0:04

Welcome back to The Breakdown

0:07

with me, NLW. It's

0:09

a daily podcast on macro, Bitcoin,

0:11

and the big picture power shifts remaking

0:13

our world. What's

0:18

going on guys? It is Monday, April 21st, and

0:21

today we are catching up on, well, a lot.

0:23

Before we get into that, however, if you are

0:25

enjoying the breakdown, please go subscribe to it, give

0:27

it a rating, give it a review, or if

0:29

you want to dive deeper into the conversation, come

0:31

join us on The Breakers Discord. You can find

0:33

a link in the show notes or go to

0:35

bit .ly slash breakdown pod. All right,

0:37

friends, we are finally back from vacation,

0:40

Disney spring break, Easter, all that jazz.

0:42

And today, what we're going to do to kick things

0:44

off is do a quick high level recap of

0:47

everything that we missed and everything that sets up the

0:49

week to come. This will bridge

0:51

across both macro and crypto. And to start

0:53

off, let's talk about the trade talks

0:55

that have kicked off in Washington with Japan,

0:57

South Korea, and the UK, as some

0:59

of the US's largest trading partners come to

1:01

the table. The South Korean delegation is

1:03

heading into town this week, but Japan was

1:05

the focus for last week. As the first

1:07

country to sit down for negotiations with President

1:10

Trump, Japan served as something of a

1:12

litmus test for how trade talks might proceed.

1:14

Initial reports weren't all that promising for

1:16

a speedy resolution. Veteran diplomat

1:19

Chas Friedman said, The Japanese have

1:21

just been in Washington. Their experience apparently was that

1:23

they went to talk to the American leadership

1:25

on this matter. The American leadership asked, what

1:27

are you offering? And the Japanese said, well,

1:29

what is it that you want? The Americans could

1:31

not explain what it is they wanted. This

1:33

is a cockamamie approach to negotiation. Now

1:36

some will say that this is an art of the

1:38

deal strategy, never wanting to be the one

1:40

to make a first offer at the negotiation table. But

1:42

with global trade on hold, there are many people who

1:44

question the premise of the whole thing. Still,

1:47

President Trump left the meeting promoting big

1:49

progress on social media. Treasury Secretary

1:51

Scott Besant tweeted that the discussions on

1:53

trade are progressing in a highly satisfactory

1:55

direction. Reports over the weekend suggested

1:57

that the Japanese government would consider increasing

1:59

imports of rice and soybeans as a bargaining chip.

2:02

There were no reports of movement on aligning Japanese

2:04

vehicle regulations with the U .S. to allow the

2:06

import of American cars, which had been a

2:08

major sticking point for Trump. Breaking late

2:10

on Sunday, Charles Gasparino of Fox

2:12

Business reported, quote, A Wall Street

2:14

exec with ties to Trump White House says the

2:16

word is that Secretary Besant is close to

2:18

announcing a significant trade deal likely to be with

2:20

Japan. Gasparino included an extensive

2:23

caveat that he hadn't confirmed from White

2:25

House sources that a deal could always

2:27

unwind and that timing is always suspect.

2:30

FinTWIT latched onto the very fishy timing of

2:32

this weekly source news bomb. Bukko

2:34

Capital suggested that Bill Ackman is the Wall

2:36

Street source, quote, who always has bullish

2:38

news on trade deal progress two hours before

2:40

futures open on Sunday night. Meanwhile,

2:42

big questions remain over the status of negotiations

2:44

with the EU. Trump met

2:46

with Italian Prime Minister Giorgio Merlone on

2:48

Thursday, the only European leader to meet with

2:51

the president during this term. Following the

2:53

meeting, Trump claimed there will be a trade

2:55

deal 100%. However, on Tuesday, EU Commission Chief

2:57

Ursula von der Leyen told the press, the

2:59

West, as we know it, no longer exists.

