Today's Bear Case... And the Silver Lining for Bulls

What's happening today... Tariff and growth concerns are real... A big drop in GDP projections... The good news... The Federal Reserve is wrong again... A timely White House crypto announcement... The real currency story...

'There's too damn much going on'...

That's how our director of research, Matt Weinschenk, summed up the state of the markets right now in his latest This Week on Wall Street report...

And that's leaving investors uncertain.

The trouble is all the noise coming out of Washington, D.C.

Keep in mind, Matt wrote that before President Donald Trump and Vice President JD Vance's heated Oval Office livestream with Ukrainian President Volodymyr Zelenskyy on Friday... Trump's social media post on Sunday about plans to create a strategic cryptocurrency reserve... and the White House's promise of an "investment announcement" this afternoon, which was about Taiwan Semiconductor Manufacturing (TSM) investing $100 billion in U.S. chip manufacturing plants.

And we still have tomorrow night's State of the Union address (officially called a "joint address to Congress" during the first year of a presidential term) and tariffs on Mexico, Canada, and China set to go into effect at midnight tonight.

In short, global uncertainty continues to rise. Matt showed this via an indicator that considers the headlines and sentiment in the U.S. and other economies around the world...

A couple of weeks ago, we shared a chart of the monthly Global Economic Policy Uncertainty Index. It had surged to levels not seen since the pandemic – and it has only climbed higher since then...

The market can handle a surprise here and there. It even stayed strong through President Donald Trump's flurry of executive orders and pronouncements in his first month in office.

But the chaos is starting to take its toll. And it's hard to tally the long-term economic consequences of what looks like short-term decisions.

Tariff threats... DOGE... the war in Ukraine. It feels impossible to keep up.

At the same time, the major U.S. stock indexes have fallen from their recent all-time highs over the past few weeks (only the real estate, health care, and consumer staples sectors have been in positive territory since February 19). Today, stocks were down, with the S&P 500 Index off 1.7%, a slide that accelerated in the afternoon as Trump spoke at a White House press conference and held firm on plans for 25% tariffs on imports from Mexico and Canada and an additional 10% tariff on China.

Meanwhile, bond yields have been falling too, which is notable...

What the bond market is saying right now...

I (Corey McLaughlin) have often pointed out that the behavior of bond yields is driven by a mix of growth and inflation expectations. Right now, yields are falling because of growth concerns, Matt says...

Put simply, bond yields are driven by expected inflation and economic growth.

If investors expect a booming economy and rising inflation, they'll prefer the upside potential in equities and sell bonds. Since bond prices and yields move inversely, that means bond yields will rise.

On the flipside, if investors expect weak economic growth and lower inflation, they'll be more willing to accept the lower returns on bonds. They'll buy them up, and yields will fall.

Since February 12, the 10-year Treasury yield has fallen from 4.6% to 4.3% [Editor's note: It's below 4.2% today]. That's a big drop in just a few weeks. And by looking at the 10-year real interest rate (the rate after inflation expectations are removed), it's clear that inflation isn't the problem...

In other words, the decline in the U.S. 10-year Treasury yield is due to a decline in expectations for economic growth. And that fear is driving bond prices up and stock prices down.

Tariff threats have made a lot of headlines, for good reason. They're essentially additional taxes that businesses must pay... and the higher costs will be passed on to consumers.

Barring new developments in the next few hours (which is entirely possible), tariffs on major U.S. trading partners will go into effect.

The threat has had an impact already...

The Atlanta Fed's GDPNow tracker (updated today) is projecting first-quarter GDP at negative 2.8%.

It shows net exports down 3.6% from the fourth quarter of 2024. That's a strong sign of inventory build-up to combat the potential higher import costs tied to tariffs.

So the concept of tariffs is having an undeniable impact on businesses' behavior, though it could be short-lived until the market gets some more certainty on future trade policies.

Meanwhile, consumer spending growth for the first quarter is projected to be flat, as measured by the Federal Reserve's preferred inflation gauge, the personal consumption expenditures price index. Growth was projected near 3% at the start of the month.

The decline is notable, and perhaps a more concerning indicator when it comes to the overall health of the economy. Remember, 70% of U.S. economic activity is tied to consumer spending.

Putting it all together... these numbers suggest the worst quarter for U.S. GDP since the second quarter of 2020 when the COVID-19 pandemic hit.

Now, these projections often fluctuate every few days. But there are only a few weeks left in the first quarter, and these changes are substantial. So the first quarter of 2025, essentially the first quarter of Trump's second term, could end up with GDP declining.

That's valid evidence for bears. The endless stream of "headline" uncertainty and live updates from the Oval Office nearly every day, many with material economic impacts to consider, is stoking volatility.

But the silver lining for bulls...

Lower expectations for growth, along with the pace of inflation continuing to come down and the unemployment rate holding steady, could lead the Federal Reserve to cut interest rates again.

Ten Stock Trader editor Greg Diamond wrote about this idea to his subscribers today, mentioning that the Fed is next meeting on March 18 and 19...

