Tariffs, Kevin Warsh and $200B shadow QE

Okay, so I wanted to talk about the

market today given there's been some

critical events that happened throughout

the week. Also, I wanted to talk a bit

more about Kevin Wars as I feel like the

narratives between Trump, Besson and

Wars is kind of forming towards a

certain direction and I wanted to share

that with you. Okay, so before I head

into the market update, I wanted to show

you guys an action figure I bought very

recently. So, it's this thing right

here.

So, some of you might recognize this,

but this guy is Ren Goku Kilojuru from

the animation TV series Demon Slayer.

Now, I don't know if any of you guys

have seen this TV series, but I got to

tell you, it's one of my favorite TV

shows and movies of all time. And I'm

not just speaking in the realm of

animations, but all TV series and all

movies combined. I mean, I already told

you guys that I watch a lot of TV series

and all I did during my investment

banking days was drink whiskey and watch

TV series, but this one is really on

another level. Anyways, so I bought this

one very recently as this guy is my

favorite character in the show and I

think this action figure comes from one

of my favorite scenes where this guy

fights a demon named Akasa.

Anyways, for those of you who haven't

watched the TV series yet, try it out.

You may or may not like it, but I think

it's worth a try. And I'm die hard

waiting for the next movie to come out,

and I think it'll take years, but

anyways, I'm waiting for it. Okay, so

I'll just leave this here and get to the

point.

Okay, so in terms of the macro data,

there weren't that much big shift in

recent weeks. to go over the latest key

data that were released. CPI on a

year-over-year basis was at 2.4% versus

2.5% forecast versus 2.7% last period.

Core CPI on a month-over-month basis was

at 0.3% versus 0.3% forecast versus 0.2%

last period. Initial jobless claims was

at 206,000 versus 223,000 forecast

versus 229,000 last period. S&P global

manufacturing PMI was at 51.2 versus

52.4 forecast versus 52.4 last period.

S&P global services PMI was at 52.3

versus 53 forecast versus 52.7 last

period. Okay, so the implications from

the data was simple. CPI has come down a

bit, but job market is still balanced

with initial jobless claims just over

200,000. Manufacturing activities are

still okay with the PMI at 51.2. So the

market was somewhat kind of stalled in

the past week or so. Okay. But I want to

talk about two things today though. The

first topic I wanted to discuss is on

the tariff. So on February 20th, the

Supreme Court delivered a catastrophic

63 rejection ruling against President

Trump's tariff measures. So what

happened was this. To implement his

tariff plans, Trump based his tariff

actions on a thing called International

Emergency Economic Powers of 1977, which

is short for EA. Using that as the

basis, Trump imposed the liberation day

tariff, which the numbers seemingly had

no limits. Now, this EA is a law that

was designed to let the president freeze

the financial assets of foreign

adversaries during a national emergency

situation. Think of the likes of

terrorists or rogue states. But what

Trump was trying to do was to weaponize

it by declaring that the US trade

deficit is a national emergency. The

ruling was simple. The court basically

said that the law vests the power of

taxation exclusively to the Congress.

Tariffs are taxes. So the president

cannot unilaterally invent an emergency

to bypass the Congress. Now because of

the ruling, the US government is now

legally obligated to refund the tariffs

it had collected in the past year and

the quantum of the refund can go as high

as roughly 133 billion to 160 billion.

This ruling also basically wipes out

almost 75% of the Trump administration's

projected new tariff revenue. The

problem is the logistics of refunding

the money is quite complicated and who

actually gets the money after all the

goods being sold is a serious question.

Who should get the refund? Is it the

nations who exported the goods? The

importers within the US who got the

goods from other nations? The customers

who already paid the increased price

reflecting the tariff? So the bottom

line is there's a lot of complications.

Now, while all of that was ongoing,

Trump held a press conference saying

that he'll now use the section 122 of

the trade act of 1974.

Now, this section 122 focuses more on a

large and serious United States balance

of payment deficit. And based on that

trade act, the president can basically

announce tariffs up to 15% without any

advanced review. Trump announced that

he'll impose a 10% global tariff instead

of 15%, which leaves him a 5% buffer.

Now, this section 122 is only valid for

a maximum of 150 days. So, Trump is

probably going to use the section 122 as

a bridge to keep the revenue flowing for

the time being. In addition to the

announcement, Trump also criticized the

ruling, saying things like, "The six

justice who ruled against us should be

ashamed of themselves. They're fool and

lap dogs. They're very unpatriotic and

disloyal to our constitution. Frankly,

they're a disgrace to our nation. They

were swayed by foreign interests. The

foreign countries that have been ripping

us off for years are ecstatic. They're

dancing in the streets, but they won't

be dancing for that long. I can assure

you. Now, I find these quotes very funny

and entertaining. Anyways, so to give

you my view on it, I think we need to

see how things pan out. But two things

are clear. Number one, we should not

confuse the rejection ruling as

something which will remove the tariff.

Trump has other weapons which he can

leverage and is already starting to

leverage. Number two, therefore, we

should not take this as a sign of

inflation cooling down in the near term.

As I've been saying all the time, tariff

measures take at least 6 to 12 months to

be reflected in the inflation data. And

this shift will also take a long time

until we actually see it in numbers.

