Doug Kass: Capital Markets Pay the Price of an Administration Off the Rails
A feckless and fatuous Trump administration has shot itself in the foot. The pity is that this all should never have happened.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
I have warned about market structure for over twelve months.
I have also warned about a clueless Trump administration — an administration that improvises and rarely analyzes (and that fails to "game out" scenarios) — that has no concept or idea what knock-on effects of policy are.
It is an administration that is off the rails and our capital markets are now paying the price for the trade uncertainties associated with an extreme tariff policy.
NAFTA, which established a free-trade zone among only three countries (Canada, Mexico, and the United States), aiming to eliminate tariffs and other trade barriers, and was later replaced by the USMCA, took nearly two years to finalize.
What happens when fifty plus countries try to resolve tariff disputes with our country when the administration has no real stated plan?
Today, despite his protestations, Trump appears to have no real integrated tariff plan — he is shooting from the hip and risking global economic panic:
At least to this observer (I am not being political, I am being observational), it is more than concerning that policy is being guided by our president.
Here are some excerpts of a Trump speech last night — not only is it uninspiring but it hysterical, emotional and full of falsehoods:
At the foundation of tariff policy are economic hacks — led by Howard Lutnick and Peter Navarro.
My guess is that they are both gone at some point in the next few months (but maybe I am just being hopeful):
Back to my market structure concerns, which have now been realized.
Leveraged risk parity and other volatility control funds have been aggressively selling BOTH equities and bonds in the last few weeks.
Unlike during The Great Decession (2007-09) and during Covid, as stocks have cratered so have bonds as economic growth, massive deficit spending, the U.S. debt load and the sharp and quick drop in stocks have resulted in forced selling of bonds and the return of the bond vigilantes:
Perhaps equally important is the fear that the seizing up of trade means that foreigners will not be as supportive of our Treasury market — a knock-off impact of the administration's not thoughtful and ignorant trade policy. After all who needs to hold onto U.S. dollars and Treasuries if you are not trading with the U.S.?
During The Great Decession and as Covid spread, equities fell by a negative wealth effect of between five and ten billion dollars in each event. But on those two occasions, more than half of that lost value was made up by higher bond prices.
Not so in 2025 — as correlations, because of many reasons mentioned here, have broken down (with regard to fixed income, currency and equities).
Investors are now selling what they can — and the bond market is liquid. This is something Gundlach warned about on CNBC on Monday.
With equities -20% or so year to date, there has been no offset in portfolios from an appreciation in bond prices —they, too are down, year to date.
I watched my screen most of the night.
Bond prices cratered (at one point (TLT) was -$3) and bond yields leaped by 30 basis points (now up by only six basis points in yield):
This rate rise has been a global event:
From Bramo:
Speaking of market structure concerns, the basis trade also likely blew up last night:
S&P futures, at the nadir, were -155 handles (down by 3%) while Nasdaq futures were down a similar percentage when -555 handles.
I did some buying and selling throughout the night — with slightly profitable results.
At 5:24 a.m. (and subject to change!) S&P futures were +5 handles and Nasdaq futures were +85 handles.
Other asset classes are crashing:
Finally I did a lot of tweeting last night. Here are some examples:
The longer the uncertainty continues on trade policy, the more consequential will be the damage done to our markets and global economic health (from an intermediate-term standpoint).
The pity is that this all was self-manufactured and should never have happened.
A feckless and fatuous Trump administration has shot itself in the foot and our capital markets and the global economy has been hospitalized.
Let's hope we don't go on life support.
This commentary was orginally posted in Doug's Daily Diary on TheStreet Pro.
At the time of publication, Kass was long SPY common (L), QQQ common (L); Short SPY calls (S/M), QQQ calls (S/M).
