On My Radar - Trumped? — CMG Private Wealth Group

April 4, 2025
By Steve Blumenthal

“The biggest and most important force is how people deal with each other. If people deal with their problems and opportunities together rather than fight each other, they can get the best possible results.

Unfortunately, while technology has evolved a lot, human nature hasn’t changed much, so this is still probably beyond the capabilities of humankind.”

— Ray Dalio, Founder, CIO Mentor, and Member of the Bridgewater Board

The tariff shots fired. Stocks, the dollar, and yields declined. Yesterday, the S&P 500 lost 4.84%, the Nasdaq lost 5.87%, and the Russell 2000 (Small-Cap stocks) lost 6.42%. The 10-year yield ended the day at 4.05%. Stocks are down another 4% today. The 10-year yield dropped to 3.93% and is now trading at 4% at 2 p.m. ET today.

Treasury Secretary Scott Bessent’s mission is threefold: a weaker dollar, cheaper oil, and lower 10-year Treasury yields. It’s difficult to see how he can achieve these without a recession.

Dollar down, oil down, and the 10-year is down—so far, his mission is on track, whether you and I like it or not.

Dollar

Oil

10-year Treasury Yield

Source: StockCharts.com with CMG Investment Research comments, probable recession targets, and MACD trend arrows

Last week, I shared Commerce Secretary Howard Lutnick’s All In podcast interview with you. His top ideas for raising revenue include:

1) Tariffs - the goal is to generate an additional $1 trillion in revenue.

The rationale is to renegotiate trade deals and impose tariffs on imports, especially from countries like China with high tariffs on U.S. goods.

2) The "Trump Card" program involves selling wealthy foreigners a special "gold card" visa for $5 million each.

Lutnick estimates 37 million people globally can afford this, and they hope to sell 1 million cards. The total would be $5 trillion, likely bringing productive, creative people to the U.S. Think new businesses, family offices, and tax revenue.
The revenue from the “gold card” program is intended to reduce the nearly $37 trillion in outstanding debt, fund social security, fund a U.S. sovereign wealth fund, etc.
Sell to 2 million people equals $10 trillion. Is it doable? I don’t know, but I like the idea of bringing productive/creative people to the best capital markets structure on the planet.

3) Eliminate tax loopholes and "scams":

Lutnick cited examples like cruise ships and tech companies using Ireland's low tax rates to avoid U.S. taxes.
The plan is to close these loopholes and force companies to pay their "fair share" in taxes.

4) Leveraging government purchasing power:

Lutnick suggested the government could take equity stakes or warrants when making large purchases.

This would generate revenue for the government rather than just paying the market price.

In summary, the key revenue-raising ideas center around tariffs, a new visa program, closing tax loopholes, and strategically using the government's buying power.

Lutnick also talked about Elon Musk’s agenda. The administration is working with the assumption that there is approximately 25% fraud in the government's budget spending. If they eliminate 25%, they save taxpayers $1 trillion.

Lutnick’s job is to find $1 trillion in additional revenue, and
Musk’s job is to find $1 trillion in spending cuts.
If they can do that, they eliminate the current budget deficit of $2 trillion.

Source: All In - Howard Lutnick podcast here.

Agree or disagree, that is their mission. The markets are signaling recession. Frankly, I liked a few of Lutnick’s ideas and appreciate his business-minded thinking.

“The biggest and most important force is how people deal with each other. If people deal with their problems and opportunities together rather than fight each other, they can get the best possible results.”

Does the following sound like we are dealing with our problems together?

German Vice Chancellor Robert Habeck after President Trump’s tariffs announcements: “Last night’s decision is comparable to the war of aggression against Ukraine… The magnitude and determination of the response must be commensurate.”

Piper Sandler’s Andy Laperriere said this: “Yesterday’s (Wednesday April 3) tariff announcement is 100% pure unadulterated Donald Trump. The tariff rates are off the charts – a historic and breathtaking tax hike on commerce. Even how they are calculated is pure Trump.” Source: @NickTimiraos

Look at the green “Estimated with 4/2 Announcement” in the right-hand corner.

I reiterate, “The biggest and most important force is how people deal with each other. If people deal with their problems and opportunities together rather than fight each other, they can get the best possible results.”