Okay, the next thing I wanted to discuss

is Kevin Walsh. Okay, so we talked a bit

about Worsh here and there, but let's

talk a bit more about him. As I

mentioned in my previous videos, the

media has been saying that the market

panicked because Worge seemed to be a

hawkish guy. I told you that that is

probably not the case and it was more

due to the fact that the market was

somewhat overvalued and was looking for

excuses to correct. Okay. So, what I

wanted to talk about is the recent

sentiments around Trump Bassen and Wor.

So, I just wanted to make a few things

clear about Kevin Walsh being a hawkish

chair. As I explained previously, Kevin

Walsh was the Fed governor from 2006 to

2011. Now during the period, Kevin Wor

was a highly influential member of the

Federal Reserve Board and he applied on

a lot of critical matters. Now based on

how he acted during those periods, we

can get a sense of what kind of person

he is. The fact is when the Fed decided

to conduct his first QE in early 2009,

Worsh actually agreed on the plan. He

voted for the first round of the QE

because of one thing and one thing only.

He's a pragmatic guy. He wants to

prevent any systematic crash from

happening. That's why he voted for the

QE. The global banking system was

experiencing a soon to collapse

situation and it was the only option to

prevent that from happening. Now in 2010

the immediate crisis was over but the

unemployment rate was still high and

certain overseas crisis were happening

including noises in Greece. The Fed

decided to conduct a second round of QE

in 2010 but this time wor was furious.

He publicly expressed his frustration

over expanding the Fed balance sheet

with no immediate risk. But in the end

he voted yes as well to the QE purely

out of institutional loyalty to Bernani.

After all, as we witnessed very

recently, a divided Fed doesn't send a

good signal to the market. Being

unanimous and going with the majority

vote is far better than showing a

divided sentiment, as it may send a

wrong signal to the market and end up

achieving nothing. That's why he voted

yes. But later, Worsh explicitly

attacked the Fed's actions, saying that

it was a reverse Robin Hood scheme that

artificially inflates asset prices for

the wealthy while doing nothing to solve

structural economic problems. And he

also resigned from the board shortly

after. Now, based on what I told you, do

you think Kevin Walsh is a hawkish guy?

No. He's just a pragmatic guy who cares

about controlling the Federal Reserve

balance sheet when he sees it being fit.

Okay. Okay, now the past is the past,

but based on his recent actions, let's

try to interpret what he's thinking. In

recent interviews, Wor specifically

noted that the AI boom has triggered a

massive leap in corporate productivity

and this will lead to a disinflationary

tailwind. He believes that this

disinflationary pressure will allow the

Fed to lower the rate to a neutral

state, i.e. around 2% level. Basically,

Worsh is saying that lowering the rates

is not a problem given where the

economic activities are heading. He's

not being dogbish here, but is trying to

think logically based on how he views

the world. Okay. Now, having said that,

something happened very recently. Around

a month ago, Trump and Bassant recently

announced that they'll use massive cash

reserves to purchase $200 billion of NBS

from the open market. Now NBS is a

long-term security and purchasing it in

a large quantum will result in lowered

interest rate which is what Trump wants.

Now do they say that this is a QE?

No, they don't say that this is a QE for

two reasons. Number one, it is not the

Treasury or the government which will

purchase the securities. It is Fanny May

and Freddy Mack. And number two, this

action does not impact the Federal

Reserve's balance sheet in any way,

which basically is not a direct QE. But

the outcome is still the same. Money

injection into the system to lower the

interest rate. So basically Trump is

achieving two things without the Fed.

Number one, lowered interest rate.

Number two, more liquidity in the system

to juice the stock price and the housing

market. Now this is pretty simple stuff.

But here's what we have to make some

assumptions.

What do you think Wor is thinking after

seeing this?

Okay, to give you my views, I think Wor

probably loves what Trump and Bassan are

doing. Basically, Wor is a guy who is

super against manipulating the Federal

Reserve balance sheet. Trump and Bassan

are basically maneuvering the market

conditions without any interventions

from the Fed and therefore Worsh can

maintain his dignity and perception from

the public as a pragmatic Fed chair. I

believe that the only thing Worsh is

worried about is the inflation which may

be impacted because of the low interest

rate, the tariff and additional

liquidity. But based on his logic, the

inflation will cool down with the

AIdriven efficiency maximization. Okay.

Now, from my perspective, I think Trump,

Bassan, and Wars are moving in lock

steps already. Trump and Bassan probably

told Wars that the president and the

Treasury will do their thing, so the Fed

should not care. Worsh is probably

telling Trump and Bassan that okay, you

do you, but I'm going to do my thing. If

push comes to shove, I'll have to raise

the rates. But we all know that's not

going to happen given the AI boom.

That's probably the conversation that

they're having right now. But let's be

honest, if Trump's 10% global tariff and

bass $200 billion of NBS housing pub

causes inflation to rip higher, whoosh

wool, high grades. He cares about his

historical legacy and sound money far

more than he cares about the Treasury's

agenda. Okay, so I gave a lot of

speculations and my own personal

thoughts today, but the message I'm

trying to give you guys is that it is

too early to tell how the Fed will pivot

after Walsh comes in. If I had to

speculate, I'll bet on the Fed kind of

playing along with Trump and the

Treasury and not taking much meaningful

actions, i.e. no QE and slow rate cuts

unless a meaningful inflation happens.

Now, given all the uncertainties, I just

wanted to note that the FOMC meeting in

the summer of 2026 after wars stepping

in will be a super important proxy for

the world economy. I hope you enjoyed

the video and I'll be back with more

videos very