The Breakdown - No One Knows Anything About This Economy

Episode Date: March 6, 2025

This is one of the most confusing times in market history. NLW explores the chaos and volatility which is ranging from crypto to macro and beyond. Sponsored by: Ledger Ledger, the world leader in digital asset security, proudly sponsors The Breakdown podcast. Celebrating 10 years of protecting over 20% of the world’s crypto, Ledger ensures the security of your assets. For the best self-custody solution in the space, buy a LEDGER™ device and secure your crypto today. Buy now on Ledger.com. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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 Wednesday, March 5th, and today we are catching up on the state of the union, the macro landscape, trade war, tariffs, bonds, all the things that are driving markets into a tizzy right now. 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. Hello, friends. This has been, to put it lightly, a volatile week in markets. Sentiment is flipped back and forth as tariff implementation begins and a growth scare looms on the horizon. We've seen Bitcoin experience some of its most violent moves for this cycle,

and stocks are no less volatile. The macro picture feels chaotic to match a whirlwind opening to the Trump administration. And if you thought we would get some clarity from Donald Trump's state-of-the-union-esque thing. Technically, it's not a state of the union, but that's how the administration was treating it, so whatever. Anyway, if you thought you were going to get clarity from that, you were, I'm sorry, sorely mistaken. The record length and 90-minute speech offered plenty of red meat to the culture war, but relatively little clarity on economic policies. Trump discussed tariffs, but only in very general terms. He mentioned Mexico and Canada, but offered no clarity on what the policy would be by the end of the week. The broader logic presented by Trump was that all

nations should expect reciprocal tariffs to match their own trade barriers. The president called out friend and foe alike, making it appear that South Korea was just as likely to be a target as China. He said, whatever they tariff us, we tariff them. Whatever they tax us, we tax them. If they do non-monetary tariffs to keep us out of their market, then we do non-monetary barriers to keep them out of our market. Trump also foreshadowed generalized tariffs on food imports intended to go into force at the beginning of April. Summing up, the president declared, tariffs are about making America rich again and making America great again. And it's happening and it will happen rather quickly. There'll be a little disturbance, but we're okay with that. It won't be much. On other economic issues,

Trump largely reiterated his plans. He pledged tax cuts, including removing the tax on tips overtime and Social Security. He promised to balance the budget but gave no timeline. Ultimately, this was a populist leader delivering a message of success to his base, and frankly skipping right on past the uncertainty that has markets on edge. Trump once again promised to usher in a golden age for America, but didn't really give us any more details on how they planned to achieve it. Indeed, perhaps the solitary takeaway for market participants is that Trump really, really, really seems to love tariffs and genuinely believes they're the key to prosperity, even as they completely roll over the stock market. It's fair to say that tariffs have been the driving force behind this

week's volatility, especially due to the lack of certainty around them. On Monday, President Trump announced that tariffs would be going ahead, stating, no room left for Mexico or for Canada, they're all set. They go into effect tomorrow. Exports from both neighboring countries will now be subject to 25% across the board tariffs. Later that day, Trump signed an order doubling the tariffs on Chinese goods to 20%, stating they hadn't done enough to curve the flow of fentanyl into the country. Josh Lipsky, the senior director of the Atlantic Council's Geo-economic Center, said, We're on the cusp of a North American trade war. The markets have woken up to the fact that Trump is serious about tariffs.

