WHAT WE LEARNED IN THE LAST TWO DAYS

President Trump has said he wants two things - lower energy prices and lower interest rates. I suspect that he assumed causing the stock market to crash with his “Liberation Day” tariffs would help get both. Together with a surprise increase in OPEC production, he definitely got lower oil prices. WTI is down USD20 a barrel from January highs.With market down nearly 20% from all time highs in February, you would expect long bond (30 year treasuries - which is what mortgage rates are based on) to have lower yields. The opposite occurred - long bonds went to 5%When they hit 5% lo and behold, President Trump felt obliged to back away from the precipice of global trade war. Despite the hit to oil prices, gold prices continue to trade well, just about back to new all time highs.For financial historians, spiking gold to oil normally seen in times of recession, and current levels suggest either gold is overvalued or oil is undervalued.Other recession indicators, like GBP/CHF exchange rate are also moving ominously.There is a way to square all of this - but my American subscribers are not going to like it. The rest of the world is treating the US like an emerging market. That is bond and equities are now increasing correlated. Given the phenomenal financing needs of the US, this makes sense. Of course at some point, valuations become attractive enough to bring money back to the US. For me, it is when S&P dividend yield rise above 30 year JGB yields. The problem here is that JGB yields are also selling off.Trump needs to back away from tariffs to allow foreigners to earn dollars to buy treasuries, or needs to balance the budget by raising taxes, and cutting benefits. As he expressly promised to not do either of these things - I suspect we continue to see the US treated as an emerging market. And that means all US assets look suspect - just like a classic emerging market crisis. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe