Hey guys, I send the triad on Monday Sunday evening for reasons that will be clear when you read it. So you will not get another triad in your reception box on Monday, but keep your eyes on the Rampart Home page, Youtube channel and podcasts. The team is doing a great job giving meaning to chaos monkeys. –JVL
When the New York Stock Exchange opened its doors on Monday at 9:30 am, we will see how seriously the Elon Musk and Donald Trump is taken seriously on the American government system.
The following is a guide to interpret the drop.
First, some basic rules. Securities markets have a circuit breaker To stop massive drops. There are three circuit breakers measured by calculating a percentage of drop in S&P 500 from the end of the day before: level 1 (7%), level 2 (13%) and level 3 (20%). If levels 1 or 2 are triggered before 3:25 p.m., all trading are interrupted for 15 minutes. If level 3 is triggered at any time of the day, trading is interrupted for the rest of the day.
Last Friday, the S&P closed at 6,041. Trading ended at 4:00 p.m., according to the standard, but at 1:15 p.m., a sale started when reports on the prices offered by Trump against Canada and Mexico have struck the sons. In less than three hours, the S&P lost 1.1% of its daily top.
Here are the S&P circuit breaker numbers for Monday:
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Level 1: 5 617
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Level 2: 5 255
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Level 3: 4,832
For the context, since 2008, we have only had seven S&P decrees greater than 7.6% in one day:
The two worst of them were in March 2020 when the markets began to grasp the complete ramifications of Covid. The other decreases took place at the opening of the 2008 financial crisis.
It is therefore the types of events that trigger a large scale panic on the markets: global pandemics and global financial collapses.
Monday withdrawal from these amplitudes? Or will it be more modest and will it hold within 7%?
The answer to this question will tell us what the markets believe in the intentions of Musk and Trump. Here are four scenarios:
(1) The drop is The markets do not believe that Trump’s prices in Mexico and Canada are likely to stay in place. Nor are they particularly concerned about troubled reports in Washington during the weekend. They essentially believe that everything is normal and that Trump will quickly return to peer, allowing the wider economy to continue more or less normally.
(2) The drop is 5% to 7%: The markets fear that Trump’s prices have an impact on the short -term American economy and that this movement could trigger broader risk of recession. They believe that Trump could be sensitive to market pressure, but they are not sold on this hope.
The markets concentrate all their attention on the prices – dividing how long they will be in place and what will be the extent of the damage. They did not start treating what happened to the treasure during the weekend.
(3) The drop is 7% to 9%: The markets are frightened. It is not a panic in its own right, but no one knows what end is in place or what the output strategy could be. The fear is that the prices have opened a Pandora’s box which, combined with instability in Europe and increased potential for instability in Asia, raises the possibility that things can get bad.
Although no one is ready to start speculating what this bad earth could look like.
(4) The fall is> 9%: A sale of this magnitude would suggest an absolute panic at the worst level of living memory. (Apart from Covid and the 2008 financial crisis, you will have to return to the 1987 crash to find a similar.)
At this level, the market indicates that he has no confidence in the nearby American economy and cannot even start to assess the risk of tail.
I cannot tell you what the market will say, because I do not know how fast it is able to assimilate reality. What I can tell you is the following: if we are in scenarios n ° 1 or n ° 2, this means that the world does not yet understand political reality in America.
Because reality is that prices are the least of our problems.
The prices are just a policy. A stupid policy, perhaps. An expensive policy for sure. But they are legal. There are enough preceding for them. They can be lit or deactivated quickly; The course correction is as close to the snapshot as possible for a nation state. And nothing on the prices has an impact on the underlying economic position of the United States. At worst, they increase inflation and remove growth; Maybe even arouse a recession.
Inflation, slow growth and recessions are painful, but recoverable. We have already seen them. We will see them again, regardless of what is happening with these prices.
The real danger is what we saw in the FBI and the Treasury this weekend – because these actions strike at the heart of the economic order.
Some concerns:
The FBI. The decapitation by the Trump administration of the FBI cannot be read as something other than a declaration that the federal police are now entirely a political operation.
Musk’s acquisition of the Treasury Payment System. Elon Musk would have control of the system that the American government uses to pay payments mandated by the congress. In addition, Musk says that he personally puts an end to the payments he does not like.
Firstly: this could obviously only happen if the FBI had been sterilized, because these actions are badly illegal. Of course, if the DoJ and the FBI refuse to investigate crimes, then are they really crimes?
Second: if Musk personally decides what leaves the treasure money, it is impossible to predict where the economic disturbances will reach. Will Musk stop payments to social service sellers in southern Dakota? Or to New Jersey aerospace entrepreneurs? Will he refuse to make interest in public debt? Will he resume social security disbursements? If you cannot predict government disbursements After the laws have forced them Then you cannot predict the future economic environment.
The future of the bank. If you wanted a real scenario of Doomsday, you would start to worry about the future of the FDIC and ACH SYSTEMS.
The FDIC is the program that guarantees the bank deposits of ordinary consumers. It was one of the most important reforms of the new agreement promulgated to prevent another great depression – and it was in the Musque / Trump Crosshairs. If the FDIC is castrated, the rules surrounding the capital requirements for banks would move impossible to anticipate and could reshape the American banking system itself.
Even more worrying is the country’s ACH system.
Automated Clearinghouse (ACH) is the utility system that transports and transfers most electronic funds in the United States. There is a federal component (the federal ACH) and a smaller component led by a banking consortium.
What if Musk seeks to disrupt the ACH system? Or more to the point: replace it with its own private system?
Here are some things we know:
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Musk Recently declared That his company X will be, in a year, a complete financial service center that “you will not need a bank account”.
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During the weekend, X.com has become the exclusive platform Used for external communication by the NTSB.
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Also during the weekend, Musk launched a series of prosecution against private companies so as not to advertise on x. His position seems to be that private companies should be forced to buy him advertising services.
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Musk forces allegedly have access to the federal treasury payment system.
Does this seem to you as a situation that could potentially end with Musk trying to disintent the ACH system and to buy all electronic transfers – including all the transfers made by the federal government – through its private enterprise?
Because that’s what it looks like.
Once upon a time, each time a bomb died in the Middle East, oil prices increased. It was a risk premium. Even if any individual bombardment was unlikely to cause disruption of oil production or shipping, there was always a risk could.
And because this risk was well understood, the markets would respond.
I am not sure that the markets are able to understand the level of risk we are currently facing. It’s too big and too new. It is beyond one of the participants in the market Ken.
Wars, financial crises, even pandemics – they all have precedents. We saw them. We can understand what dangers look like, at least in theory. We can put prices on the different risks.
I suspect that the markets do not very well understand the seriousness of our situation because they have never seen anything like it in a country of the first world. They have never been assisted by a global attempt at hegemony.
If the markets include the danger of the position of America at the moment, then tomorrow will be a blood bath (financial). In a way, it would be the best scenario. Because shocking losses on the stock market is a signal that Trump includes. A drop of 9% or more could convince him to get rid of musk and put a grip on his assault against the government. A (financial) bloodbath could save us. At least temporarily.
But if the markets do not understand where we are, we will continue on the current path and things will get worse. However, even if it is too late to stop the dismantling of the federal government, I am convinced that the markets will eventually understand. Because when the former political and financial orders fall, someone will kill.
