It's Not a Trade War— It's a Yield War. Here's Why That Matters - Money Rehab with Nicole Lapin

Podcast Summary: "It's Not a Trade War— It's a Yield War. Here's Why That Matters"

Money Rehab with Nicole Lapin Hosted by: Money News Network
Release Date: April 10, 2025
Duration: Approximately 10 minutes

Introduction

In the episode titled “It's Not a Trade War— It's a Yield War. Here's Why That Matters,” Nicole Lapin delves into the recent tumultuous movements in the stock market, unraveling the complex interplay between tariffs, Treasury yields, and the broader implications for the U.S. economy. Moving beyond traditional trade war narratives, Lapin introduces the concept of a “yield war,” emphasizing its significance for listeners' financial well-being.

Market Crash & Rally

Lapin begins by recounting the dramatic fluctuations in the stock market over the past few days:

April 2 & 3: The S&P 500 plummeted by 10% over two consecutive trading days.
April 4: The Dow Jones Industrial Average shed 2,200 points in a single day.
April 5: A swift rebound saw the S&P 500 recover 8%, and the Dow surged nearly 2,500 points.

"The whiplash I experienced is only second to the whiplash I experienced in the markets this week." [02:15]

Misinformation Trail

Lapin attributes the initial rally to a cascade of misinformation stemming from social media:

Bill Ackman's Tweet: On Sunday, hedge fund manager Bill Ackman tweeted about President Trump considering a 90-day pause on tariffs to negotiate and resolve unfair tariff deals, warning of an impending “economic nuclear winter” if no action was taken.
Kevin Hassett’s Comments: On Monday, during a Fox News interview, Kevin Hassett, President Trump’s Director of the National Economic Council, vaguely addressed the possibility of a tariff pause without confirming Ackman’s claims.
Walter Bloomberg’s Misreporting: A misinterpretation of Hassett’s comments by Walter Bloomberg on Twitter led to widespread misinformation. “Walter Bloomberg said that Reuters said that CNBC said that Kevin Hassett said that Trump said that he was considering a 90-day pause on tariffs...” [08:45]

This misinformation caused the market to rally by 10%, only for the facts to resurface two days later when Trump officially announced a partial tariff pause.

"It was basically a crazy, crazy game of telephone." [10:30]

National Debt and Treasury Yields

Shifting focus, Lapin addresses the critical issue of the United States' national debt, which stands at $36.2 trillion as of the recording:

Debt Refinancing: The U.S. needs to refinance nearly $9 trillion of debt within the next year as Treasuries mature.
Interest Rates Impact: With the 10-year Treasury yield rising above 4%, each basis point increase adds billions in interest expenses.

"For the government, Treasuries are loans and therefore part of the national debt. So if yields on Treasuries went down, that would benefit the government and curb the debt." [15:00]

Lapin warns of the potential for a sovereign debt crisis akin to Greece’s 2008 crisis if yields do not decrease:

"Famed investor Ray Dalio says that if yields don't go down, we could have a sovereign debt crisis like Greece in 2008." [18:10]

China's Role and Tariffs

China remains a pivotal manufacturing and trading partner for the U.S., and current tariffs still impose significant burdens:

Tariff Adjustments: Trump’s recent announcement retains a 125% tariff rate on Chinese goods while reducing tariffs to a 10% universal rate for other countries.
Economic Implications: These tariffs spike short-term inflation and hinder growth, contributing to the pressures on Treasury yields.

"Everyone thinks Trump's new tariffs are about punishing China or reviving American manufacturing, and that the stock market is just collateral damage. But that's not the entire story." [22:50]

Yield War Explanation

Lapin introduces the concept of a "yield war," framing the conflict as a strategic maneuver between the President and the Federal Reserve:

Options to Lower Yields:
1. Flight to Bonds: Typically, yields decrease when investors flock to bonds for safety during stock market crashes. However, in the recent dip, yields rose because investors sold bonds to cover stock losses.
2. Federal Reserve Rate Cuts: The Federal Reserve may lower interest rates to make borrowing cheaper, thereby reducing Treasury yields.
Tariffs as a Pressure Tool: Trump may be using tariffs intentionally to stifle economic growth, compelling the Federal Reserve to cut rates.

"This isn't a trade war, it's really a yield war. And your wallet is in the middle." [28:30]

Lapin suggests that the administration might be engineering this economic turbulence to influence Fed policy without directly communicating their intentions.

