Here’s a preview of what we’ll cover this week:

• Macro: Disinflation is intact, but the setup is shifting. Tariffs, deficits, and Fed inertia are tightening financial conditions beneath the surface.

• Market: Markets are bouncing off oversold levels. Positioning is that U.S. equities are underowned.

• AI: AI pushes forward in robotics, chips, and enterprise—driven by headlines from OpenAi and others.

Lumida in Spotlight

Ram Ahluwalia joined Bits + Bips this week to break down the tariff trap and why this cycle feels eerily familiar.

The conversation touched on why the Fed is unlikely to respond with immediate rate cuts, what makes this selloff more dangerous than 2022 or 2020.

Oh, and Ram coins a new term: FAFO tariffs.

Trump’s Policy Pivot

The S&P finished up 5.7% for the week following Trump’s tariff pivot about 14 hours after they went into effect. 

Nvidia is up 18%. Google and Meta are up 8% for the week.

On Wednesday a few hours before the pivot, I wrote on X: “However, Trump should pivot beforehand. His tweet to buy stocks was also seen on Dec 24, 2018—just before the Dec 26, 2018 bottom. Long biased.” 

I wish we did not have to parse Trump’s mind to determine asset allocation, but you have no choice but to study his history and parse policy in real-time.

For example, we were bearish on China and Apple for weeks. 

Now that we have exemptions on semiconductors and chips, I think it makes sense to be bullish on China.

I believe Trump will pivot hard on tariffs. He has no choice, and he’s already shown his hand.

Ever since his “buy stocks” comment, he owns market outcomes.

Market Consensus says it’ll take months to work through 80+ bilateral trade deals. 

But consider the velocity of Trump’s first 90 days. 

These deals will get worked out faster than most expect.

Also, the tariffs have hurt Trump’s political brand and that will cost him in the midterms.

The difference between now and Trump 1.0 Tariff wars:

• The scope, severity, and speed of tariffs are deeper

• AND Trump has publicly identified himself with the tariffs thru constant news exposure

Trump’s political fortunes are linked to tariffs. If we get a recession due to one of the largest tax increases since Smoot Hawley, Republicans will lose the mid-terms.

So, you’ll see resolution towards a pivot. A bad non-farm payroll would force that.

The great irony in all of this – including the recent exemptions – is that Trump is punishing American small businesses that disproportionately vote Republican.

There are also growing signs of consumer weakness. 

CEOs remain frozen and are stalling capex and long-horizon business decisions.

The probability of a recession has increased. If Trump fails to pivot and sticks with these tariffs, then you will see increased inflation and lower earnings growth – both are bad for markets.

There are smart people out there like Neil Dutta from Renaissance Macro suggesting we get a recession. 

The JP Morgan folks also peg probabilities of a recession at 40%. 

That’s another way of saying people have no idea what Trump is going to do next.

Once we get to late June or July we would have to re-assess progress then. 

If the progress isn’t there, then shifting to a defensive posture would make sense.

U.S. Equities Are Underowned

For the first time in a long time. positioning is clean. 

U.S. equities are under-owned.

I noted on Wednesday that one should orient around a multi-week and perhaps multi-month bounce. 

The big risk to the market is the basis trade.

Basis Trade

The main reason why the Basis Trade is not an issue is because multiple Fed Governors have come out and said they stand ready to provide liquidity if needed. 

If there’s a “pothole” in markets, it gets covered quickly with a strong rally. 

Here’s a chart of the 10 Year:

Notice interest rates are going in the wrong direction despite the administration’s emphasis on lowering long-term interest rates.

This is all due to the basis trade – essentially funding and liquidity pressures in the bond market.

These rate movements also caused the Trump White House to pivot after reportedly seeing Jamie Dimon highlight these risks on Wednesday.

Higher long-term interest rates aren’t great for stock market valuations. So, it is critical to focus on sectors that are less interest rate sensitive.

I have no interest in owning names in the Real Estate (XLRE ETF) sector for example. 

Also, don’t have interest in owning Retailers. 

Or homebuilders and building supply materials firms.

