Blain’s Morning Porridge 23^rd April 2025 – Have US Markets become a Soap Opera?

“Never tell the truth when a good lie will do…”

The narrative in US markets grows more improbable every day. Did Trump not threaten to sack Powell last week? And aren’t massive tariffs on China a guarantee of US victory? Apparently, that was just a dream sequence, and Bobby Ewing is about to step out the shower. Confused? You will be. Welcome to Trump – The Soap.

Today is William Shakespeare’s Birthday – which by reversing the greatest plays ever written into the worst sort of TV, leads me to wonder if US markets have become a Soap Opera?

I can’t help thinking the late great Larry Hagman would have brought something special to the role of a conniving, scheming, President wearing a Cowboy Hat… (Younger readers – ask your mum about Dallas…)

That’s what it feels like after watching the narratives flip-flop y’day. First the central character, the black-hatted rogue, JR Trump backtracks and says he doesn’t want to sack his rival, Fed Head Jay Powell, then he’s going to sign a “nice” trade deal with China, before Scott Bessent (his sensible fixer) says, relax, … we’re going to de-escalate the unsustainable trade war… might take time.. but don’t worry. Meanwhile, Trump’s young partner, Elon, is in deep trouble as his auto firm’s profitability crashes…. But, heck, that don’t matter nothing, as the stock price surges on the back of Bessent and Trump telling the market they’ve everything lined up. But even as final credits role on y’day’s episode its clear China is mightily disinterested..

A reader commented y’day it’s all part of Trump’s approach – keep generating TV ratings though a series of TV stunts to keep the voters enthusiastic. It will work right up to the moment it doesn’t, and confidence is exhausted and expended. The smart money has spotted it’s a repeating pattern to exploit – sell into the relief rallies and short ahead of the next mini- crisis. Traders love the volatility.

What’s coming up in the next Episodes of Trump? Couple of story lines suggest themselves; How about a massive stock market correction? A collapse in the economy? Or, the rest of the world not caring to sign trade deals?

The madness is infectious: Can anyone explain to me why Tesla’s stock price is up 6% since it released dismal results y’day? It only making a profit because its still selling regulatory credits to other car-makers! A 71% drop in profits would spell end-off for any normal firm… The list of reasons to sell is too big to ignore – a deranged CEO,  a limited product range, being undercut by China, the illusory promises about robotaxis and AI?

What are these buyers smoking?

Reality bites.

Fact remains Trump inherited a strong US economy, a strong stock market, a bond market which few seriously questioned, and unchallenged dollar hegemony. It’s taken him less than 100 days to literally piss it all away. Global markets are increasingly questioning the bases of the US markets.

That’s the real story of Trump – it’s Soap.

A number of my market chums reckon this is not a real crisis – just bad politics. Hmm.. bad politics always = bad markets. I’ve written about rising end-of-Dollar and Treasury-Market risks many times in recent weeks.

Now it’s time to focus on stocks. Ask a simple question: why are US stocks worth so much? Till recently they represented some 70% of global market capitalisation because America was Speshul, but now there are a succession of questions being asked:

• Are US stocks still fundamentally overvalued after 14 years of QE and ultra-low interest rates? The value of stocks increased much faster than the US economy grew between 2008-2024 – entirely because ultra-low interest rates distorted the market and liquidity fed into financial assets. US PE ratios remain highly elevated in growth stocks – less so in fundamentals.
• Does the domination of the US market by the mega-caps mean the upside is too weighted into a shallow number of outcomes? What happens if US mega-techs suddenly find themselves pressured by foreign competition and regulation? What kind of contagion risks are there?
• How much more will the coming tariff-inflation recession impact small-medium sized US family firms – they are the ones least able to finance themselves through a crisis? Will that spell a political crisis for MAGA?
• Do the rising number of bankruptcy applications now appearing in the US courts hint at a much larger Credit Crisis for US corporates – again starting in the SME sector? What will that mean for PE and Private Credit valuations?
• Do the number of Chinese tech breakthroughs simply highlight the era of unchallenged US exceptionalism is over? How soon before European energy firms seize the future high ground in Fusion? (Crashing minor chords…)

There are clearly many excellent companies in the US – that aren’t trading at stupid multiples, and do have long-term future value… but would you step into buy at a time when the risks of top-down contagion could create a US stock reset? Go check what happened in 1929….

It’s all a matter of confidence vs overvaluation. At present there is enough confidence in the Trump-Show to generate the kind of relief rally we saw yesterday when he reversed course on sacking Jay Powell, and appearing to back down on an economically insane trade war with China… but how long will that brittle confidence last if/when tariffs consequences hit main-street, jobs are lost and the economy contracts?

Part of that underlying market confidence is based on a belief by many still in the US markets (including retail) that Trump is a man of action and purpose. However, he’s painted himself into an apparently hopeless negotiating position on Trade – one of main claimed deliverables of his administration:

• Trump claims multiple countries are queuing up to sign trade deals in the next 3 months, but Bessent admits it could take years to close a new limited deal with China.
• Torsten Slock of Apollo wrote it typically takes the US 18 months to sign a trade deal, and then a further 4 years in implement. Slock sees 90% chance of US recession if the trade nonsense isn’t unravelled.
• No nation is going to sign a trade deal in a rush – knowing Trump will be gone long before its likely to be enacted.

The reality is the Trump-show is exposing it’s lead character as fallible – and anything but anti-fragile. That’s going to show up in the polls – and may already be happening. I have made the point it’s as much a fault of the utterly disorganised Democrats still reeling from Harris’ defeat, failing to mount an organised opposition to Trump… But one of them made a very telling observation y’day: “Don’t interrupt you enemy while they are making mistakes.

(I am not convinced the Democrats have a plan – but am prepared to be corrected..)

Out of time and back to the day job..

Bill Blain

Author Morning Porridge

Founder Windshift Capital

Partner Shard Capital