Tips and Conclusion

To help listeners navigate these turbulent times, Lapin offers practical advice:

Monitor the Bond Market:
"If yields keep climbing, that refinancing problem gets worse." [30:00]
Watch Federal Reserve Signals:
Stay attuned to any hints of rate cuts, which could significantly impact markets.
Keep an Eye on China:
Escalation in tariffs could reignite economic tensions, affecting global trade dynamics.

Lapin also teases an upcoming episode featuring Austan Goolsbee from the Federal Reserve Bank of Chicago, who will provide deeper insights into Fed actions and expectations.

"I’m going to help you with that because in a couple of weeks, I'm going to have Austan Goolsbee on Money Rehab to help you understand what you can expect when the Fed makes its next announcement." [32:15]

Final Thoughts

Nicole Lapin effectively demystifies the intricate relationship between tariffs, Treasury yields, and the broader economic landscape. By framing current events as a "yield war," she provides listeners with a nuanced understanding of how these factors interplay and offers actionable strategies to safeguard their financial health amidst uncertainty.

Notable Quotes:

"The whiplash I experienced is only second to the whiplash I experienced in the markets this week." — Nicole Lapin [02:15]
"This isn't a trade war, it's really a yield war. And your wallet is in the middle." — Nicole Lapin [28:30]
"If yields don't go down, we could have a sovereign debt crisis like Greece in 2008." — Nicole Lapin [18:10]

Stay Connected:

For further financial guidance, email your questions to moneyrehab@moneynewsnetwork.com and follow Money News Network on Instagram and TikTok for exclusive content.

Transcript

Nicole Lapin (0:00)

