Third Rail

When it comes to financial market worries, Central Bank independence is the third rail. Risk-averse creditors take any threat to the autonomy of these monetary policy stewards very seriously. The inflation and currency debasements seen in Turkey and Argentina are proof of this. This week has seen the U.S. President's attack on the U.S. Federal Reserve Chair that threatens to grab hold of that rail with both hands. If Donald Trump thinks he's bigger than the U.S. treasury market, then he's a bigger idiot than I dreamt. But as the Lotto ad says, you must "dream to the max"!

Markets are clutching at every straw to find bottom after the initial shock from Trump's 'Fed-up' comments. Today's bounce seems to reflect a Pollyanna 'art of the deal' view of the 90-day negotiating period that Trump has set up. But market bulls die hard, I guess. Fresh from giving Pope Francis a death stare (he does have scary eyes), J D Vance is trying to cobble together a trade deal in India. Whether or not Trump agrees to it is unknown. But this is the hoped-for path to recovery from the self-inflicted wounds of the White House's blunt instrument known as 'reciprocal tariffs'.

Even beleaguered Tesla is holding on to its lows, as dreams for growth from FSD and Robotaxi dance in the heads of the few remaining bulls. But fewer investment dollars are now available to prop up Elon Musk's pretend car company as long-time perma-fans like Dan Ives and Cathie Wood, the latter just fired from her BMO ETF mandate, have any credence left. It shows why they call a wet, damp smell musky.

The haven trade-de-jour, gold, is well over its skis now but remains well-bid. Typically, when economic pessimism takes hold, the flight-to-safety bid is in U.S. Treasuries. This time, the U.S. Dollar and Treasuries lost that bid, and money flowed to precious metals. Bitcoin has started to go along for the ride. While a 2-year downtrend has broken in favour of the Boomer Bitcoin, momentum may shift back to the crypto and Big Tech world for a short-term trade as the now-chastened tech bros recover from the recent drubbing in Mag-7 stocks. The power behind this bounce should tell us much about the path forward.

Gold vs Bitcoin

Hopefully, threatening to grab the third rail as Trump has now done could be a much-needed catalyst for saner policy going forward. Surely, Treasury Bessant is in Trump's ear, explaining the linkage between his crass commentary and the instant pain in the bond market this week. If he ignores that advice and meddles with interest rates, the resulting 5%+ long bond yield would be a financial electric shock, not currently impounded in an S&P above 5000.

Stay well back behind the yellow line, Donny!

Risk Model: 2/5 - Risk Off

For all the wailing and gnashing of teeth, the TSX is happily treading water at the same level it was six months ago. The RSI and 200-day indicators are stuck in neutral. Only the globally oriented indicators - S&P VXV, AAII Bull/Bear, and CU/AU- say beware. Despite being in the crosshairs of Trump's initial threat to dismantle our economy and subsume our sovereignty, the TSX has stood firm against the raging tide. Is it a matter of unwavering belief and sheer bravado? Or perhaps it's simply about reaping the rewards of U.S. investment outflows? Banks, Golds, and Staples have dominated the resilience, reflecting a defensive tilt over the last month. Given that all the focus is on Trump and his main henchman, Mr. Musk, we may have 'DOGEd' a bullet.