Neil Dudd of the head of U.S. economic research at Renaissance said, They're believing him more now. He finally shot the hostage. Monday's price action was consequently ugly, with the S&P 500 suffering its worst drawdown of the year at 2%. Macro Alf commented, things getting ugly for Trump, first time the markets turned seriously against him on tariff announcements.

stocks down, bond yields down, not even the U.S.D. can rally, a clear statement that tariffs are bad for this U.S. economy. He'd better listen here. By Tuesday, the hostage was sort of unshot. Commerce Secretary Howard Lutnik appeared on Fox Business to announce that tariff relief for Canada and Mexico could be announced as soon as the following day. This was good enough for the market, with stocks rallying throughout the day before plummeting again at the close. At this point, anyone who argues that they are clear on what tariff policy will be by the end of the week, let alone in three months, is frankly just deluding themselves. Hidden Forces host Demetri Kofinas is unimpressed. He tweeted,

feels like we're being screwed with. Out of curiosity, what is the likelihood that inside the Trump circle there are people actively trading the volatility that Trump generates by front-running his comments? Too conspiratorial? It may be too conspiratorial, but it is absolutely the default assumption of people who are opposed to Trump that this is exactly what's going on. Whether you believe that's true or not. Many commentators zeroed in on the idea of the Trump put, the notion that the administration

would buckle if too much damage was being done in the stock market. Nomura strategist Charlie Bigeligate wrote on Tuesday, I personally believe that any sort of Trump put in equities remains meaningfully lower. Clients are dynamically hedging and pressing this short right now, with almost nothing he could say right now to solve this unless he completely backed down on policy. Dave Lutz of Jones trading suggests old habits die hard for Trump, commenting that a 10% correction ought to do it. He said, that's when the media will start rolling headlines about the stock market being in a correction, 10% off highs. Those headlines should get the president's attention. You know, I try to avoid commenting on the specific politics here.

I think people who are thinking that the stock market performance is going to meaningfully impact Trump's thinking right now are 100% absolutely diluting themselves. This administration has wildly different goals than Trump One, wildly different tolerance for market turmoil on the way, and beyond any of that, even if you did think that Trump 2 was exactly like Trump 1, we're two years out from the midterms. There's actually no real political consequences for a very long time. As always, short-term market analysts can't think anything other than short-term and are going to wake up to find themselves absolutely shocked when their preset patterns of expectations don't play out the way that they think they're going to. Moving over to bonds, bond yields have

also been touched by a wave of volatility, as this uncertainty washes over capital markets. The 10-year yield dropped to 4.1% on Tuesday, its lowest point since the election. There's huge money starting to line up to watch bond yield collapse. On Tuesday, the CME reported the largest block trade of treasury futures dating back to 2013. Former hedge funder James LeVish noted that Fed expectations are also dropping like a rock, tweeting, and just like that, the market is now pricing in three full Fed fund rate cuts by the end of the year. Underpinning all of this volatility is a concern about growth. The Atlanta Fed's GDP-Now model has rapidly deteriorated over the past week. Last Wednesday, it projected 2.3% growth for the quarter. By Friday, the reading was negative 1.5%.

The Monday update showed a 2.8% contraction in growth, the worst reading since the pandemic, including the technical recession in 2022. Economist Mohamed Al-Earion tweeted, this is sobering, notwithstanding the inherent volatility of the very high frequency now cast maintained by the Atlanta Fed. Analyst Cornelius Carroll tweeted, GDP now has had a remarkably good track record, either there's a tremendous data error or we're in for a hard landing. Given my prior thoughts, businesses hate uncertainty, and all we have right now is uncertainty, the Atlanta Fed's business investment data for Q1 seems to track. On first glance, these numbers say a nasty recession is shown up out of nowhere, and there's

certainly a lot of reasons to think that might be the case. Consumer spending has fallen to 0% growth after ticking along at a healthy 2% at the beginning of February. Residential investment, otherwise known as housing construction, has flipped negative after being relatively anemic for the past month. The big change, however, was that net exports fell off a cliff and are now running at negative 3.7%. Former chair of the Council of Economic Advisors Jason Furman, who should be noted is not a trumper, isn't particularly concerned, tweeting, the Atlanta tracker is predicting GDP growth of negative 2.8% in Q1. S&P, which I generally trust a lot, is at 1.6%. Goldman is also at 1.6%. Atlanta likely wrong and regardless doesn't say what you think it does.