So I have written, count them, five books now. But each time I'm in the writing process, I stay at an Airbnb. I love to stay at an Airbnb. When I was actually first launching this show, I was at an Airbnb in Arizona. It was so peaceful. It was stunning I could be productive and comfortable. The Airbnb was also surrounded by a ton of javelinas. If you know Arizona, you know they're like wild pig creatures. But honestly, I love them too. Being away for work, for fun, or both is a perfect opportunity to host your space on Airbnb. And if you think that hosting is overwhelming, I have a solve for you. With Airbnb's co host network, it's easier than ever before to host. It's also a great way to earn some extra cash, which I know we all love. Now you can hire a quality local co host to take care of your home and your guests. They can do everything from creating your listing to managing reservations to messaging guests and even providing on site support. So if you've got a secondary property or an extended trip coming up and you need a little help hosting while you're away, you can hire eight co hosts to do the work for you. Find a co host@airbnb.com host you know what I say about financial progress? Every step, even baby steps, get you closer to the finish line of your financial goals. When you open a Chime checking account, you are one step closer to a better financial future. With no maintenance fees, fee, free overdraft up to $200 or getting paid up to two days early with direct deposit, making financial progress has never been easier. And if you ever want your pay before payday, you can use my pay to get up to $500 of your pay before payday with no mandatory fees or interest. Learn more@chime.com MNN when you go to chime.com MNN, you'll see all the reasons I love Chime. Like did you hear me say that Chime allows you to overdraft up to $200 with no fees? Chime also has no monthly fees or maintenance fees and chime has over 50,000 fee free ATMs. I approve. Make progress toward a better financial future. Open your account in just 2 minutes@chime.com MNN that's chime.com MNN as in money News Network. Chime feels like progress. Banking services and debit card provided by the Bancorp NA or Stride Bank NA members. FDIC Spot me Eligibility requirements and overdraft limits apply. Fees Apply at out of network ATMs. MyPay eligibility requirements apply. Credit limits range from 200 to $500. $2 fee applies to get funds instantly. Chime checking account required. Go to chime.com disclosures for details. I'm Nicole Lapin, the only financial expert. You don't need a dictionary to understand it's time for some money. Rehab. Rehab. So a couple of years ago I got into a really bad car accident. I was rear ended, my car was totaled. And the whiplash I experienced is only second to the whiplash I experienced in the markets this week. I mean, you guys, are we good? Holy freaking moly. We all know what happened yesterday. So today I'm going to tell you why it happened so we can all strategize for what happens next. Plus, I'll share some context around why this market crash might have been potentially on purpose. But first, let's just follow the numbers. 10%. That's how much the S&P 500 fell in just two consecutive trading days, April 2 and April 3. 2200. That is how many points the Dow Jones Industrial average lost on April 4th alone. 8%. That is how much the S&P 500 came back yesterday and nearly 2500. That is the number of points the Dow jumped yesterday. On Monday I did an episode about why the markets dropped and wow, I cannot believe that episode just came out on Monday because It feels like 100,000 years ago. But anyway, we already did that. So let's talk about why it rallied yesterday. It actually starts with a false rally that happened a few days earlier. On Monday, a tweet caused the market to add back trillions of dollars in value. The problem was the tweet had completely wrong information. A regular guy, Walter Bloomberg, the name is just a weird coincidence. He has no affiliation to the other. Bloomberg tweeted that Kevin Hassett, President Trump's director of the National Economic Council, said that Trump was considering a 90 day pause on his controversial tariff proposal. So Walter said that Kevin said that Trump said that he was considering a 90 day pause on tariffs, but he wasn't at the time. The origin of the tweet is even more of a he said, he said when we go deeper into this rabbit hole. The real origin of this mix up was a tweet that Bill Ackman, famed hedge fund manager investor, posted on Sunday. The tweet was very long but the highlights were, quote, the President has an opportunity to call a 90 day timeout, negotiate and resolve unfair asymmetric tariff deals and induce Trillions of dollars of new investment in our country. And the President has an opportunity on Monday to call a timeout and have the time to execute on fixing an unfair tariff system. Alternatively, we are headed for a self induced economic nuclear winter and we should start hunkering down, end quote. Then on Fox News, Kevin Hassett was asked about whether Trump will do a 90 day pause in response to Bill Ackman's plea. And Hassett said, quote, you know, I think the President is going to decide what the President is going to decide. But then he went on to talk about how effective the tariffs were. So not a no, but certainly not a statement about any semblance of a plan to pause tariffs. And then on Monday CNBC aired on TV in a banner that read hassett says Trump is considering a 90 day in tariffs for all countries except China, which was totally misconstrued from the Fox interview and the CNBC reporters on air quickly corrected it. But then it was too late. Reuters picked it up which was what then caused Walter Bloomberg, not that Bloomberg to tweet. So the full story is Walter Bloomberg said that Reuters said that CNBC said that Kevin Hassett said that Trump said he was considering a 90 day pause on tariffs because of what Kevin Hassett said about what Bill Ackman said. Are we following? It was basically a crazy, crazy game of telephone. And the White House channels started sharing Walter Bloomberg's tweet and denied it right away. But at that point it was too late. The market had rallied 10% on the tweet. So imagine the market's surprise when just two days later Trump did announce a 90 day pause on all reciprocal tariffs. Exc for China which got slapped with more tariffs. The grand total by the way for China is now 125%. So net net reciprocal tariffs still apply to Chinese goods but for all other countries only a 10% universal rate applies, not the additional tariffs based on that complicated looking tariff formula that Trump whipped up on Liberation Day. And I said imagine the market surprise. But I mean I am not surprised at all. I said last week when I talked to James Altucher that at some, some point Trump I thought would say psych. This has all been a big bargaining chip. That's not exactly what the President said when he made the announcement. What he actually said was that he did this because people were getting quote, yippee in