The Spread Thread
@SpreadThread1
Former head of credit strategy | Investor/Trader | Add your email at http://TheSpreadSite.com to receive our research to your inbox for no charge
Here is my framework. Tell me what I’m missing. The details of the framework don’t matter. If the tariffs are paused that’s bullish. If the tariffs are cut to 54% or higher that’s bearish. If the tariffs are cut to 34% it’s bullish for a few days then a fade.
Breaking: One Wall Street exec w ties to the White House says the US-China trade announcement Monday will include a framework that is not quite at the UK level in terms of details agreed upon, but he described it as a “solid start.” Story developing
Worth a quick read
Seems like Trump can use various other measures to reinstitute the tariffs while appealing IEEPA all the way to supreme court, per GS 4. The Trump administration has other authorities it can use to impose tariffs similar to those the court struck down: The administration could…
Which of the following will have the highest total return over the next 12 months:
I believe GS recently put out a 1% annual real return for the SPX over the next 10yrs given starting valuations. Just one forecast, and they may be too pessimistic. But long-term TIPS now pay 2.75% real. For retirees who live off the income on their assets, seems like a gift.
Now above 2.75% on the 30yr TIPS Everybody loved it for years at 1%
But how much really changed? Before last week consensus was probably 10% country tariffs/ 25% key sectors/ ~50% China. And we now have 10/25/30. Yes uncertainty is down. But I think this is mainly a case of markets tank -> economists bearish. Markets rip -> economists bullish.
If your favorite Fintwit personality was bullish the US economy before last weekend's shift, political preferences are clouding their views. Same if they didn't shift more positive on the economy afterward. And if they say they perfectly predicted this path, they are full of it
A reminder- bankruptcies/defaults lag in a cycle. First spreads widen, then the economy weakens, then spreads blowout and co’s lose access to capital, then they default. As Bill’s chart shows, bankruptcies spiked in 2009/10 near the end of the recession, after spreads had peaked.
US Federal Bankruptcy Courts updated stats thru Mar 31, 2025. Chapter 11 cases are down and in the range they've been in historically (ex GFC and the pandemic).
Keeps amazing me how so many argue trump caved. Great example of higher prices driving a bullish narrative. Yes trump softened his rhetoric. But he caved on very little. The effective tariff rate has barely budged since the 90 day pause, and “deals” are making that clear.
Britain got a bad deal. 10% tariff on almost everything. Next to nothing in return. That some see this as good just shows how standards have sunk. The U.S. is now a high tariff protectionist country, 10% is the new baseline, and trade deals are judged not on how much they…
Nearing the end of the “headline” phase and moving on to the “impact” phase. Think about what 10%/25%/50% should have on growth/inflation and especially earnings over the next 12m vs what’s currently priced in.
An announcement of a cut in China tariffs is probably the last big lingering positive headline for mkts. Then focus will switch to the actual fallout which I think is now way underestimated, assuming the end game is 10% country tariffs, 25 on key sectors and 30-50% on china.