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Scale and scalability

  • The single greatest force driving modern economies, society and politics is scalability
  • It is the common narrative underlying the dominance of big tech, through to the teen mental health crisis and the rise of political polarization and populism
  • Markets tend to treat scale as a largely linear concept
  • But human systems change character at scale - and ultimately have breaking points

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More on Section 899

  • Like tariffs, Section 899 continues the Trump administration's declaration of economic war against erstwhile allies
  • As with tariffs, there remain considerable questions about the scale and scope of its eventual application
  • But the net effect should still be to cause foreign investors of all types to question their investments in America

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Shorting spendthrift sovereigns

  • Even before Trump's EU tariff tweets, the risk rally had seemed unconvincing
  • This is in part because bond market developments are so concerning
  • But we think there are better ways to position than outright shorts in 30y govies

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Gradually, then suddenly

  • The bounceback in risk is unconvincing
  • This is in part because of overoptimism that tariffs and economic pain can be avoided
  • It is also because sentiment across markets has moved much more than actual positions
  • But ultimately it is because Hemingway's famous quip applies as much to reserve currencies as to personal bankruptcy

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Free clip: From win-win to lose-lose

  • Free excerpt from 11 Apr webinar
  • It's not just that tariffs are still not priced
  • The increasingly alarming price action in Treasuries and the $ threatens to take down other markets
  • Clients with One-on-One or Group Webinar subscriptions should log in to see the full replay

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From win-win to lose-lose

  • The tariff-man cometh
  • Of net balances and gross misunderstandings
  • Assessing the damage
Presentation cover page

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Three thoughts on tariffs

  • The announced headline tariff rates are all over the place
  • But tariffs in general are more punitive than consensus expected, even after the inclusion of VAT
  • The immediate market response is being clouded by liquidity factors

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T-Day landings and liquidity

  • Despite all the attention to tariffs, short-term market moves remain surprisingly well correlated with CB liquidity
  • Liquidity dynamics have the potential to amplify any T-Day relief rally
  • But we would still fade any such move thereafter

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Deficits, debt, and dollar devaluation

  • It is remarkable that proposals for a Mar-a-Lago accord have not yet sparked an even greater flight out of US dollars, debt, and risk
  • That they have not yet done so is thanks to a mix of incredulity, inertia, and temporary liquidity factors
  • Current account deficits, though a source of vulnerability, are in many respects a measure of attractiveness to foreign capital
  • What's damaging is when - as in the US - they are allowed to turn into ever-escalating debt
  • What the Mar-a-Lago proposals' discussion of sticks and carrots lacks is a proper notion of trust - and of the scale and suddennness of the consequences once it has been lost

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Seriously and literally

  • Markets' response to the evident risks has thus far consisted primarily of risk rotation
  • This seems increasingly likely to evolve into full-fledged risk reduction
  • That it has not done so to date is thanks not only to dwindling hopes that Trump is bluffing, but also (yet again) to support from central bank liquidity

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