As I've previously written, the Fed tends to get the big picture wrong most of the time... From 2020 to 2021, for example, the agency said inflation would be transitory. But that was totally wrong. Furthermore, after it cut interest rates in September 2024, inflation failed to come down.

What if the Fed gets it wrong again?

These types of questions (the "why") are important right now... given the number of catalysts on deck. The key is to see how the bond market and stock market react over the next few months...

What if the bond market signals that the Fed has to start cutting rates?

Greg reminded readers that "bonds tend to turn sooner than stocks" and shared details with subscribers on the contrarian trade setup in stocks he's considering right now.

Elsewhere, kudos to Eric Wade...

It has been a volatile few weeks in the crypto market. Bitcoin (BTC) – the world's largest crypto by market cap – traded as high as $109,000 on Inauguration Day... before selling off more than 20%. On Friday, bitcoin fell below $80,000.

Crypto Capital and Stansberry Innovations Report editor Eric Wade has been preaching patience, not panic, amid the volatility in cryptos lately. It has been good advice.

On Sunday afternoon, I checked my phone to see that bitcoin had soared 10%, to around $95,000, in two hours.

The catalyst? A timely Trump social media post about plans for a "crypto strategic reserve" that will include coins like Ripple (XRP), Solana (SOL), and Cardano (ADA).

Trump later clarified that "obviously, BTC and [Ethereum], as other valuable Cryptocurrencies, will be the heart of the Reserve. I also love Bitcoin and Ethereum!"

While the prices of bitcoin, Ethereum, Ripple, and Solana all fell today – with bitcoin around $86,000 as we write – it's clear that cryptos have the White House's support.

Eric Trump, one of the president's sons, has an obvious personal interest, writing on social media, "I love the genius of announcing a strategic reserve on a Sunday, when traditional markets are closed and Wall Street sleeps," with hashtags for bitcoin and Ethereum.

Whatever you might think about the White House backing cryptos, you can't deny that it's a tailwind for the sector.

On Friday, Eric Wade again told readers not to panic while acknowledging "this has been a somewhat bonkers week in crypto."

In his latest weekly video update to subscribers filmed on the convention floor of ETHDenver, Eric interviewed Alice Liu, the head of research for CoinMarketCap, to discuss the state of the crypto market. Is the bull run over? Nope, she said...

What we have experienced across the market was definitely a technical pullback. It's not a structural change.

Existing Crypto Capital subscribers and Stansberry Alliance members can watch the full interview in Eric's weekly update here... and we've also posted a free clip on our social media pages. You can watch it on X here.

The 'real currency story'...

Still, everything we've written about today overlooks the "real currency story," as Eric says. It's one he has firsthand knowledge about, but one he says he doesn't see anyone else covering right now. You see, almost no one has connected the dots about what's really going on. Eric has.

And he says it will define Trump's second term in the White House...

It has nothing to do with gold, oil, or any of the new BRICS currencies, but it could escalate dramatically in the very near future, with a single announcement from state authorities that'll send shockwaves through the financial system.

Your savings, your retirement plans, every dollar you have in the bank... This currency shock could have a dramatic impact on it all.

Eric predicts this development will make a handful of people incredibly wealthy. He personally made $100,000 while researching this story. You can get the full story here.

New 52-week highs (as of 2/28/25): AbbVie (ABBV), Abbott Laboratories (ABT), Automatic Data Processing (ADP), AutoZone (AZO), Alpha Architect 1-3 Month Box Fund (BOXX), Berkshire Hathaway (BRK-B), Brown & Brown (BRO), CME Group (CME), Fidelity National Financial (FNF), Gilead Sciences (GILD), Intercontinental Exchange (ICE), Kellanova (K), Annaly Capital Management (NLY), Paychex (PAYX), Rithm Capital (RITM), Republic Services (RSG), Starbucks (SBUX), UGI (UGI), Visa (V), and Vanguard Short-Term Inflation-Protected Securities (VTIP).

In today's mailbag, more feedback on tariffs, trade, and Trump... and thoughts on Dan Ferris' Friday essay... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"The statistics on trade deficits and how they are calculated are as byzantine and realistic as the Fed's PCE on what inflation truly exists. Trump is a real estate guy who made deals in that arena. He is not an industrialist and does not have expertise in trade and tariffs and how they affect us and the world. We have far better ways to counter other countries taking advantage of us than meat axe tariffs which will harm us as much, if not more, than them. The knee jerk commentaries praising anything and everything he does are humorous for their naivete." – Subscriber Robert B.

"Great Dan, Adopting the Winning Weasel Word Watch Way forthwith." – Subscriber Dave E.

"Another great essay Dan. And not just because you quoted Buffett. Also because you dressed down another Warren whom I believe can use a lesson in capitalism. She's got weasel words down to a science. One thing we can be sure of, our Warren will tell us when the price is not right." – Subscriber Ron M.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
March 3, 2025

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