America First is changing into America Alone at warp speed

We get personal consumption spending tomorrow and next week, nonfarm payrolls. Again, it’s likely the numbers will point negative but not enough to draw out screams of recession.

The dollar gained on new tariff news, even if Trump wants it to fall on that same news, on the resumption of anxiety over slipshod, no-plan, impulsive rhetoric. It didn’t help that nearly a dozen top security and defense officials lied out loud on camera about holding a conference call on an insecure line disclosing classified information. The Five Eyes and other security information previously shared is out the window now. America First is changing into America Alone at warp speed. The question remains whether it then becomes America Shunned.

As we have noted before, the giant US trade deficit is offset by capital inflows. The current account balance is balanced. Something named “the U.S. Net International Investment Position (NIIP)” is used to define “the difference in value between overseas holdings of U.S. assets and all the assets held overseas by Americans.” The Reuters columnist Dolan shows “it has been ballooning for more than a decade.” See the chart, not the easie

The BEA report indicates that by end-2024, the gap was “$26.2 trillion, a whopping 88% of annual U.S. GDP. While the bulk of that increase was driven by relative price effects, it also involved almost $1.3 trillion of additional net flows to the United States.”

The US gets these inflows because it has the tech innovation that draws investors into the equity market--see the equity outperformance chart. Zowie. Ther is also the safe haven bonds and real estate property. “And it's been these capital flows rather than the trade gap that have been chiefly responsible for dollar appreciation in the past decade.”

Wait, there’s more—"Total overseas holdings of U.S. assets - or America's overall liabilities to the rest of the world - increased by almost $8 trillion in the final quarter of last year to a gobsmacking $62.12 trillion. That's almost twice what it was a decade ago and nearly double the entire U.S. government debt pile. And it was equities that were doing all the heavy lifting here, not U.S. debt prices that were going in the opposite direction. The value of portfolio equity and investment fund shares jumped by another $676 billion in the final quarter of 2024 to some $18.4 trillion.”

“Next week's tariff announcements will clearly impact all of this and it's unclear what plans are actually coming. What's not in doubt is the degree to which U.S. markets are knee-deep in foreign investment that's been increasingly in more volatile equities rather than traditionally stickier fixed income assets.” Inother words, it can vanish in a puff of smoke, aka 5 days. 

Here’s the kicker: “Reversing these flows could be painful for Americans as it could seriously undermine the asset price inflation that has supported and enriched many.” This data is for year-end. As we know, the first quarter now ending has seen turmoil, especially in equities. And “If foreign money continues to turn tail, it could be a rough year ahead for Wall Street. If the NIIP has hit a historic peak, hold on to your hat.”

Forecast

For forecasting purposes, too much depends on the verbal garbage spilling out of the White House. Trump is not going to stop this tariff mess next week with one big bang on April 2. Tigers and stripes. Tariffs keep him in the spotlight. We could even start getting daily tariff news was Trump tries to distract attention from a near-dozen of his top lackeys lying about have botched that chat.

FX trading action so far today is mixed. We have weird improvements in some EMs,  including the peso and Chinese yuan. For the majors, sterling is up on rising yields plus perhaps ongoing tariff talks with Washington.  The euro is gaining, but with waning momentum and cap perhaps around 1.0865 (one of the cloud tops). Bottom line, the market is extremely messy. We say the dollar “should” fall, but we can’t count on it.  The bottoming we thought we could see coming is now postponed.

Politics: Critics are not letting the scandal of top US official talking about attacking Yemen on what was a public, if encrypted, line. The officials denied anything was war plans or classified. Defense Dept chief Hegseth said “Nobody’s texting war plans.” Some who lied about it were testifying under oath to Congress.

So the Atlantic editor published the whole thing, with newspapers like the NYT repeating the disclosure (and “explaining” it). And indeed, they were talking about secret war plans that should have been classified. Trump called it a “witch hunt” but of course it’s just unqualified, untrained people doing a really stupid thing.

Politics: Maddow’s hair is on fire, and for good cause. Last night she noted the rapidly spreading measles outbreak among the unvaccinated and noted severe problems arising from excessive Vitamin A being given to children, wrecking their livers, because Kennedy had recommended it. The “science be damned” approach is still popular. Nasty critics say science deniers and the not-smart are getting what they deserve—to have their children suffer. This is too mean.

Food for Thought: We keep saying the Trump actions are haphazard and slipshod, but there is a plan. Sort of. The roots are to be found in a document by economic advisors chair.

Analysts leapt to the part about trashing the dollar with a Mar-a-Lago accord like the Plaza Accord, but a weak dollar is only one part and not the first one. The first one is tariffs.

“The president’s very clear on fair and reciprocal tariffs,” Miran told The Washington Post. “Anyone thinking what I wrote in November is the policy agenda we’re secretly implementing right now is just looking for something to write about.”

“And yet the paper has attracted a great deal of interest from economists and other observers at home and abroad who are trying to understand the pain inflicted by the tariffs as part of a broader vision.”

According to the experts trotted out by the Washington Post, it wouldn’t work to re-industrialize the US (no kidding) and in any case is being applied badly—why so much on Canada and Mexico?—but that doesn’t mean some vague idea of the Miran outline is what Trump thinks he’s following. 

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