These categories will all represent incredible bargains for value oriented investors. It’s just too early in our view.

Meanwhile high quality tech companies with clean balance sheets can grow just fine despite these interest rate issues.

On the macro front, the inflation data came in good—very good, actually. 

Initial claims still don’t show layoffs. Continuing claims came in lower. 

Unfortunately these are coincident indicators and not forward looking like the Challenger survey.

Also, CEOs and procurement managers remain frozen. Imagine trying to re-order your supply chain overnight without notice. You have to breach contract on your suppliers and terminate employees, and go into a hiring frenzy. 

Then the administration provides a selective exemption ‘Just kidding’.

Trump has less than 90 days to create clarity and instill confidence. Markets will discount his self-interest in driving outcomes.

Last week we noticed that many safe have trades broke down.

This week we saw panic-buying in gold miners.

Van Eck GDX ETF

Gold miners are up 38% in 3 months. Most of those gains are in the last 5 days. 

Panic buying is another signal we are closer to the bottom at least for an intermediate bounce.

Staples (XLP) are also putting in a series of lower highs. This safety trade is simply too expensive when Costco has a 51x forward PE.

The conclusion is that positioning matters. Not all sectors will rise in unison, we expect rotations from these overbid defensives 

There are assets out there at good bargains. Focusing on assets at good bargains is a sensible way that have a good likelihood of being up in one year is a good way to approach the current environment.

The energy sector sold off sharply this past week on global growth slowdown and recession ricks.

We picked up UK energy company Shell for example. At 5x P/CF with a high single digit buyback yield and a natural inflation hedge it’s not a bad idea. 

Why own bonds that are declining in value when Shell exists? It’s an interesting ‘safe’ idea that I expect preserves capital with reasonable growth expectations and diversification should inflation remain sticky.

What’s confusing people is the volatility. 

Indices are up a couple of points from Wednesday’s turnaround. 

Indices were up 7% on Wednesday, then gave back half the gains on Thursday, then rose 2 to 3% higher. Net net, markets are up 5.7% for the week.

A high VIX means a down day is down sharply, and an up day is up sharply.

I think the lows from Wednesday—when tariffmageddon was rolled out—still hold. 

Anyone buying at that level knew and assumed the worst. 

If we get a recession, obviously that’s off the table, and the S&P bottoms at 17x, around 4,500. 

Still, it won’t be a straight line and there will be time to rotate.

A recession is a possible risk, not a likely one, and it can be stopped quickly with policy. 

Further, a recession need not be deep. 

The United States has a services economy now – not a manufacturing economy. 

A manufacturing economy is far more sensitive to the ‘commodity bullwhip effect’ where small changes at the front of the value chain drive real shocks downstream.

Policy Note: It makes sense to de-risk supply chain dependencies on China for critical materials and components.

But the general goal of making the United States a manufacturing hub for the middle class is misguided. 

The United States needs more supply of healthcare for the elderly and the young to reduce cost of care.

And Advanced Robotics will get natural adoption thru the operation of capitalism in the same way Amazon has intorduced robotics, or AI is transforming radiology.

If you have a one-year horizon and outlook, it’s hard not to see how certain tech names aren’t much higher than current levels. 

We are solving for a short window of volatility around this basis trade and whatever Howard Lutnick says next.

Not everything is a bargain, but there are bargains out there. 

The main test for the indices will be when they rally to their EMAs (exponential moving averages). 

Our view was that indices would gap up over the weekend, but with Lutnick’s latest comment we don’t think that’s the case.

Selling the bounce at EMAs is the main technical risk here and the indices are there now.

This is all about newsflow and policy, so the shelf life of much of what we can say here is short.

At the same time, heightened uncertainty does create discounts and bargains for true long-term investors. 

Markets are spilling and creating temporary opportunities. When we spot those, our goal is to buy. Nvidia at $86 in Monday futures is an example of a spill.

We think being responsive to what Mr. Market puts on sale is the best way to proceed (and consider sell short over-hyped expensive names on rallies if you have the skills to do).