3:02

What we've perceived as a world order is becoming a

3:04

world disorder. This is why we need

3:06

another new EU that is ready to go out into the

3:08

big wide world and play a very active role in

3:10

shaping this new world order that is coming. Ultimately,

3:12

Italy cannot negotiate their own trade deal

3:15

independent of the continental trading bloc. Von

3:17

der Leyen is yet to pick up the

3:19

phone personally, sending the EU trade representative to Washington

3:21

last Monday. China continues to be

3:23

the biggest vacuum in the negotiations. And

3:25

to a certain extent this is by design. Some

3:28

believe that the entire strategy is to

3:30

coerce a global trading alliance against China. leaning

3:32

on allies to join in pushing back

3:34

on their manufacturing superpower. Trump remains

3:36

adamant that a deal is coming. In

3:38

response to press questions about communications with Beijing on Thursday, he

3:40

said, Oh, we're going to make a deal. I think

3:42

we're going to make a very good deal with China. Beijing

3:45

appears, for their part, to be making preparations to

3:47

wait it out. In a statement on

3:49

Monday, CCP officials warned that any country reaching

3:51

a deal with the US at China's detriment will

3:53

face countermeasures, essentially threatening retaliation

3:55

against countries that sign a US trade

3:57

deal. President Xi Jinping has also

3:59

been touring Vietnam, Malaysia, and Cambodia over the

4:01

past week to drum up support. Fiscal

4:03

authorities have begun ramping up support for

4:05

manufacturing in both direct subsidies and

4:08

technical assistance to redirect goods to the

4:10

domestic market to keep factories operational. In

4:12

the background, the export of rare earth metals

4:14

have been essentially embargoed by a change

4:16

in licensing requirements. Keep in mind China

4:18

essentially has a monopoly on these key inputs

4:20

to EV and military production. The TLDR

4:22

of all of this is that the trade war is still

4:24

far from resolution. The so -called reciprocal

4:27

tariffs are on hold for 90 days, but

4:29

in the meantime, 10 % global baseline tariffs

4:31

are in force. Apollo Global Management

4:33

noted that on average, the US takes

4:35

18 months to sign a trade deal and

4:37

45 months to implement. Secretary

4:39

Besin has said that 15 large economies are

4:41

a primary focus, but that leaves some

4:43

60 to 85 lesser economies standing in line.