Predictably, as Dalio stated, “While technology has evolved a lot, human nature hasn’t changed much, so this is still probably beyond the capabilities of humankind.”

On Wednesday, Trump fired his tariff cannon. It’s how he negotiates. Equity markets are down nearly 10% in two days.

In the All In podcast, Lutnick said, “The customer is always right, and the U.S. is the world’s largest customer.” We’ll see. I’m not so sure in the current case.

As you read, you’ll find a short discussion on the Tariff math and some insider commentary from my friend Rene Javier Aninao. Rene is deeply connected and a sharp thinker. I share with you his conclusion: “Ultimately, the US domestic political system and the global financial architecture are undergoing a severe stress test - and whether we come out on the other side as more 'anti-fragile’ or not remains TBD.”

Grab that coffee, find your favorite chair, and hang in there. The meat of today’s OMR post is in the Trade Signals and the personal section where I share some thoughts on valuations, coming probable returns, and target entry points. Opportunity remains ahead!

On My Radar:

See Important Disclosures at the bottom of this page. Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion purposes only.

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Trump’s Tariff Math Doesn’t Add Up

I’m sure you are up to speed on the math related to tariff threats to various countries. Bottom line: it doesn’t add up to me, but really I don’t think it matters in terms of where we end up in terms of tariff tax negotiations.

I read John Arthurs daily piece. John writes from Bloomberg and I like his style. This caught my eye this morning. Thought it interesting, but really, I don’t think how team Trump got to their numbers matters. It’s a starting place for negotiations. We’ll see where it goes.

From John:

What Just Happened?

As covered yesterday, the reciprocal tariffs the president announced weren’t reciprocal. Some of them seemed ludicrously out of proportion. We now have clarity on how they were arrived at from the US Trade Representative’s office, which explains that they were calculated using this ludicrous Greek equation:

Long story short, the Greek letters are assumed to cancel each other out, so this equation is a fancy way of dividing a country’s net exports to the US (the stuff it exported minus the stuff it imported) by its exports to the US. The higher this ratio, the more protectionist the country must be. This is absurd on many levels, as pointed out by Nobel Prize-winning trade economist Paul Krugman and by colleague Matt Levine. Here’s my own attempt to explain this in a video.

Source: Bloomberg

SB here. Now that you are up to speed… let’s consider the impact in the next section and the personal section below.

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Trade Signals: Tariff Wars – April 3, 2025

Market Commentary:

I receive an email from Rene Javier Aninao once or twice a week. Rene is a friend and sharp thinker.

The following is from Rene’s email Thursday morning April 3, 2025. I am privately sharing it with you: first the conclusion, then the commentary.

Conclusion:

"Ultimately, the US domestic political system and the global financial architecture are undergoing a severe stress-test -- and whether we come out on the other side as more “anti-fragile” or not, remains TBD.”

Commentary:

Team CORBU Advisory Clients: while one cannot encapsulate in a single note the grave implications of yesterday’s historic US trade policy developments -- let’s quickly make a few things clear for both policymakers and market participants around the world.

First, from the top:

POTUS has openly declared economic warfare against the leadership in Beijing and the People’s Republic of China
These unilateral measures are [at least] on par with the slate of actions the Roosevelt Administration took against Imperial Japan beginning in 1940
And while POTUS has seemingly averted [for now] an economic crisis in the Western Hemisphere [eg, between MEX-CAN]
With rather clear off-ramps [eventually] available for most of the other key Allied trade partners [eg, EU | Japan | ROK]
The blows to countries in Asia are tremendous [and not just China, but all of ASEAN] -- and wholly inconsistent with continued global stability

On that note, let’s also be clear RE the US-China bilateral relationship:

With a cumulative +75% tariff rate against Chinese-origin imports -- the Trump Administration is attempting to decouple the United States from China
The +75% tariff rate + 30% levy on de minimis shipments have de facto rescinded China’s Permanent Normal Trade Relation status -- and [as CORBU has long been concerned] effectively moved China to “Column II” of the Harmonized Tariff Schedule
And with new sectoral tariffs looming on deck -- alongside the likelihood of “secondary tariffs” soon to be implemented against Venezuela | Iran | Russia -- the skew is materially to the upside on the current +75% China tariff figure
Unfortunately, there are no off-ramps in Sino-American relations anywhere in sight over the near-term horizon
Which means we are officially in a protracted escalatory cycle between the Trump Admin and Beijing
And this will have grave ramifications and spillovers across the geopolitical domain