Art of Deals

Trump views Foreign Policy, much like other things in life, as a series of transactions and deals.

He will get deals done and that will create clarity. 

Tariff Folly

The high level mistake Trump is making is equating the Trade Deficit with a P&L statement.

This is old-school mercantilist thinking, out of touch with Adam Smith and David Ricardo.

Trump: “We have to solve our trade deficit. Unless we solve that, I’m not going to make a deal.”

We believe Mr. Market and political goals at the mid-terms are a binding constraint on a misguided tariff policy. 

The distancing of the admin from this absurd tariff calculation is good to see. People are walking away from that mess.

Treasury Secretary Bessent said: “Wall Street had good years. It’s Main Street’s turn.”

Here’s what that looks like:

People working everyday jobs, like the guy fixing my sprinkler system, are complaining about how much they’ve lost in the market. So is the barber.

Mortgage rates are back above 7%, tightening the screws on anyone trying to buy or refinance.

A small business owner on Reddit is shutting down after getting hit with surprise tariffs:

Third-party sellers on platforms like Shopify and Amazon are being wiped out by import costs.

But hey, the US Treasury will generate $300 billion in “revenue”, after the largest sales tax in American history.

The Trade Deficit is not a P&L.

The trade deficit is the capital and credit that the rest of the world provides to the United States.

You may have noticed your credit line and access to capital increases as your wealth and skills grow.

The same works for the United States. Foreign investors want to invest in and lend to American businesses.

It’s no surprise that the trade deficit contracts in a recession, and grows in an expansion. 

A firm like Apple will import low-cost electronics components and sell high value-added iPhones. 

The U.S. is the primary consumer market, Apple has a trade deficit with the Rest of the World, but makes plenty of profits and employs plenty of people.

But the market sees through it.

You can’t trick the stock market with a political narrative.

Wall Street is 6 months ahead of Main Street. When job losses start, then tax revenues will drop, unemployment benefits will increase, and the deficit will widen.

And this is where the Fed finds itself cornered, unable to cut now, yet forced to react if the data turns.

Fed Reaction Function

The Fed cannot cut here in response to an incoming destruction of losses. 

It’s hard to see May cuts materializing, although Mr. Market is pricing that in. The Fed does not want to “own” tariffs, which are inflationary, regressive, and act as a sales tax that directly undermines their policy objectives. 

However, as soon as the labor market softens and a weak NFP print lands, the Fed will overcompensate and cut aggressively—because job losses are deflationary. 

That’s the key.

We wrote this last Wednesday at 11:30 near the intraday lows:

However, Trump should pivot beforehand. His tweet to buy stocks was also seen on Dec 24, 2018—just before the Dec 26, 2018 bottom. Trump’s phone is undoubtedly ringing off the hook, and Scott Bessent is now losing credibility as a market mouthpiece.

Tactically, where we are now, it’s better to orient long. There is a three-day window of risk. If Trump stays the course, the S&P could bottom around 4,500 or 17x forward PE. 

If Trump pivots, then the lows are likely in. Regardless, with a one-year time horizon, stock prices should be up 20%, give or take.

Delta, for instance, rose 8% despite offering no forward guidance. 

That suggests that discretionary names, at least in airlines, have already priced in a recession. Some sectors like quality defensive tech have also priced in recession risk, and we are actively buying there. Note: not all sectors are priced for recession, so positioning still matters.

You should be long-biased here. Not a full portfolio and not levered but biased long. 

Macro

March CPI showed the first monthly deflation print since 2020, down 0.1% m/m, up 2.4% y/y. 

Gas and airfare pulled the index lower. Core still rose 0.1% m/m and 2.8% y/y. The disinflation narrative is alive, for now. 

But the chart tells a deeper story: goods inflation is fading fast, while services continue to grind lower. That’s a bad sign for retailers as we noted earlier.

Small business owners are signaling margin pressure. 

Job openings remain high, but hiring plans are falling, suggesting firms can’t justify expanding headcount at current cost levels. 

That’s a lead indicator for labor softening and a signal the pricing power cycle may be peaking.

