood system.

Starting point is 00:15:02 Bloomberg researcher Stephen Hu said that the speech, quote, represents one of the most concise and clearest articulation of the Trump administration's worldview. As far as I can tell, they think of the Pax-America global order as a club membership, for which the U.S. has under charge for the past few decades. Basically, they want to charge a membership fee to pay for the global order system. This is a massive change to the global order, but if there's some silver lining, it sounds like it's more a radical reform than a total abandonment of Pax Americana,

Starting point is 00:15:26 and at least as per this speech, not a total decoupling either. Damien Ma, the managing director of think tank macro-polo China, wrote that Moran's speech is at least clear about their logic and POV. That is, everyone has been more or less free-riding on American beneficence for like 50 years. If you want to ride it any longer, you got a pony up for it. We live in a subscription-based world. That is the latest for now. We'll see if we have some crypto news tomorrow. For the moment, everything is tariffs all the time. Appreciate you listening as always. And until next time,

Starting point is 00:15:53 be safe and take care of each other. Peace.

The Breakdown - Are We Headed to the Mar-a-Lago Accords?

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