The Bureau of Econ Analysis reported that the first estimate of Q2 GDP came in at an unexpectedly brisk 3.0%, a complete reversal of the -0.5% decline in Q1.
Personal Consumption added 0.98% to the bottom line GDP, up from 0.31% in Q1.
Fixed Investment came at 0.08%, a big drop from the 1.31%, and perhaps the only concerning point in today’s report: was there really no major data center investments in the second quarter… and if so what are the hyperscalers doing?
The change in private inventories was a big drop, printing at -3.17% in the first estimate, up from 2.59% in the first quarter, and an expected reversal as retailers unloaded all that inventory they piled up ahead of tariffs.
Trade or net exports (exports less imports), came at a whopping 4.99% – the biggest addition to the bottom line GDP number – as imports collapsed and added 5.18% to GDP, a stark reversal to the -4.66% contraction in Q1.
Finally, government added just 0.08% to GDP, a reversal of the 0.10% subtraction in Q1.
So, the BEA reported 3.0% real GDP growth, `the Atlanta Fed’s GDP Now latest estimate was 2.9 percent. Pretty close!
Well, U.S. and China reached an agreement to lower tariffs in a 90-day cool-off period. Despite China claiming they would NEVER agree to tariffs! The result? The NASDAQ 100 rose to its highest level since mid-February.
Doge is necessary to get close to closing the budget gap (tax receipts – spending). Biden left Trump and the US with an untenable fiscal situation (think Cloward/Piven). Extremely large debt load with debt maturing over the next couple of years. Thanks to former Treasury Secretary Janet “The Snake” Yellen government funding formula using ST government debt. And its time to pay the piper to pay for Biden’s overspending and Yellen’s Treasury mismanagement.
Most of the Treasury debt that Treasury Secretary Bessent must refinance is short-term.
And with interest rates higher under Trump/Bessent than Biden/Yellen, US Interest Payments on Public Debt is expected to keep rising.
And US trade balance fell to -140.5.
So, were Biden’s economic policies (and Yellen’s Treasury mismanagement) an intentional Cloward-Piven strategy?
Here are Columbia sociologists Cloward and Piven attending a bill signing by President Bill Clinton.
Despite the slump in ‘soft’ survey data, analysts expected Empire Fed Manufacturing to bounce back from March’s tumble to one year lows and they were right with the headline index rising from -20.0 to -8.1 (considerably better than the -13.5), but still negative. However, while current conditions jumped, expectations plunged to the lowest since 9/11/.
Obama/Biden/Harris/Schumer/Pelosi have let the US be the punks for China. Trump is simply trying to level the playing field and China’s Xie doesn’t like the new equilibrium.
VIX Index fell by 18.7 points yesterday … largest one-day decline in history.
The correlation between stock prices and bond yields has returned to positive territory — hinting at a period of distress in equities and a regime shift in equity and bond markets where recession fears, rather than inflation, may be starting to drive direction of both. The correlation between the two asset classes was positive for the better part of 20 years prior to the pandemic, suggesting equities trended in the direction of yields as inflation mostly coincided with growth. Stocks held a negative correlation to yields throughout most of the 1980s and 1990s, when inflation hurt stocks — and that phenomenon returned for the 2022-24 bear market and recovery period.
Notably, major stock corrections occurred each time the correlation jumped out of its primary regime.
Thunderstruck! The tariff kerfuffle between the Trump Administration and China is causing turbulence in the Treasury market. The 10-year Treasury rate is soaring with China’s counterpunching.
MBS spreads are widening.
Along with volatility.
But corporate spreads are widening more than MBS spreads.
The 10Y-2Y yield curve has risen to the highest level since the early days of “China Joe” Biden.
On a related note, Freddie Mac serious delinquency rates on mortgages is now the highest since the financial crisis.
Headline PPI fell (yes fell) 0.4% MoM (dramatically cooler than the 0.2% MoM rise expected), dragging the headline index down to +2.7% YoY.
The market is re-assessing the structural attractiveness of the dollar as the world’s global reserve currency and is undergoing a process of rapid de-dollarization.
US tariff policies for the last 50 years represent a folly. Particularly since Presidents Obama and Biden (along with Chuck Schumer and Nancy Pelosi) did nothing to correct the enormous disparity in tariffs. Trump is trying to do something to right the ship before it sinks like The Titanic.
Victor Davis Hanson wrote in the Daily Signal, “China has prohibitive tariffs, so does Vietnam, so does South Korea, so does Japan, so does Mexico, and so does Europe. So do a lot of countries. So does India. But if tariffs are so destructive to their economies, why is China booming?
Why is Canada mad at us when it’s running a $63 billion surplus and it has tariffs on some American products at 250%. Doesn’t it seem like the people who started this asymmetrical—if I could use the word—trade war should be the culpable people, not the people who are reluctantly reacting to it?
Were tariffs leveled against countries that had no tariffs against us?