So continue your deep breathing. He explained that Fed data is showing a massive spike in imports but is yet to add them to sales and inventory figures. To give an example, if a dealer imports a car that subtracts from the export component of GDP. But once they sell it, the car adds to the personal consumption component. Unless all these importers are literally setting their goods on fire, they will eventually show up in GDP. It's also fairly clear that this is importers pulling forward demand due to looming tariffs,

rather than a different structural problem in the economy. Analyst Andy Constan wrote on Monday, deceptively low, yes, going in the wrong direction again today on ISM and census data, yes. Wholesale inventory data is going to reverse it on Thursday, but it isn't a growth scare. It's a slowdown. Still, for all that highly nuanced and technical read of the data, this isn't necessarily obvious at first glance. For most traders, they just saw GDP implode, and to listen to them are expecting somewhere between a serious recession and a repeat of the Great Depression. Ultimately, markets don't trade on deep analysis of economic figures. They trade on the sentiment of the participants.

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touchscreens, making it easier and safer to manage your transactions and assets. Alongside Ledger Stacks and Ledger Flex, the company also launched the Ledger Security Key app, offering a safer alternative to traditional passwords and enhancing your digital security. If you are in this space, you owe it to yourself to at least check out Ledger and their ecosystem what they have available to you. So thanks, once again, to Ledger for sponsor. during the show. Bubbling along in the background are Elon Musk's Doge efforts.

According to the Doge tracker, the agency has cut $105 billion from the budget by slashing contracts and downsizing the federal workforce. Opinions vary wildly on how real these savings are, although they are by any account far lower than the several trillion it would take to balance the budget. What's far more real right now to markets is the uncertainty that Musk is bringing to the government sector. Hiring freezes are starting to hit all manner of government employers, and the narrative is showing up at the headlines.

Fortune blamed Doge for an uptick in jobless claims last week, and Barron's claims the threat of Doge layoffs is sap and consumer confidence. While the actual layoffs aren't enough to cause a recession by themselves, fear of a chainsaw wielding Musk firing you will definitely put a dent in consumer spending. And if Doge actually does deliver on the trillions of dollars in deficit reduction that Musk has promised, then economic growth will collapse. Death Cab for QE, excellent handle, by the way, commented, I've been saying it for months, Doge will cause a recession.

The math isn't exactly complex. majority of GDP is government deficit spending. Cut the spending, cut the GDP. Block Grace likes the strategy, though, tweeting, sure, maybe we go into a recession, but Elon has saved almost $1,800 on underutilized Microsoft Office subscriptions, so hard to say it hasn't been worth it. The thing that maybe people are finally starting to get, and perhaps the key takeaway from all of this policy chaos, is that an economic downturn isn't an accident that will be quickly corrected. It's a deliberate policy. During last night's speech, Trump didn't mention the stock market once. However, he did say today interest rates took a big, beautiful dip. Michael Gaya, the author of the lead lag report, commented,

Trump is going to get lower rates. They are saving bonds by crashing stocks. Felix Javan, the host of forward guidance tweeted, bond market put, not equities put. Treasury Secretary Scott Besson has been very clear that the policies are intended to be deflationary. He even went so far as to set an explicit goal of bringing bond yields down. There's a lot of people expecting the money printers to be switched on to avoid a recession, but that just doesn't seem likely here. During an appearance on Face the Nation last weekend, Besson said, I would expect the very quickly. will be down to the Fed's 2% target, so I'm expecting inflation to continue dropping over the year. Besson doesn't seem to be talking about a slow and deliberate policy to bring down inflation.

He seems to be aiming for a short, sharp shock to reset the economy. Speaking with Bloomberg last Friday, he said, The housing market is stuck now, but I would expect that the housing market sometime in the next few weeks is going to unfreeze. Fixing the housing market in a matter of weeks implies a massive collapse in bond yields that only happens due to recession fears. If Besson is concerned by the drawdown in stocks, he really isn't showing it. Appearing on Fox News on Tuesday morning, he said, we're set on bringing interest rates down. Over the medium term, which is what we're focused on, it's a focus on Main Street.