4:46

What's more, the domestic economy might not be able to

4:48

wait 90 days for trade talks to come through. On

4:51

Thursday, the Philadelphia Fed reported the

4:53

sharpest declines in manufacturing activity since

4:55

2020. Beyond uncertainty and domestic

4:57

demand, increases in input costs are

4:59

making large sections of U .S. manufacturing

5:01

completely unviable. There's almost nothing

5:03

in the U .S. that is produced end -to

5:05

-end from locally sourced inputs, so even for

5:07

domestic manufacturers, the tariffs have a huge impact. Atlantic

5:10

journalist Derek Thompson tweeted, A

5:14

growing US manufacturing economy declared it broken,

5:16

started a trade war and broke US

5:18

manufacturing. Thompson

5:22

interviewed Molson Hart, the CEO of

5:24

Viahart, a toy manufacturing company. He

5:26

said, The tariffs don't go anywhere, toys

5:28

are the least of our worries. What about transformers

5:30

and pumps and air conditioners? At a certain point

5:32

the stock of replacement pumps we need for clean

5:34

water are going to run out. There isn't anyone

5:36

building new factories for those things, and the factories

5:38

won't be ready in time. Two

5:47

of our American customers devastated by the tariffs

5:49

gave up and sold themselves to their Chinese factories

5:52

in the last week. Outbound shipping

5:54

from China is already showing up in the data. So

5:56

far this month there have been 80

5:58

blank sailings, cargo ship departures that are cancelled by

6:00

the carrier. The peak in May

6:02

of 2020 was 51. Craig

6:05

Fuller, the founder of Logistics Intelligence Company

6:07

Freight Waves, believes the downstream effects

6:09

are underappreciated, commenting, Many truckers I've

6:11

spoken with don't realize how quickly container

6:13

volumes have collapsed. Starting in May, port freight

6:15

out of California will be almost eliminated. It's

6:18

going to be a bloodbath in short -distance

6:20

transit, followed by intermodal, and then a collapse

6:22

in I -20 and I -40 trucking. For

6:25

all the economic carnage so far, the benefits that

6:27

have accrued at least to date seem pretty

6:29

slim. The U .S. Customs Office reports

6:31

that only 500 million in tariff fees have been

6:33

collected. Felix Javan, the host of

6:35

the Forward Guidance podcast, remarked on how broad

6:37

the deterioration in the data has been, commenting,

6:40

Economic activity is falling off a cliff and any

6:42

activity that remains the prices are going up Absolute

6:45

worst scenario for policymakers here, especially with

6:47

no meaningful idea of how permanent

6:49

tariffs will be. We're at a

6:51

phase now where even if they get removed today,

6:53

the economy is already scarred and will have

6:55

cascading impacts regardless. Steve Howe of

6:57

Bloomberg Researcher wrote, This trade war

6:59

and the whole so -called remake of global order like

7:01

Brexit will just make all of us poorer, it? Just

7:04

like Brexit, the proponents feel fully justified that something

7:06

had to be done. exposed something

7:08

was done, but the problem wasn't solved.

7:10

It got worse. Rahma Lawalia

7:12

of Wealth brought it all together, tweeting,

7:15

is slow walking the negotiation and why shouldn't

7:17

they? US trading partners like Japan and Europe

7:19

have more leverage than the United States. Small

7:23

businesses will bear the brunt of the tariffs,

7:25

and small business owners vote Republican disproportionately. Small

7:28

businesses are thinly capitalized and lack the working capital

7:30

to get through a spike in tariffs. Trump

7:36

is under time pressure to get a deal done to

7:38

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to Ledger for sponsoring the show. Meanwhile,

9:14

the administration also seems to be ramping up their

9:16

antagonism toward the Fed. At an

9:18

event on Wednesday, Fed Jerome Powell gave

9:20

his warning yet, commenting, are

9:22

very fundamental policy changes. There isn't a modern

9:24

experience of how to think about this. He

9:26

noted that the tariffs were far higher than

9:28

anticipated, adding, we may find ourselves in the

9:31

challenging scenario in which our dual mandate goals

9:33

our intention. He

9:38

was asked directly if there was a Fed

9:40

put, a level at which the central bank would

9:42

step in to address falling stock prices. Powell

9:44

responded with a blunt no, adding, Market's

9:46

are struggling with a lot of uncertainty and that

9:48

means volatility. But having said that, markets

9:50

are functioning. They're orderly and they're functioning just about

9:52

as you would expect them to function. Market

9:54

analysts took this as an extremely hawkish speech, with

9:56

Powell essentially saying that the risks of inflation

9:58

could be too great to allow the Fed to cut.

10:01

Quinn Thompson of Lecker Capital commented, Powell

10:03

was incredibly hawkish. So much so, he went

10:05

out of his way to warn of elevated

10:07

structural risks for the United States, making it

10:09

a less attractive jurisdiction for investment. He also

10:11

downplayed the recent market volatility as

10:13

orderly functioning as expected. Megahawk.

10:16

David Russell, Global Head of Market Strategy at Trade

10:18

Station, wrote, The

10:24

following

10:26

day, Trump again raised the threat of removing

10:28

Powell, stating, If

10:31

I want him out, he'll be out of there real fast,

10:33

believe me. If we had a Fed chairman that understood what

10:35

he was doing, interest rates would be coming down. He should

10:37

bring them down. National Economic Council Director

10:39

Kevin Hassett told the press that the

10:41

administration will continue to study whether they can

10:43

remove Powell from the position. The letter

10:45

of the law says that Fed chairs can

10:47

only be removed for cause, which generally means

10:49

gross negligence or corruption rather than a policy

10:52

disagreement with the White House. Still,

10:54

the risk to central bank independence is now

10:56

overt and even has some staunch Trump supporters

10:58

queasy. Anthony Pampleano said, I do not

11:00

believe that the President of the United States

11:02

should come in and unilaterally fire the Fed chair.