The US hasn’t run a trade surplus since 1975 or 50 years. So, it wasn’t suddenly we woke up and said, “It’s unfair. We want commercial justice.” No. We’ve been watching this happen. For 50 years it’s been going on. And no president, no administration, no Congress in the past has done anything about it.
In the postwar period, we were so affluent, so powerful—Europe, China, Russia were in shambles—that we had to take up the burdens of reviving the economy by taking great trade deficits. Fifty years later, we have been deindustrialized. And the countries who did this to us, by these unfair and asymmetrical tariffs, did not fall apart. They did not self-destruct. They apparently thought it was in their self-interest. And if anybody calibrates the recent gross domestic product growth of India or Taiwan or South Korea or Japan, they seem to have some logic to it.
There’s a final irony. The people who are warning us most vehemently about this tariff quote the Smoot-Hawley Act of 1930. But remember something, that came after the onset of the Depression—after. The stock market crashed in 1929. That law was not passed until 1930. It was not really amplified until ’31. And here’s the other thing that they were, conveniently, not reminded of: We were running a surplus. That was a preemptive punitive tariff, on our part, against other countries. We had a trade surplus. And it was not 10% or 20%. Some of the tariffs were 40% and 50%. And again, it happened after the collapse of the stock market.
In conclusion, don’t you find it very ironic that Wall Street is blaming the Trump tariffs for heading us into a recession, if not depression, when the only great depression we’ve ever had was not caused by tariffs but by Wall Street?”
Average reciprocal tariffs could rise to 35%!
The Mag 7 index has gotten crushed under Trump’s tariffs.
Corporate bond yield has soared with Trump’s tariffs.
The market correction thus far is -17.5%, not even close to the worst correction since 2009 (-35.4% in 2020).
Trump inherited a brittle economy from “The Fool” Joe Biden. And it is shown up.
The Trump Administration is fighting the remnants of Biden’s policies by cutting spending (DOGE) and deregulation.
All this has resulted in a soaring US Dollar.
Tarot cards have officially renamed “The Fool” card as “The Biden.” Although in Washington DC, there is no shortage of fools (see Maxine Waters (D-CA) and Rashida Talib (D-MI).
On Tuesday, it was announced that Presidential candidate Kamala Harris would be supporting President Joe Biden’s tax proposals for 2025, which include a 44.6% capital gains rate and a 25% tax on unrealized gains.
Having used up all of the rest of the batshit, insane, counterintuitive economic dirty tricks left in the “we’ll literally do anything but cut spending” bag, the Biden administration began pushing this tax idea in April 2024 when I first wrote about it. Unrealized gains taxation could be the most destructive idea for our country since prohibition, I joked at the time.
As part of its budget proposal for the 2025 fiscal year, the Biden administration was trying to raise an addition $4.3 trillion over 10 years in the worst way possible: imposing a minimum tax equal to 25 percent of a taxpayer’s taxable income and unrealized capital gains less the sum of their regular tax, for taxpayers with wealth over $100 million.
Biden/Harris pushes taxes way beyond the revenue maximing point, down to the point of deminishing revenues and economic growth. Here is the Laffer Curve.
Putting aside the fact that this high-risk idea only amounts to a pittance, $430 billion per year, the introduction of taxing unrealized gains could be one of the worst slippery slopes we ever dare to roll our country’s economy down.
We could save $1 trillion just by not sending $100 billion a year to other nations for starters.
A tax on unrealized capital gains means that individuals are penalized for owning appreciating assets, regardless of whether they have realized any actual income from selling them.
If you purchased a stock for $100 this year, for example, and it increased to $110 next year, you would pay the assigned tax rate on the $10 capital gain. You didn’t sell the asset, so you don’t realize the $10 appreciation, but must pay the tax regardless.
Taxing unrealized capital gains contradicts the basic principles of fairness and property rights essential for a free and prosperous society. Taxation, if we’re going to have it on income, should be based on actual income earned, not on paper gains that may never materialize.
mplementing such a tax not only deeply infringes upon personal liberty and private property rights — but I can’t help but think about how it also sets a destructive wrecking ball rolling down a slippery slope for the first time in our nation’s history.
And, given the precarious state of our nation’s finances, it doesn’t seem like the best time to start spitballing about new risky ideas that may or may not catch on only because they sound like they are addressing the problem of a widening wealth gap that Federal Reserve policies created and continue to exacerbate to begin with.
If the administration really wanted to address the problem of wealth inequality, it would be setting its sights on the central bank that sacrificed price stability so it could spray trillions of dollars in “stimulus” toward financial assets, while cutting American families paltry checks of just $600, during COVID. When I did the math during COVID, the total amount spent to bail out the country.
Why do we trust any Democrat politiician? I certainly don’t!
Taxing unrealized gains would risk mass sale of US assets and therRich fleeing.
Confounded Interest - Anthony B. Sanders 
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