Welcome to August—the month of family birthdays, fantasy football drafts, one stubborn national deodorant experiment… and some fresh drama in the Trump Great Reset scenario.
Stocks fell to close out July, despite solid earnings from Meta and Microsoft. The S&P 500 and Nasdaq still ended the month in the green… but August has historically been a bear’s playground in post-election years.
Stock index futures were down 1-2% this morning while we were brewing up our first cup of Bustelo espresso blend.
Record numbers of both retail and foreign investors might want to head back to their own trading desks earlier than usual this year. Seasonal pressures on stock market highs add another reason to take profits. (Source: Barcharts.)
The robust 2025 may fit the historical pattern. But then again, nothing is normal here in the Trump Reality Distortion Field.
Trump’s Tariff Clock Ticks Down
Today, Trump’s global tariff regime kicks in.
Officially.
For the second time.
Sort of.
The president’s order applies a 10% minimum global tariff, with hikes to 15%–41% depending on trade balances.
Canada was walloped with a 35% rate, though the updated NAFTA trading agreement, known as USMCA, were spared.
Switzerland drew the short straw at 39%. But just before midnight last night, Trump postponed actual implementation until August 7, giving negotiators one last week to scramble for carve-outs.
Deals with Japan, the EU, South Korea, and Britain appear to be in place.
Mexico got a 90-day reprieve.
China’s talks are on a separate track — deadline August 12. Until then, expect volatility. And tariffs on “transshipped” goods — assembled in one country with parts from another — will add a 40% penalty.
That will prevent China from selling to, say, Indonesia, who then sells to the U.S., bypassing the worst of the tariff rates.
It’s whack-a-mole trade policy.
Markets React, Hard Assets Wobble
U.S. stock futures fell 1–2% in early trading today.
Copper is still in a tailspin after Trump’s sudden 50% tariff on refined copper and semi-finished goods.
The market had priced in some protectionist saber-rattling — but not this. Gold remains relatively firm, albeit lower, while energy markets are skittish.
Foreign purchases of US assets dropped sharply after the first Liberation Day tariff announcements in April, then picked back up aggressively, now reaching new historic highs. (Source: Yardeni Research.)
Foreign capital is still pouring into U.S. markets, though.
Net capital inflows hit a record $1.76 trillion over the past 12 months. Higher than during the dotcom boom. And a slap to the narrative of capital flight to European markets that was making the rounds earlier this year.
Beware, if history is prologue, everyone wants a piece of U.S. assets — until they don’t.
Most Bearish Chart on the Internet
The Buffett Indicator — a measure of U.S. market cap to GDP — is now two standard deviations above average, matching only 1970, 2000, and 2020.
For a quick memory refresh, those are the years the “nifty fifty” tech stocks of the late 1960s became less nifty; the dotcom boom went bust to kick off the new millennium and, well, politicians of the world scored the greatest “own goal” in history with a first-of-its-kind coordinated lockdown of global economy. (Stupid).
Here’s what’s important about crashes. They are preceded by irrational euphoria. So… when they happen, as they’re wont to do, everyone looks around in wonder afterwards and asks in daze “wha’ happened?”
The tariffs that were postponed in April officially go into effect today, and already this is the second-highest down volume in history at the all-time high for S&P Momentum. (Source: Mac10 on X)
Add in down-volume on the S&P Momentum Index and tariff-linked selling, and you’ve got a six-day global selloff, the longest since 2023.
“This will be the largest crash in history,” opines a gentleman code-named Mac10 @ Suburban Drone on X.
Do what you will with Mac10’s prophecy of disaster. He’s not entirely wrong.
Don’t Fight the Fed Chair… or the Treasury Ninja
Our latest research, if you had a chance to view it before midnight last night, has gotten the whole crew here at Grey Swan fixated on the public display of affection between the president and the chairman of the Federal Reserve.
Trump is now openly challenging the Fed’s independence, saying yesterday the Fed board “should assume control” if Powell continues to resist rate cuts.
But there’s way more to the story.
Treasury Secretary Scott Bessent has proven adept, thus far, at keeping the US ship of state afloat and financed, despite the public spat between the president and Fed chair. (Source: Reuters)
Behind the scenes, Treasury Secretary Scott Bessent is playing a subtler game. He’s engineering a stealth yield-curve operation: leaning into short-term T-bills while buying back long-dated bonds.
It’s part fiscal maneuver, part liquidity control — mimicking QE without expanding the Fed’s balance sheet.
Bond buybacks are now over $300 billion annually, with the Treasury purchasing another $2 billion of its own bonds just yesterday.
The immediate scheme is designed to keep interest costs down while rolling over a trillion in Q3 debt. What happens next…? If anything we’ve learned over the course of forecasting markets for 30 years is true, it’s that the policy makers fly by the seat of their pants as much as any private businessman or consumer does.
Inflation Isn’t Done With Us Yet
June’s personal consumption expenditures (Core PCE) came in hot at 2.8% year-over-year, the highest since February. The Fed’s preferred inflation gauge suggests prices are not cooling as hoped.
The S&P commodities indicator, above, shows a slight break to the upside in an otherwise tight correlation to 10-year inflation expectations. (Source: Octavio Tavi.)
“Both Powell and Trump are right in their own ways,” writes Octavio Tavi. “Inflation is still a lingering issue, but lowering rates is becoming less of a policy option and more of a fiscal necessity.”
And a political item on Trump’s agenda.
“Real interest rates need to fall,” Tavi concludes. “Today’s move in hard assets looks like short-term noise amid much deeper structural shifts in the US economy.”
Without Bessents’ surreptitious support behind the scenes, Powell would be cooked.
Job Market Signals Flash Yellow
The gap between Americans saying jobs are “plentiful” and “hard to get” is now 11.3% — its lowest outside of 2020.
Historically, this divergence precedes spikes in unemployment. Economists now expect joblessness to top 6% later this year. That’s not how it feels in the headlines, though. Payrolls are still growing.
Another data riddle inside a policy enigma.
Trading Ban in Congress?
The Senate advanced a bill to ban lawmakers — and future presidents — from trading stocks.
Dubbed the Preventing Elected Leaders from Owning Securities and Investments (PELOSI) Act, it even got Nancy Pelosi’s support. Ha!
Trump initially backed the measure… until he realized it applied to him. It doesn’t anymore. Sen. Josh Hawley (R-MO) quietly carved out a loophole for current White House occupants.
Public support for the ban? 86%.
~ Addison
P.S.: While markets are set for a rough few trading sessions as tariff news is negative again, there are plenty of pieces in place for a final market push higher later in the year.
The Big Beautiful Bill is a shot in the arm the economy doesn’t need right now. Plus, President Trump’s push for deregulation is gaining steam behind the tariff headlines.
The Fed hasn’t cut rates yet, but when they do, it’ll likely be a shot in the arm for the indexes.
We wouldn’t be surprised if the bull market resumes in the final months of 2025 – but for the above terrifying reasons, not because of fundamentals. It’s a good time to pay attention to your money.
Your thoughts? Please send them here: addison@greyswanfraternity.com
