Everything's On Fire
First off - apologies for the long delay between this newsletter and my last. I should be back to writing regularly.
Since my last writing, just about everything went haywire.
Stocks down bad, yields are surging, gold is flying, Bitcoin is performing very well.
Tariffs are on then they’re off then they’re on again.
Trump is trying the fire Powell, then he’s not.
What the f*ck is going on? I have no idea. I’m not going to waste time trying to predict where the puck is going because it’s impossible to know where puck is even at right now.
I want to take some time to discuss the current backdrop and some themes developing that could point to where we’re going in the long-term.
Tar-rifts
If you’re trying to keep up with the headlines regarding tariffs, good luck. For the past few weeks, I’ve been trying to collect my thoughts on the issue of “tariffs”. I’ve come to the conclusion that it is way too nuanced to simply say “pro” or “against”. I’ll give some of my thoughts on what’s going on.
Broadly, I think the 10% blanket tariff is a good idea to raise revenue for the country - especially if the goal is to lower taxes for the American middle-class. This is a step in the right direction to show that we’re serious about bringing industry back to the US while not trying to light everything on fire.
America has lost tons of industry over the decades due to free trade and globalist policies that have put corporate profits ahead of the American people. For that, we see the outcome: a middle-class that is destroyed, entire towns that have been hollowed out and the stratification of wealth.
The reciprocal tariffs seem insane to me. The equation that was used, the amounts we’re throwing on countries for all products. This is what changes the landscape completely. The rollout was somewhat abrupt and caught everyone off guard.
It leads me to ask, “what’s the plan?” and “what’s the desired outcome?”
I strongly agree with wanting industry in America but specific industry that is strategic - chips, medical, ships, auto.
Vietnam has Nike factories with hundreds of thousands of workers making next to nothing. Do we want those jobs here? Sitting in a factory making sneakers? Some industries are actually more beneficial to have done somewhere else because it frees up our population to do other work.
Also, as a country that has a massive trade deficit, it means that we consume more than we produce. One advantage to this is that we are sheltered from the economies of the rest of the world. For example, if we become an export economy and, say, 60% of our exports are to China…if China goes into a recession and isn’t buying our products as much, now we go into a recession.
These are just some thoughts I’ve been having as I try to sift through the events. I hope to see some deals between Trump and other countries where the tariffs could be a negotiation tool. This would be best-case scenario, especially with other Western countries who have similar standards of living and labor laws. Free up trade and everyone can flourish. China, on the other hand, needs to be taken seriously and dealt with in a strict way. I look at this on a country-by-country basis.
We’ll see what comes from all this.
Reserve Currency Threatened?
Another aspect to all of this - and probably the biggest deal: the US dollar. How are system has worked for the last 50 or so years was essentially this:
We buy cheap Chinese plastic item → pay for that in US dollars → Chinese take dollars and invest that back into our financial system (Treasury bonds, tech stocks, etc.)
This is the cycle for every country we trade with. We spread our dollars far and wide and from this, we have relatively low inflation compared to other countries and asset markets that perpetually go up over time.
What happens if we completely upend decades of global trade?
Again, I’m not saying the tariffs are bad (not all of them) but these are policies that have massive implications that I’m trying to get my head around.
Powell In The Crosshairs
Trump and Powell have had a rough relationship since Trump’s first term. Things started to come to a head this month. Let’s walk through the timeline.
April 10, 2025: Reports emerge that Trump has asked the Supreme Court for authority to fire Powell
April 16, 2025: Powell speaks at the Economic Club of Chicago, warning that Trump’s aggressive tariffs could lead to higher inflation and slower growth, creating a “challenging scenario” for the Fed. He defends Fed independence and notes the central bank’s plan to hold interest rates steady (4.25%–4.5%) due to persistent inflation.
April 17, 2025: Trump intensifies his attacks on Powell, posting on Truth Social that Powell’s “termination cannot come fast enough” and calling his recent speech a “complete mess.” He accuses Powell of being “too late and wrong” on rate cuts, contrasting the Fed’s caution with the European Central Bank’s seventh rate cut. During an Oval Office meeting with Italian PM Giorgia Meloni, Trump tells reporters, “If I want him out, he’ll be out of there real fast, believe me,” and expresses dissatisfaction with Powell’s refusal to cut rates.
April 18, 2025: White House economic adviser Kevin Hassett confirms that Trump and his team are “continuing to study” whether they can fire Powell, signaling ongoing deliberations. Treasury Secretary Scott Bessent privately urges caution, warning White House officials that firing Powell could destabilize financial markets already unsettled by Trump’s tariffs.
April 21, 2025: Trump escalates his rhetoric, calling Powell a “major loser” on Truth Social and demanding immediate rate cuts, claiming inflation is “virtually non-existent”.
April 22, 2025: Trump unexpectedly de-escalates, telling reporters in the Oval Office, “I have no intention of firing him [Powell],” while still urging rate cuts, saying, “This is a perfect time to lower interest rates.”
The timeline is extremely important and it’s important to understand what’s been going on while of this drama has been taking place. The market favors independence - meaning the Federal Reserve should stay independent of political parties and the chairman should not be allowed to be fired by whatever president is in office and replaced with a yes-man.
This is vital to the United States as we have the world’s reserve currency. Foreign countries, investors and institutions don’t want to see the Federal Reserve become politicized. It introduces a lot of chaos and uncertainty on our markets, the US dollar, etc.
When you tie this story in with the ongoing tariff drama, it paints a picture of significant structural moves that could take place. This is why gold is ripping to new all-time highs and why Bitcoin, which usually follows the stock market, is decoupling from US equities.
These two assets are the canaries in the coal mine. Not just for the Trump Admin but for the decades after. If the Fed Chair can be a revolving door for whatever party is in control, then both sides can artificially pump markets in the short-term to gain votes.
The lesson in this? Own gold, own Bitcoin.
Bitcoin: The New Monetary “Schelling Point”
Sam Hyde put out a great video where he goes in-depth on his thoughts regarding Bitcoin. He talks about Bitcoin as a “Schelling Point”. I found this idea very thought-provoking and I want to expound upon it a bit.
Here’s the clip:
If we are entering a time where the global trade consensus of the last 50-70 years is being thrown out, then it’s not far-fetched to imagine a scenario where the currency that international trade is settled in is threatened as well.
If the US’s strategy is to shun China, move its allies away from China and isolate them from much of the global trade that built their economy, then who’s to say that China won’t stop using the US dollar?
We already kicked Russia out of the global trade order and SWIFT system. China has already stopped buying US Treasuries.
Could we see a more multipolar world take shape? One that puts America’s sphere of influence against China’s sphere? We’re already seeing that - we have been for years now.
In this scenario, do fiat currencies make sense? If China and Russia are developing a new sphere, then whose fiat currency would become the de facto reserve currency of that system? Could they even agree on that?
They could try to create a currency backed by a basket of different things - metals, agricultural goods, oil, etc. But this still could favor one’s economy over the other.
What about a currency that is fully decentralized, cannot be tampered with, cannot be inflated and already has a large market of buyers/sellers?
Gold could satisfy a lot of these needs but the problem with gold is that it’s difficult to transact with, especially between countries for millions or billions of dollars worth of trade.
A deal would settle, and Country A would have to send Country B $1M worth of gold. This gold would have to transported by sea, heavily armed with guards, then transported from the dock to wherever it needs to go. Then, it needs to be stored somewhere safe and rather large.
In 2025, it’s more practical to use a digital currency. One that can be securely sent and received within 20 minutes for a low transaction cost.
Maybe this is already happening…
Until next time,
GENCO