Good morning, and God bless, #Team42! Today’s Key Macro Question(s): Did the @realDonaldTrump administration abandon Main Street already? Risk assets are rallying sharply for a second straight day after @POTUS confirmed he won’t fire @federalreserve Chair Jay Powell and pledged to be “very nice” to China in trade talks. Trump signaled a potential softening on China tariffs, saying they would drop if a deal is reached with China, as market turmoil forces him to backtrack. “[Tariffs] will come down substantially but it won’t be zero,” Trump said Tuesday in Washington, adding “We’re going to be very nice and they’re going to be very nice, and we’ll see what happens.” Trump said he won’t “play hardball” with China’s President Xi Jinping and won’t mention COVID-19 in talks, even as the White House's new virus-origin site angered Beijing. Despite Trump’s push for a call with Xi, China insists on agreeing to a concrete framework before Xi engages. Chinese Foreign Ministry spokesman Guo Jiakun said “the door for talks is wide open” and reiterated “trade wars have no winners” today in Beijing. Trump’s bending of the knee to China came after @USTreasury @SecScottBessent's remarks that the effective embargo of US-China trade was “unsustainable” and that he expects the impasse to “de-escalate”. Per Bloomberg, Secretary Bessent made these market-moving comments during a private investor summit hosted by JPMorgan $JPM. Elsewhere, Trump reaffirmed he doesn’t plan to fire Fed Chair Powell despite his very-public frustrations, telling reporters on Tuesday, “[I] never did [have intentions of firing Powell]. The press runs away with things. No, I have no intention of firing him. I would like to see him be a little more active in terms of his idea to lower interest rates.” Recall that National Economic Council Director Kevin Hassett said Friday that Trump is studying whether he can fire Powell. Also recall that Trump attacked Powell last week, posting on Truth Social, “Powell’s termination cannot come fast enough!” Trump is demanding rate cuts now, calling it a “perfect time” because “inflation is coming down” and urging Powell to be “early or on time, as opposed to late”—ironically, to prevent the growth slowdown his administration is causing via a return to Smoot-Hawley-level tariffs and historically elevated policy uncertainty. Elsewhere, Tesla $TSLA stock jumped 5% in the premarket after @elonmusk said he’ll pull back “significantly” from @DOGE to focus more on the automaker. This pivot comes amid the company missing Q1 estimates and omitting a growth forecast. To summarize: 1. President Trump already lost his own trade war—just as we predicted weeks ago. Moreover, his 180-degree pivot on Powell reconfirms what we on Wall Street have known since December 23, 1913—the Fed is in charge of the country (and world), not the US President, Congress, or Supreme Court. 2. Treasury Secretary Scott Bessent leaked market-moving news to his buddies on Wall Street, confirming the administration’s constant marketing of pro-Main-Street policies was just that—marketing. 3. Elon Musk is abandoning DOGE with a paltry $160bn in savings—only 2% of federal expenditures and well shy of his original and revised $2tn and $1tn targets, respectively. This signals a dramatic retreat from the fiscal austerity promised on the campaign trail. It seems 42 Macro was correct to label DOGE “political theater designed to distract the American public from several trillions of debt-financed tax cuts” last fall. It turns out all you need is a chainsaw to convince gullible voters in a country where “two-thirds of workers don’t have college degrees” (per Commerce Secretary @howardlutnick). As an American citizen, I don’t know whether to laugh or cry in response to these developments. As an investor, I know exactly what to do, however: assume the transition from Paradigm A—which is a K-shaped US economy propped up by excessive government spending—to Paradigm B—which is an E-shaped US economy propelled by the private sector—is not going to occur. What is more likely is a transition to Paradigm C—which features all the fiscal largesse of Paradigm A, plus more tax cuts that largely benefit the rich and corporations, deregulation in support of replacing American workers with AI and automation (per Commerce Secretary Howard Lutnick), and even more crippling inequality as those closest to D.C. and Mar-a-Lago benefit from government contracts and other subsidies for the rich (e.g., PPP loans used to finance private jets and Lamborghinis), as well as material nonpublic information. Speaking of insider trading, where is Congress amid all this? Oh, that’s right, they are on a two-week recess during what could have devolved into a full-blown US balance of payments crisis. All told, investors take the over on $5.5tn tax cuts and the under on $1.5tn in spending cuts in the Congressional Republicans’ reconciliation process. Nothing stops this train. That’s why our completely systematic, 100% nonpartisan KISS Portfolio Construction Process features Stocks, Gold, and Bitcoin—no Bonds. Why would you want to be long bonds in a country where this kind of stuff is the norm? And I ask that question as a proud American and someone on the top part of the “K” that stands to benefit from Paradigm C—sans the government contracts, subsidies for the rich, and material nonpublic information. Thank you for allowing me to use my platform to fight for the E-shaped economy that our mothers, fathers, brothers, and sisters on Main Street deserve. If you found this note helpful, please like and share. Thank you! Consistently making money and protecting gains in financial markets requires a lot of time, expertise, and computational power. Investors partner with 42 Macro because we do the heavy lifting and answer the hard questions for them. See for yourself: 42macro.com/42-macro-sampl…. Have a great day! -Skipper
