An Exceptional Crash

It's been over a week since I wrote a full blog piece and my blog magically came back online, so here is an update from last time:

On Tuesday this week Trump gave a progress report to Congress. In the event, he played the victim card to the hilt. If you didn't have any facts or memory to rely upon one would be led to believe that the U.S. has been exploited mercilessly by its global trading partners at the hands of "free trade", which happens to be a U.S. invention. What Trump was referring to is the trade deficit, also known as the current account. The real economy. For the past forty five years since Reagan, it's true that the U.S. has been engaged in a lonely experiment in "free trade" and open markets. The cost of this policy as first accounted for by Bruce Springsteen over 40 years ago, was borne entirely by the U.S. working class, whereas the benefits of this policy have accrued to the wealthiest Americans including Trump and Elon Musk. Which has left the U.S. with a gini coefficient between Djibouti and Haiti, the standard measure of national income inequality. Most of the other developed nations have much lower income inequality and hence a lower gini coefficient.

Be that as it may, the GOP lapped up Trump's victim speech without question - deftly ignoring the benefits that have accrued to U.S. markets over the past decades due to the dollar exorbitant privilege.

Unfortunately however global markets are finally starting to take Trumponomics seriously and realizing that the "exceptional" and incomparable U.S. profits that have accrued from free trade are now at major risk. Which puts all dollar assets at serious risk of global outflow:

Among the many dislocations arising from Trump's policy blitzkrieg, the latest one that cropped up this week was an unintended side effect of the Trump administration reversing U.S. policy on Ukraine. Now that European nations will be taking on a much greater share of European defense this has put a bid under the Euro defense sector while at the same time driving European bond yields much higher. Which has driven ALL global (non-U.S.) bond yields higher in order to compete for capital. I am of course specifically highlighting Japan which has trillions of hot money stored in the U.S.

"(Bloomberg) -- German bonds extended their rout, with debt markets around the world sliding in the wake of Berlin’s historic plan to unlock hundreds of billions of euros for defense and infrastructure."

The selloff in German bonds reverberated through global debt markets, with Japan’s government yields reaching their highest levels in more than a decade"

Now to the casino:

Here via mid caps, we see a massive divergence between price and breadth. The price index is below the 200 day moving average but yet the oscillator (lower pane) remains more overbought than it was at the August low.

Two years ago this week was the start of the bank run that led to the collapse of several U.S. banks.

Now we see regional banks are breaking down again.

In summary, the trade war officially escalated this week with 25% tariffs against Canada and Mexico, adding to the 10% tariffs that were levied against China one month ago:

Game On.