Which segues to the response from Beijing -- the leadership has been very clear since 3rd February that they:

Will not “beg or be bullied” -- and believe they are the ones in the position of strength given POTUS’ de-stabilizing actions
Have long been preparing for worst case scenarios that eg, trade with the United States will end completely
And with, at this point, close to zero odds that a leadership level call between POTUS-Xi can be arranged to de-escalate the situation
Beijing will now respond asymmetrically to inflict maximum pain on the US -- eg, by putting large US firms operating in China in a “conflict of laws” scenario Markets are unhinged. I talked with John Mauldin this morning. He said, “The tariffs are equivalent to twice the largest tax hike of all time.” I’m not sure

Which segues to the response from Beijing -- the leadership has been very clear since 3rd February that they:

Will not “beg or be bullied” -- and believe they are the ones in the position of strength given POTUS’ de-stabilizing actions
Have long been preparing for worst case scenarios that eg, trade with the United States will end completely
And with, at this point, close to zero odds that a leadership level call between POTUS-Xi can be arranged to de-escalate the situation
Beijing will now respond asymmetrically to inflict maximum pain on the US -- eg, by putting large US firms operating in China in a “conflict of laws” scenario

On the geopolitics and security front, for now:

The Blackrock-Hutchison deal for port assets in the Panama Canal is likely dead [the deadline passed yesterday with no news]
Beijing’s approval for the TikTok divestiture is likely dead, too -- and note that POTUS called this a “hostile act” if Beijing were to disallow it
And since the China-Russia developments are highly correlated -- the Ukraine ceasefire deal is surely dead [and will require another cycle of escalation between POTUS-Putin]
Finally, the risk premia and odds around a Taiwan contingency must necessarily and materially increase from here, given the escalating developments in the region.

Ultimately, the US domestic political system and the global financial architecture are undergoing a severe stress-test -- and whether we come out on the other side as more “anti-fragile” or not, remains TBD.

Views are Rene’s and subject to change. Not a recommendation to buy or sell any security.

You can reach Renè Javier Aninao, Managing Partner, CORBŪ at rja@corbu.co

SB Here: Can we avoid a recession? Unlikely. Odds within the next three months are high.

Keep an eye on the 10-year Treasury yield. It touched 4% today, down 40 bps from last Thursday’s Trade Signals post (then 4.44%). The yellow area is my recession target zone. The next significant level to watch is 3.60%.

UPDATE - TODAY, FRIDAY APRIL 4, THE YIELD IS DOWN TO 3.93%. I’ve updated the chart:

The S&P 500 Index Monthly MACD just fired a significant bear market signal. See the red circle (lower right-hand side). This is a sell signal for the rallies. THIS NEXT CHART IS UPDATED AS WELL.

The S&P 500 Weekly MACD chart is further below (scribers click through). It has been in a sell signal since late 2024.

Gold, bonds, and oil are performing well. The dollar is getting crushed, and the Yen looks to be breaking higher (also a concern for global liquidity).

TRADE SIGNALS SUBSCRIPTION ACKNOWLEDGEMENT / IMPORTANT DISCLOSURES

The views expressed herein are solely those of Steve Blumenthal as of the date of this report and are subject to change without notice. Not a recommendation to buy or sell any security.

Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only.

Personal Note: Prepare For The Event

“Prepare for the event, don’t try to predict the event.”

— Rene Canezin, Evolution Credit Partners

I’ve been writing about the overvalued, overconcentrated, and overweighted U.S. stock market for some time. We’ve reviewed the 1-, 3-, 5-, 7-, 9-, and 11-year return forecasts based on historical valuations, which show negative total returns with the exception of 1-year (next chart).

Here is how to read the chart:

Valuations based on the value of the S&P 500 Index as a Percentage of Gross Domestic Income.
The lower chart (blue line) plots the ratio based on how much it is over or under the long-term up-sloping trend line in the middle section. Note the prior blue line peaks in 1929, 2000, and 2021. The lower “We are here” shows the subsequent returns 1 to 11 years from when the blue line was above the upper dotted line (Above 29.91).
Bottom line: We don’t need to get below the lower dotted line (Below -30.71) to get decent returns. Until valuations improve again, there are better alternatives to equities. Maybe Trump is trying to “Make Valuations Great Again.” I see a new baseball cap, MVGA. Sorry, just trying to be funny.