So far, the labor market hasn’t cracked.

Initial jobless claims rose slightly to 223,000 in early April, staying near historic lows, while continuing claims dropped to 1.860 million by late March, reflecting a resilient labor market.

Normally, this would spark rate cut expectations. It didn’t. The Fed is sidelined until labor softens or tariffs hit consumption. 

For now, they are ignoring soft inflation prints and watching second-order effects from trade policy. The important chart here is the Core CPI ex-Rent. 

It shows disinflation is intact, but it’s no longer driving the Fed’s reaction function. 

Bitcoin Trade Shift: De-Dollarization? 

VanEck confirms that China and Russia have begun settling energy trades in Bitcoin. 

Bitcoin is now retracing the election breakout levels. The chart reflects both capital rotation and rising retail interest. 

The Trump family likely owns more Bitcoin and crypto than public equities. There are rumors gold may be sold to buy bitcoin to make the exchange ‘deficit neutral’.

Trump has also fuelled doubts about whether the gold is in Fort Knox (yes, it is, and Bessent has said so as the reserves are audited).

One can’t help but speculate that perhaps Trump has bigger plans in store for bitcoin?

Gold Surge Signal

Investors are selling off gold and piling into bonds, signaling a shift away from the U.S. 10-year Treasury as the go-to safe haven.

Gold isn’t just a hedge—it’s a signal.

Sovereigns and large foreign asset managers are rotating out of US Dollar assets, not all at once, but deliberately. This is what de-dollarization looks like at the margin.

Bank Earnings Highlights: Q1 2025

Yesterday, April 11th, giants like JPMorgan Chase, Wells Fargo, Morgan Stanley, and BlackRock unveiled their Q1 2025 results, delivering a mixed bag – strong beats from JPM and Morgan Stanley, a solid showing from BlackRock, and a slight stumble at Wells Fargo.

JPMorgan Chase & Co. (JPM) – Q1 FY25 Earnings Highlights

• Earnings Overview:

  • Revenue: $46.01 billion, up 8% YoY from $42.5 billion, beating $44.11 billion expected.

  • Net Income: $14.64 billion, EPS $5.07 (includes $0.16 gain), vs. $4.61 expected; adjusted EPS $4.91 a 10% YoY increase.

  • Key Metrics: Net interest income up 1% to $23.4 billion; non-interest revenue up 17% to $22.6 billion; equities trading revenue up 48% to $3.8 billion.

• Verbatim Quotes:

  • “The economy is facing considerable turbulence with the potential positives of tax reform and deregulation and the potential negatives of tariffs and trade wars, ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility.” – Jamie Dimon, CEO.

  • “Markets performance was very strong… investment banking performance this quarter was actually fine.” – Jeremy Barnum, CFO.

• Insights on Consumer Trends:

  • Consumer banking revenue rose 4% to $18.3 billion, driven by higher credit card balances, though deposits dipped slightly, showing steady spending with cautious saving.

  • Wealth management fees grew, boosting non-interest revenue by 20%, indicating clients seek stability amid economic uncertainty, a trend continuing into April 2025..

Wells Fargo & Co. (WFC) – Q1 FY25 Earnings Highlights

• Earnings Overview:

  • Revenue: $20.15 billion, down 3% from $20.77 billion, missing $20.8 billion expected.

  • Net Income: $4.89 billion, EPS $1.39, up 6% YoY, beating $1.23 expected.

  • Key Metrics: Net interest income down 6% to $11.5 billion; consumer banking revenue down 2% to $8.9 billion.

• Verbatim Quote:

  • “The U.S. economy continues to perform better than many had expected, and although there will likely be continued economic slowing and uncertainty remains, it is quite possible the range of scenarios will narrow over the next few quarters.” – Charlie Scharf, CEO.

• Insights on Consumer Trends:

  • Consumer banking revenue fell 2% to $8.9 billion with lower deposits, reflecting cautious saving due to tariff fears, a trend persisting into April 2025.

  • Stable loan balances show consumers borrowing for homes and credit, maintaining steady demand.