11:05

Where you have a disagreement and then the firing, I think

11:07

that's not really the area that we want to go into. The

11:09

idea of firing the Fed chairman is a very bad

11:11

precedent to set this way. Honestly, at

11:14

this point, many of the markets think it's just a

11:16

matter of time. With Paulo macro tweeting, at

11:18

this point, I'm largely convinced that Trump is going

11:20

to fire Powell regardless of what courts say and

11:22

deal with the fallout later. This all

11:24

puts Treasury Secretary Besson in a very

11:26

difficult position. One of his primary goals

11:28

for the year is to roll over trillions of dollars

11:30

in national debt without increasing the interest burden. And

11:32

for that, he needs bond yields to drop. Politico

11:35

reports that Besant has repeatedly cautioned the

11:37

president that any attempt to fire Powell

11:39

would risk destabilizing financial markets. By

11:41

all accounts, Besant is one of the sole moderating forces

11:43

in the White House. The Wall Street

11:45

Journal reported that he and Commerce Secretary Howard

11:47

Lutnick engineered the tariff pause. They

11:49

state the quote intervention was arranged while

11:51

trade advisor Peter Navarro was occupied in

11:54

another meeting. Besant and Lutnik reportedly

11:56

helped compose the post that put the tariffs

11:58

on hold and refused to leave until the president

12:00

hit send. So what did this all mean

12:02

for markets? Well, the weak saw risk markets

12:04

continue to drop, no surprise there, but maybe

12:06

the more alarming action was in macro assets. Felix

12:09

Javan, again, a forward guidance, tweeted, The

12:12

issue here is

12:14

that there is

12:16

no safe haven

12:18

bid for U

12:20

.S. bonds in

12:22

the dollar. Instead, this

12:24

looks like capital flight normally associated

12:26

with financial crises in emerging markets. Volatility

12:28

was down across the week, slowing

12:30

the decline in stocks, but it's still

12:32

elevated from March levels. For

12:34

Bitcoin, as always happened, some were quick to declare

12:36

the asset a failure. On Wednesday,

12:39

JPMorgan analysts wrote, Bitcoin has failed to benefit

12:41

from the safe haven flows that have been

12:43

supporting gold. The recent price action was even

12:45

enough for Lynn Alden to lower her expectations. She

12:48

said, Her

12:51

new end of year target is no more

12:53

optimistic than regaining the $100 ,000 price level. David

12:56

Duong, the head of research at Coinbase

12:58

Institutional, even suggested that the data shows a

13:00

new crypto winter settling in. Bitcoin's

13:02

price action throughout last week was

13:04

aggressively sideways. Despite a ton of

13:07

volatility, prices never dropped below $83 ,000

13:09

or above $86 ,000. That is until

13:11

Sunday night when Bitcoin broke out

13:13

of range and spiked to $87 ,500. While

13:15

that's still only recapturing price levels from late

13:17

March, many are sitting up and paying attention.

13:20

ZeroHedge wrote, There it is. Dollar

13:22

disintegrating and suddenly Bitcoin soars higher.

13:24

Looks like regime shift finally kicked

13:26

in. Thomas Farer of Apollo Sats

13:29

tweeted, Bitcoin is pumping while stock futures

13:31

are trading down. It's almost like the

13:33

market is treating it like it's an alternative financial system

13:35

or something. On the policy side,

13:37

it looks like there are a few new headwinds for

13:39

getting crypto legislation done. Veronica Irwin of

13:41

Unchained reports that crypto investors are lobbying Congress

13:43

to put market structure bills on hold. According

13:45

to their sources, the argument is that the

13:47

SEC should be left to pass their own

13:49

regulation under the current laws. One

13:51

source said, This

13:54

is a particularly stupid thought if

13:57

you ask me, with no real

13:59

consideration for how much a lack

14:01

of regulation actually impacts things, but

14:03

there you have it. GOP lawmakers

14:05

have been firmly fixed on getting

14:07

market structure done by August, which

14:09

was a goal set by the

14:11

administration. The logic was always that

14:13

getting clear laws written would prevent the next

14:16

Gensler. The proposal currently on the table

14:18

essentially puts the CFTC in control of

14:20

regulating markets, while the SEC deals with token

14:22

issuance within a clear framework. One

14:24

congressional staffer said that these new lobbying

14:26

efforts are severely misguided, stating, We

14:29

are kind of near the apex

14:31

of crypto's power because of, frankly,

14:33

all the money that was spent

14:35

on the election and the fact

14:37

that their favorite candidates got elected.