Wall Street's done great. Wall Street can continue to do fine, but we have a focus on small business and consumers. We're going to rebalance the economy. In other words, to the extent that there is a singular focus, it is not on saving the stock market. Finance content creator, Kyla Scanlon commented, the problem is the vision is very clear. The slowdown is the goal. The soon-to-be enacted tariffs, the face-lap to allies, the cratering sentiment to the people, the uncertainty from business, the distraction that was the Cryptostrategic reserve. It's just the plan to crater this thing. It was said, this is the plan. She referenced the tweet from last October, spelling out how Trump policies would cause a stock market crash that sets the stage for a recovery. Elon Musk responded,

sounds about right. Investor and all-in podcaster, Tramath Palahapitia, gave his take on what the possible thinking behind this strategy was, tweeting, Trump is more popular with young people than old people. Most young people don't on stocks are homes, aka they are asset light. Trump is also more popular amongst working and middle-class folks. Most of these folks are also asset light. It stands to reason that a fallen asset prices, stocks down or home prices down, have very little impact on his core constituents. To that end, I won't be surprised if Trump has little reaction then to an equity or home price market correction. Separately, the upside of shrinking these asset prices is that it gives the folks mentioned above a legitimate chance to buy into these markets at lower levels,

making equity ownership or homeownership more possible. Tangentially, if Trump figures out how to get rents lower, he will unite young people and asset light working people into a reliable voting block for the foreseeable future. He will have done. given them the trifecta, cheaper stocks, cheaper homes, lower rent. Said differently, don't presume that the stock market going up is a useful barometer anymore. In fact, it going down may be a better signal for his popularity. Time will tell. Now, one major problem, of course, with this is that deflation and stock market crashes have a way of getting out of hand. Devin Watson wrote, An American Republican administration starting a trade war during a stock market crash is

literally how the Great Depression took root almost 100 years ago. History doesn't repeat itself, but it certainly rhymes. Now, of course, with the S&P 500, just 5% off all time. highs, it's probably a little bit hyperbolic to be talking about the Great Depression, but that doesn't mean that Trump administration isn't playing with fire. Rahmala Walia of Lumida Wealth sees some logic in the plan, commenting, Trump appears to be focusing on lowering the tenure, which is what is happening to unlock the mortgage market rather than boosting equities. Recall, Besson said on Friday that mortgage rates are coming down and the housing market

will unlock. The front-loading of activity makes sense even if it doesn't feel good. The administration may have concluded it's better to have a correction earlier in the administration rather than later. With on-again, off-again tariffs, Elon hacking and slashing through the government, and serious growth concerns, we can expect a lot of uncertainty moving forward. But it's not as though the goals are unclear. They're just unfamiliar. It's been a long time since we've had an administration that puts other factors above stock market resilience. Currently, if you ask 10 analysts where markets will be in six months' time, you get about 47 different answers. Dan Tapiero, the CEO of 10T funds, made the point that there's a lot of room for error at the moment, tweeting,

markets can panic and puke all they like. But with a two-year yield at 4%, we have plenty of room to buffer any economic weakness or problem. Truflation reading collapsed to 1.43%, strongly suggesting inflation not a problem. Nasdaq and Bitcoin will explode when the weak hands finish. Marty Bent, though, perhaps more humbly, writes, I was away from my computer all day. Wild to see that Bitcoin inequities markets were inversely correlated. I think this is the most confusing time in markets I've seen in my life. The long and short of it then, friends, is that if you have no idea what's going on in markets at the moment, you are in very good company. That is going to do it for today's breakdown. Appreciate you listening as always.

And until next time, be safe and take care of each other. Peace.