Morgan Stanley (MS) – Q1 FY25 Earnings Highlights

• Earnings Overview:

  • Revenue: $17.74 billion, up 11.2% from $15.95 billion, beating $16.58 billion expected.

  • EPS: $2.60, up 14.9% YoY, beating $2.32 expected.

  • Key Metrics: Investment banking and trading revenue surged, with equities trading a key driver.

• Verbatim Quote:

  • “Barring the worst-case risk-off scenario, trade and geopolitical uncertainty will be priced into the markets over time.” – Ted Pick, CEO

• Insights on Consumer Trends:

  • Higher wealth management fees show clients investing in market-linked products, seeking growth and stability, a trend continuing into April 2025.

  • Strong trading and banking activity reflects institutional clients’ confidence in volatile markets, boosting AUM indirectly.

BlackRock, Inc. (BLK) – Q1 FY25 Earnings Highlights

• Earnings Overview:

  • Revenue: $5.28 billion, up 23% YoY, missing $5.34 billion expected.

  • EPS: $11.30, beating $10.14 expected.

  • Key Metrics: AUM near $10 trillion (Q4 2024 base); asset management fees grew strongly.

• Verbatim Quote:

  • “We’ve seen an elevated increase in April… with $20 billion in inflows this month alone in cash,” – Lawrence Fink, Chairman and CEO

  •  “Inflationary pressures… short run we have an economy that is at risk. But my long-term views have not changed at all despite all the short-term fears,” – Lawrence Fink, Chairman and CEO

• Insights on Consumer Trends:

  • Near-$10 trillion AUM and fee growth show clients trust diversified funds, favoring ETFs and fixed income, a trend persisting into April 2025.

  • Clients allocate to stable products amid tariff fears, boosting demand for multi-asset solutions.

Trends for April 2025 and forward in the Industry

• Consumer Spending Intact:

  • JPM: Banking revenue up 4%, card balances grow, deposits slip.

  • WFC: Consumer revenue down 2%, deposits fall, loans hold steady.

  • MS: Wealth fees rise, clients chase market gains.

  • BLK: AUM and fees soar, ETFs and bonds in demand.

• Sentiment Mixed:

  • JPM, MS, BLK clients stay confident, but WFC shows caution. Tariffs cloud the mood.

AI

AI Insights

Key Takeaways: AI Robotics, Hardware, and Enterprise Advancements

• Figure AI’s pre-IPO status draws significant investor interest in AI robotics, though its lack of revenue raises questions.

• OpenAI’s ChatGPT memory feature introduces a new standard for personalized AI interactions.

• Google’s Ironwood chip intensifies competition in AI hardware, focusing on cost and performance improvements.

• NVIDIA advances robotics AI during National Robotics Week, targeting real-world automation applications.

• xAI upgrades Grok 3, enhancing its capabilities for enterprise users in data-driven sectors.

AI News & Developments

Figure AI Drives Robotics Investment Interest

Figure AI, a pre-IPO AI robotics startup, has generated strong investor interest with claims of autonomous robots, as reported on April 9. Despite minimal revenue, the company’s vision for humanoid robots in industrial applications has drawn comparisons to Tesla’s early days, with a reported valuation of $40 billion. 

The enthusiasm highlights AI robotics’ growing appeal in private markets. 

[Source: WSJ]

OpenAI Enhances ChatGPT with Memory

On April 10, OpenAI introduced a memory feature for ChatGPT, enabling it to recall past conversations for more personalized responses. Initially available to Pro and Plus subscribers (excluding the EU due to regulatory reviews), this upgrade strengthens ChatGPT’s utility in enterprise applications like customer service. CEO Sam Altman views it as a step toward AI systems that better understand users, though privacy concerns remain. 

[Source: TechCrunch]

xAI Upgrades Grok 3 for Enterprise
xAI announced a Grok 3 upgrade on April 11, improving its reasoning and multi-step task capabilities for enterprise users. Available on platforms like grok.com and x.com, this update aligns with xAI’s mission to accelerate human scientific discovery. It positions Grok 3 as a valuable tool for data-driven industries like finance, enhancing xAI’s standing in the LLM market. 