14:40

This moment in time will not

14:42

last. Crypto lawyer Gabriel Shapiro

14:44

was very unimpressed by the shortsightedness

14:46

commenting, For

14:48

so many years I

14:50

argued the SEC is

14:53

the logical regulator for

14:55

crypto, it just needs

14:57

friendlier regulations. That the CFTC

14:59

could end up being much worse and it

15:01

was a mistake to just pass a big bill

15:03

giving CFTC authority, hoping that it will magically

15:05

fix things. Now, the circumstances have changed, they realize

15:07

the own goal committed by spending years doing

15:09

nothing but trying to make sure the SEC has

15:12

little to no authority over crypto, while basically

15:14

having no other plan for how crypto actually would

15:16

be regulated just by anyone but the SEC. Even

15:19

the stablecoin bill, which was viewed as

15:21

an easy lift, is looking more shaky as

15:23

details get hashed out. Reports suggest a

15:25

three -way turf war has broken out between

15:27

lobbyists. Circle and Tether are still fighting

15:29

it out over how much leeway should be

15:31

granted to overseas firms during a transitionary period, Meanwhile,

15:33

the banking lobby is ramping up efforts to

15:35

lock them out entirely. The Block reports

15:37

the Bank of America has been pushing hard to

15:39

ensure that commercial firms like tech companies can't

15:41

launch their own stablecoins. One lobbyist

15:43

source said, Their

16:01

solution, severely limiting the stablecoin operations

16:03

of non -banks, would also hinder incumbents

16:05

like Circle and Tether if they can't

16:07

obtain banking licenses. Aside from

16:09

Bank of America, sources say that

16:11

Fidelity, Goldman Sachs, and BNY have

16:13

also shown interest in issuing stablecoins. One

16:16

lobbyist said, quote, there's this kind

16:18

of territorial battle between the non -bank issuers, the

16:20

crypto issuers, and potential market entrants like the

16:22

banks, saying the quiet part out loud they

16:24

added that the banks would like to, quote, own it

16:26

all instead of open networks to exist. TLDR,

16:28

the entire thing is getting very

16:30

messy. Now, despite uncertainty

16:32

in how legislation will shake out,

16:35

the institutional adoption story continues apace. On

16:37

an earnings call last Thursday, Charles Schwab's

16:39

CEO, Rick Worster, said, Nate

16:58

Grassy of the ETF store believes that the

17:00

slow and steady adoption of crypto is inevitable, tweeting,

17:03

Still,

17:08

I gotta say, coming back into this week,

17:10

this is a very tough time. One

17:13

thing that I don't think has been discussed

17:15

enough yet is that whether it pays off

17:17

or not, the Trump administration is basically spending

17:19

all, and I mean 100 % of its

17:21

political capital on these tariffs. Feels

17:23

to me like they have very little room

17:25

to push things like stablecoin legislation. And

17:27

so I am increasingly nervous that not

17:30

just from a market standpoint, but from a

17:32

political will standpoint, almost everything that we

17:34

hope for out of this administration is unlikely

17:36

to come to pass. Now that

17:38

is not a foregone conclusion, and there

17:40

are plenty of scenarios that I could draw where

17:42

things go a different direction, markets get back

17:44

online, tariffs seem to start to work, trade deals

17:46

start to happen, and an immense amount of

17:48

political will comes flooding back into the administration. However,

17:52

it's a gamble and we're in the middle part where we

17:54

don't know if it's going to pay off yet. For

17:56

now that that is going to do it for today's breakdown,

17:58

excited to be back with you guys this week covering

18:00

it all as it happens. Until next time, be safe and

18:02

take care of each other. Peace!