I’m trying to say that if it weren’t a Trump tariff trigger, it would be another trigger. Current valuations still make no sense.

The “Art of the Deal?” The stakes are high. This is an economic war with the risk of a larger war. I’m not sure about you, but I’m on edge. A Trump pivot? My guess is he plays hardball leading up to the mid-term elections. I believe he feels he has six to twelve months to get deals done and is willing to risk recession and equity markets. So, stay buckled up and ready to strike should equity markets come unglued. I.e., down 30% to 50%. The probability is well north of zero and rising. “Prepare for the event, but don’t try to predict it.”

Listening to Bessent and Ludnick’s All In podcast interviews helped me better understand the Trump administration's game plan. If you haven’t listened to them, you can find them here and here. Put your game theory hat on and take in the information. What they are saying, how they are saying, watch their body movement, level of conviction, timing, passion, or lack thereof… Frankly, trade deficit targeting is the wrong approach to “fair” trade. My guess is that Trump is throwing a big hammer and will work backward from there.

The Fed Put

A recession is highly probable. My best guess is there is no “Fed put” or “QE put” or “fiscal policy put” or whatever they dream up put (aka - plunge protection team) to safety-net the markets’ downside.

When markets dislocate, leveraged investors get crushed, margin calls kick in, and market makers and other buyers step away. This is why we have market crashes. We’ll look at Median Fair Value and other valuations metrics next week. Medium PE puts the “Median Fair Value” for the S&P 500 Index at 3,907. That’s a reasonable “Prepare for the event…” entry opportunity point.

My friend Rene's quote shows experience and wisdom—this one too from the late great Charlie Munger, “The big money is not in the buying and selling, but in the waiting.”

I’ve suggested hedging equity market exposure and raising cash. Expensive is easy to measure and recent levels match prior peak extremes. Waiting is the hard part. "The stock market is a device for transferring money from the impatient to the patient," said Warren Buffett.

When it feels “so bad,” it will be “good.” Know what you want to buy and be decisive when the market dislocates. I suspect it will, but as always, there are no guarantees.

New Office

We moved a quarter of a mile up the road to a new office space and are delighted. A sizable automatic coffee machine grinds the beans—latte, espresso, you name it. Tap your card, $1. I tried it for the first time yesterday and was wowed. Don’t tell Susan, but it takes “grab that coffee” to another level.

Augusta, Georgia

Yes, that Augusta. Some business partners invited me to spend two days early next week in Augusta, Georgia. I fly down early Monday with golf clubs in tow, and a round at a local course is planned. On Tuesday, we’ll walk the Augusta National golf course and watch the tour players practice. The greatest golf tournament in the world, The Masters, begins on Thursday.

This past week has been beautiful here in Philly. It's been warm, with a little rain but not much. The cherry trees are blooming, and the yellow Forsythia bushes are just perfect!

I turned 64 on April 2nd, the same day as the now-infamous “Liberation Day.” Stocks are down another 5% at the time of this writing. This is a birthday to remember.

Fortunately, the tariff news had yet to hit food prices. My wife, Susan, took son Kieran and me for dinner. We ate at the Vernick Fish restaurant in Philadelphia at the Four Seasons Hotel (19th Street) and then took the elevator to the restaurant/bar on the 60th floor. The dinner was exceptional, but I recommend you first try Jean-Georges Philadelphia; the food and the panoramic views of the city are spectacular. It is run by Jean-Georges Vongerichten, the renowned French chef and restaurateur (his flagship restaurant in NYC has been awarded multiple Michelin stars).

I’m raising a glass high to Dr. Mike Roizen’s biological age of 60 when I’m at a calendar age of 90. Here’s a toast to 10,000 steps, a good diet, family and love, and advancement in science. I’m a believer!

Wishing you excellent health and happiness and an investment mindset ready to pounce when valuations improve!

Steve

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Stephen B. Blumenthal
Executive Chairman & CIO
CMG Capital Management Group, Inc.
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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management. Author of Forbes Book: On My Radar, Navigating Stock Market Cycles.

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