[Source: xAI]

Use our AI Investment Analysis tool to stay updated with real-time market insights and uncover opportunities like never before. Check it out now at http://34.46.182.147/.

Lumida Curations

Clips from Recent NCI

Speaker/Guests: Ram Ahluwalia

Key Insights:

• Earnings growth is declining, and shrinking margins make a 20x S&P multiple unjustifiable.

• Inflation is rising, and confidence in the dollar is weakening, reflecting bear market psychology.

• China’s export-driven economy faces extreme earnings volatility as their bond returns remain below inflation.

Bits and Bips Podcast

Speaker/Guests: Ram Ahluwalia, Noelle Acheson , Alex Kruger, James Seyffart

Key Insights:

• Tariffs on exporters lead to layoffs, higher prices, and economic losses for consumers, shareholders, and taxpayers.

• Tech stocks reflect a downturn, while financials, real estate, and energy remain overvalued.

• If Trump pauses tariffs, markets could surge, but doubling down could lead to a 2008-style collapse.

• Real money buyers are expected to step in when the S&P hits 4,500.

• Tariffs create chaos without supply chain adjustments, risking the dollar’s reserve currency status.

Joe Tsai Interview

Speaker/Guests: Joe Tsai, Co-founder of Alibaba
Key Insights:

• China achieved 5% GDP growth last year, primarily driven by exports.

• Tariffs and geopolitical tensions may weaken the export sector this year.

Ray Dalio Interview

Speaker/Guests: Ray Dalio
Key Insights:

• U.S. manufacturing faces structural challenges, with falling revenue and limited access to capital.

• Debt and deficits exceeding 3% of GDP exacerbate economic pressures.

• Solutions to these issues are complex, with significant political and economic consequences

Scott Bessent on Fox News

Speaker/Guests: Scott Bessent
Key Insights:

• A potential devaluation of China’s currency could act as a global tax, leading to higher tariffs worldwide.

• The bond market is undergoing a normal de-leveraging process.

• Deregulation, though slow, could allow banks to buy more treasuries, significantly impacting the market.

Scott Bessent at the American Banker Association

Speaker/Guests: Scott Bessent
Key Insights:

• The U.S. has 70 trade negotiations lined up, starting with Japan.

• China’s export flooding and market escalation remain critical issues.

• Aligning with China would be a mistake; the focus should be on uniting with allies to address these challenges.

Bloomberg Surveillance

Speaker/Guests: Andrew Bishop, Russ Koesterich, David Kelly, Torsten Slok, Erika Najarian
Key Insights:

• Trump’s tariff strategy is transactional, with pauses often leading to action and uncertainty.

• Bond allocations are being raised closer to benchmarks, while equity exposure is reduced to prioritize stability.

• Tariffs on China will disrupt supply chains and push prices higher, with a 10% universal tariff being the highest in decades.

• Amazon sellers sourcing goods from China face significant cost increases due to tariffs.

• High-end consumer spending is slowing, and banks report sluggish capital markets and delayed corporate decisions.

Trump’s Cabinet Meeting

Speaker/Guests: Donald Trump
Key Insights:

• Tariffs have stopped steel dumping, saving U.S. steel plants and boosting manufacturing jobs.

• Companies like Nucor are building new facilities, and car plants are shifting from Mexico to the U.S.

• A new era of energy independence is emerging, with AI-driven facilities and rapid approval of new power plants.

The All-In Podcast with Larry Summers

Speaker/Guests: Larry Summers, Chamath Palihapitiya, David Sacks, Jason, Ezra Klein
Key Insights:

• Strategic investments in AI, infrastructure, and education are essential to counter China with strength and moral leadership.

• Governing from the center and upholding the rule of law are critical for long-term success.

• Tariffs act as an inflation shock, reducing spending, demand, and employment.

• Destroying key parts of the tax system could worsen the deficit, while undermining policies like the CHIPS Act hinders progress.

High Yield Laughs

Stay tuned, stay informed, and as always, stay ahead.

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