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About this Episode
To investors,
We have entered the Age of Economic Chaos. It seems like each day brings a new announcement, a new decision, or a new action. Rather than a simple, predictable plan being executed, President Trump and his administration are moving fast and breaking things.
His critics see this strategy as detrimental to the US economy and America’s position globally. His supporters are applauding the President for following through on what he promised while on the campaign trail. They want the swamp drained of the bureaucracy, government waste ended, and an America First strategy that rolls back the globalist agenda from the last 50 years.
Let’s look at the last 24 hours as an example of how this is playing out.
The White House confirmed last night that President Trump has suspended all military aid to Ukraine amid the disagreement with Ukraine’s Zelenskiy. The United States is seeking a mineral rights deal that will ensure repayment for the hundreds of billions of dollars that is being sent to support Ukraine, while the European country continues to demand security agreements and other onerous terms. This decision to pause military aid was a surprise to the market and created another news cycle filled with fear, which doesn’t help to calm investors.
According to Perplexity, investors are worried because freezing aid “could potentially escalate the conflict and increase geopolitical instability, which often leads to market volatility and economic uncertainty. Additionally, this move might signal a shift in US foreign policy that could have broader implications for international trade relationships and global security alliances, factors that significantly influence investor confidence and financial markets worldwide.”
As if that wasn’t enough, Trump confirmed he will impose the 25% tariffs on all imports from Canada and Mexico, along with an additional 10% tariff on China, starting at midnight last night. These penalties had been threatened for weeks, but many were holding out hope for a last minute deal — instead of getting that deal, the US government is moving forward with the tariffs as a way to exert pain on our largest trading partners. Stocks immediately fell after Trump confirmed the tariffs would be implemented and the S&P 500 is now negative year-to-date.
You can actually watch the stock market fall while Trump is speaking about tariffs in this video:
Just these two developments would be enough news for weeks of analysis in any other administration. Add in the fact that the stock market is crashing and you can understand why hysteria has started to take over.
But we were just warming up yesterday. And not all the news was bad.
Taiwan Semiconductor Manufacturing Company held a press conference with President Trump, AI czar David Sacks, and Commerce Secretary Howard Lutnick. The company announced plans to invest an additional $100 billion in the United States by building 5 new manufacturing facilities and creating at least 20,000 American jobs.
Trump’s supporters will argue this investment from TSMC is a result of the tariff threat, while his detractors will point to Biden’s CHIPS Act as the main driver. The truth is that both Presidents are likely to be partially responsible. Regardless of who gets the credit, American citizens should be excited about the prospect of more investment, more domestic manufacturing, and more jobs.
So what is going on here?
It feels like every 24 hour period brings a flurry of good and bad news. It seems to the untrained eye that action is the goal, rather than results. But I want to make a different argument — I want to lay out a scenario where the President and his team are intentionally cratering the economy and the stock market to reset the foundation on which to build upon.
Kyla Scanlon pointed out that one user on X named Fischer King posted in October of last year the following:
“If Trump succeeds in forcing through mass deportations, combined with Elon hacking away at the government, firing people and reducing the deficit - there will be an initial severe overreaction in the economy - this economy propped up with debt (generating asset bubbles) and artificially suppressed wages (as a result of illegal immigration). Markets will tumble. But when the storm passes and everyone realizes we are on sounder footing, there will be a rapid recovery to a healthier, sustainable economy. History could be made in the coming two years.”
This innocuous post got a reply from Elon Musk who said “sounds about right.”
This begs the question — why would a President and his team intentionally hurt the economy or the stock market? The answer is a little more complicated.
Cem Karsan had the best breakdown of anyone:
If you didn’t already understand the current White House’s approach from their budget, Bessent is telling you loud & clear, if you care to listen. This is what he is saying in plain English:
They want to slow demand in the real economy & hence slow inflation, by distributing less to people, via slowing wage growth and less social services to American’s in the median income on down.
How?
* Cut Government Employment
* Cut Medicare
* Cut Snap Food assistance and School Lunches
* Cut Low income Housing Assistance
Then, as these cuts take hold in the next 3-6 months… they plan to in Equal amounts Increase supply side stimulus to get ‘private Industry moving,’ this will send money to the top 0.1% of the top wage earners. Not increasing inflation, while stimulating economic growth.
How?
* Massive Corporate Tax Cuts
* Gut the IRS and corporate financial oversight to reduce taxes further.
* Deregulate to allow corporations to operate untethered to increase profitability.
* Drill baby Drill
The demand side policies take effect quicker than the supply side, So… as cyclical deflation takes hold in 6 months or so… they plan to respond quickly with:
Loose Monetary Policy switching back from QT-> QE
This is a highly complex strategy that may or may not work. But one thing is becoming clear — the Trump administration is going to take a run at implementing the plan regardless of what anyone else thinks.
The thing about these policies is that receptivity and enthusiasm really boils down to whether someone is a fan of Donald Trump or not. Ben Carlson had a great meme that explained the different viewpoints perfectly — critics call it crashing the economy, while supporters call it lowering mortgage rates.
The truth is that both can be true at the same time. And you may think that everyone will be upset if the economy collapses, but I don’t agree. Spencer Hakimian said it well when he described the working class cheering for a market downturn:
“I get this sense that because the economy over the past 4 years was so K Shaped - amazing for asset owners, the upper class, etc., but so lukewarm/mediocre for the working class/wage class, that there is a large cohort of the country that is hoping Trump tanks financial markets and the economy as well so that we are all suffering together. Misery loves company. Relative status is so deeply rooted in human evolutionary psychology.”
So you can think of Trump’s policies as a way to play to his newfound working class base in a weird way. Get stocks and mortgage rates lower. Give these people access to financial assets or primary homes that were previously unavailable to them from an affordability standpoint.
I am not arguing that these are good ideas, but merely commenting on what seems to be playing out. The market downturn is being promised as short-term pain in exchange for long-term benefit. Treasury Secretary Scott Bessent was on television this morning explaining how the focus is on Main Street and consumers rather than Wall Street:
We will see if that is actually what happens. But one thing is guaranteed — change is happening and chaos is an intended outcome. I liked X user Goodstructure’s explanation of the pain — “always a little pain when daddy takes the credit card away.”
With this as the backdrop, it makes sense that odds on prediction market Kalshi currently sit at 40% for a recession this year.
You may not expect the President of the United States to crash the US economy on purpose, but that is what appears to happen. Hopefully this is a healthy correction that allows us to rebuild on a stronger base, but either way — put your seatbelt on.
We are in for a bumpy ride.
Hope everyone has a great day. I’ll talk to you all tomorrow.
- Anthony Pompliano
Founder & CEO, Professional Capital Management
Darius Dale Explains Why The Government May Be Crashing The Market On Purpose
Darius Dale is the Founder & CEO of 42Macro.
In this conversation we talk about global liquidity, what’s going on with inflation expectations, why the government may be tanking the market for a foundation of strength, and how this impacts asset prices.
Enjoy!
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