response. The market rallied big time this time because of real news. So what happens next? This is a relief rally. Investors are relieved that a vast majority of tariffs are being walked back. But when the dust of this announcement settles, China still is a really important manufacturing and trading partner. And so with these tariffs, it's hard to imagine a scenario where we can just jump back into a bull market. It kind of reminds me of this thing I've seen kids do when they have bad news to tell their parents. Say they broke a lamp or something and so they make up a worse story to tell their parents. Like, sorry, mom and dad, the dog ran away. Just kidding. Good news is the dog is totally fine, but the bad news is I did break a lamp. The knee jerk reaction is relief that the news isn't that bad, but the parents still get to be mad about the thing that went wrong. I think this latest news on tariffs will be kind of like that. We're enjoying our moment of relief that tariffs are not that far reaching. But once we take a deep breath and settle into what remains, the market will go back to throwing a tantrum about the tariffs on Chinese goods. So why keep the tariffs at all? Everyone thinks Trump's new tariffs are about punishing China or reviving American manufacturing, and that the stock market is just collateral damage. But that's not the entire story. The collateral damage might be, in fact, the whole point. Here's the deal. As you know, the United States has a giant debt problem. As I'm recording this, the national debt is $36.2 trillion. And even though I'm publishing this episode tomorrow, really just three hours from now, the debt will still be higher by the time you listen to this. Over the course of the next year, the US has to refinance nearly $9 trillion of debt. Reason being outstanding Treasuries are maturing, so they need to be rolled over to a new rate. When a lot of these Treasuries were issued, interest rates were close to zero. Today, the 10 year treasury yield is over 4%. And every single basis point adds billions in interest. Because remember, for us, Treasuries are an investment, but for the government, Treasuries are loans and therefore part of the national debt. So if yields on Treasuries went down, that would benefit the government and curb the debt. This is critical. Famed investor Ray Dalio says that if yields don't go down, we could have a sovereign debt crisis like Greece in 2008. We all remember this. After years of excessive government spending, chronic budget deficits and structural economic weaknesses, investors lost confidence in Greece's ability to repay its debts. By 2010, Greece was effectively shut out of international credit markets and required multiple bailouts from the European Union and the International Monetary Fund. In exchange, Greece had to implement harsh austerity measures like tax cuts and public sector cuts, which deepened the country's recession, led to widespread unemployment, and sparked massive public protests. Greece has made significant progress since the height of its debt crisis, but its recovery is still very much a work in progress. Greece has exited its bailout programs, returned to the international bond markets, and is seeing positive GDP growth again in 2023. The country's unemployment rate, once over 27%, has fallen to around 10%. Not amazing, but definitely better than 27%. That said, the scars of the crisis remain. Greece still carries one of the highest debt to GDP ratios in the EU, over 160%, though much of that debt is long term and held by EU institutions under favorable terms. Wages and pensions remain lower than pre crisis levels and structural issues like an aging population and a relatively small industrial base continue to challenge long term growth. So yes, Greece has recovered from the crisis in the sense that the economy is not a disaster. It is stable, the markets are functioning and investor confidence has returned somewhat. But there's still a long road ahead to full economic resilience and we do not want to be on that road. I never, ever want to see the United states at a 27% unemployment rate, ever. So our current treasury rates pose a problem. And to help our debt crisis, we need to get yields down. There are two ways generally that yields first, people flock to bonds. And when there's more buying activity, the prices go up and the yields go down. You've heard my seesaw metaphor on bonds before, so you know the drill. It's basically supply and demand. Interestingly, we usually see yields go down when stocks crash. That happens because after a market dip, we typically see a flight to safety. Investors scramble toward bonds, prices go up, yields go down. So that's the trend normally, and obviously we just saw stocks crash and yet yields are up. The best explanation I've heard is that investors during this most recent dip sold a lot of bonds to cover losses in stocks, and that's why yields have gone up and not down. But anyway, method one is for yields to go down. People flock to bonds. And method two is for the Fed to lower rates. That's where tariffs come in. Yes, they spike inflation in the short term, but they also choke growth. And a slower economy pressures the Federal Reserve to cut rates. That's what happened after the COVID crash. So let's rewind the tape. Remember when President Trump said that he'd demand the Fed lower interest rates. Well, he can't actually tell the Fed what to do, but he can try to force their hand. So some think he's engineering market panic on purpose, using tariffs as a weapon to pressure the Fed. And if he were, would he ever admit that? Of course he wouldn't. That would ruin the plan. This isn't just economic chaos. It's a high stakes game of chicken between the President and the Fed. Will Powell cut rates first or will Trump fold on tariffs? This isn't a trade war, it's really a yield war. And your wallet is in the middle. For today's tip, you can take straight to the bank. Please watch the bond market. If yields keep climbing, that refinancing problem gets worse. Second thing, to keep your eye on signals from the Fed. And not to toot my own horn, but I'm going to help you with that because in a couple of weeks, I'm going to have Austan Goolsbee of the Federal Reserve bank of Chicago on Money Rehab right before the next Fed session to help you understand what you can expect when the Fed makes its next announcement. Any hint of rate cuts could send markets into another tailspin or another sugar high. And lastly, keep an eye on China. If they escalate, President Trump might too. And then we are right back where we started. When you give a mouse a cookie. Foreign Rehab is a production of Money News Network. I'm your host, Nicole Lapin. Money Rehab's executive producer is Morgan Lavoy. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions money rehab@moneynewsnetwork.com to potentially have your questions answered on the show or even have a one on one intervention with me. And follow us on Instagram, MoneyNews and TikTok MoneyNewsNetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.