Capitulation Day

Now, aren’t you glad you didn’t panic, sell and bury your cash in the backyard after Liberation Day?

Sure. Because here we be. On Capitulation Day.

Tariff Man has flipped another flop, and Mr. Market can now see the beginning of the end of a failed 19th Century economic policy that made sense when robber barons had side whiskers, side wenches and side arms. As investors awoke today they learned the US had blinked and China winked. Ridiculous and destructive tariffs on both sides are being seriously reduced. At first for 90 days. But probably forever (at least for the rest of the Trump dynasty).

As we all know, having a fight between the largest and second-largest global economies is insane. The whole uber-tariff strategy of 47 is insane. Flipping off you best friends, allies and trading partners (us) is insane. Disrupting global trade and expecting other countries to paper over your inability to run an economy and raise enough taxes, is insane.

Well, as tariffs fall apart for the orange guy, this week he moves on to be feted by the Saudis, gifted a $700 million airplane in Qatar, greet a hostage in Gaza and try to grease Zelenskyy into surrender. Markets could not be happier. As far as Wall and Bay Streets are concerned, Trump can stay away until 2028.

World stocks exploded higher on the opening today. The S&P 500 was ahead 3%. The tech-heavy Nasdaq added 4%. All the disastrous losses after the president held up a whimsical chart of ‘reciprocal’ tariffs on a huge list of nations (and some penguins) have been regained.

Markets across the globe come roaring back

Source: New York Times

No wonder.

Trump was forced to back down on a most of his draconian, weird actions. Car tariffs scaled back. Months-long ‘pauses’ on others. A hasty, patchy deal with the UK. Negotiations with Canada. Now ending the war with China. Meanwhile the US Federal Reserve held firm, warning about the consequences of the (insane) White House policy and refusing to be cowed into slashing rates.

Jerome Powell is a hero. And Trump hates him for that.

Meanwhile Elon Musk has skulked out of Washington as judges overturn many of his actions to gut government, which have ignited widespread protest. He’s back at Tesla, where sales have sunk 20% and profits crashed 70% as consumers turn against Muskism. His departure is symbolic of the chaotic retreat that led to this new China deal.

Also symbolic is the Canada-US border. The bridges are basically empty of cars. Canadian citizens of colour or with foreign-sounding names or who were born outside of the country (like 52% of the Toronto population) are being screened, harassed and denied entry by American border officials at crossings and airport customs locations.

MAGA has gone too far to survive. Attacking universities which allow free speech. Deporting people without due process. Punishing law firms that acted against Trump. Retreating from science and vaccines. And pushing an economic agenda which the IMF says will make the entire world poorer.

So as markets see the end of this nightmarish presidential strategy – mere months since it began – we’re back to concentrating on the essentials. Corporate earnings. Innovation. Consumer spending. Monetary policy. And, yup, it’s party time.

Source: CNN

Only days ago it was extreme fear driving markets down. Today the greed-o-meter was lit as billions of dollars poured back into equities. The US dollar went up (ours went down). Bitcoin lost $1,500. Gold prices tumbled almost 3%. The S&P will likely have its best day since Trump’s embarrassing Rose Garden made-for-TV trade flop. US tariffs on China are going from 145% to 30%. Chinese tariffs on American goods drop from 125% to 10%.

This is consistent with the US-UK deal, which also settled at a levy of 10%. And it gives hope that the Carney crew can negotiate a deal with Washington that settles somewhere between that number and 0%.

As for people worried about their TFSAs, retirement savings and house downpayment funds, you can stop. We’ve just been through an episode that should reinforce what this pathetic blog has told you over and over and again.

Stay balanced and diversified. Have global exposure. Keep a quarter of your portfolio in US-denominated assets. Do not sell into a storm. Stuff your tax shelters. Focus on your long goal. And never bet against America. Even now.

About the picture: “I’m a privileged millennial problem,” writes Andrew, in Vernon. “I’ve read your blog for 4-5 years now and I think I’m doing a good job of staying the course. Thanks for all you do. Really helped me stay the course. Keep the blog going. This is my dog, Memphis.”

To be in touch or send a picture of your beast, email to ‘garth@gartth.ca’.

Source: https://www.greaterfool.ca/2025/05/12/capitulation-day/