The Federal Circuit court's ruling on Friday that Trump's tariffs are illegal will be appealed to the Supreme Court.
If the tariff policy were to be unwound, it would be an economic bomb.
The fiscal position and outlook would swing from improving, to severely deteriorating. The monetary policy wouldn't just be too tight, the Fed would be forced back into emergency policy mode, including QE –first to stabilize the bond markets, and then to pump liquidity into the system.
The economy would be in recession.
The good news: The Trump administration has options, even if the Supreme Court were to rule against him. Among the options, he could declare a national emergency to justify tariffs, framing AI leadership as "in jeopardy" (a national security risk).
He hinted at that yesterday, in responding to a question in a press conference.
That said, if we look at the VIX (the market's fear gauge), it's not reflecting any angst in markets — trading in the bottom decile of the six-month range.
The beginning of September is looking a bit like the way this past June started.
At that time, a few risks to market stability suddenly bubbled up: The Ukraine/Russia peace path was abruptly reversed. The budget glide path was muddied, making the cornerstone tax cut extensions less certain. And the sustainability of the 90-day tariff reprieve with China came into question.
But stocks didn't have a problem. In fact, the S&P 500 finished up almost 5% in June.
But looking back at my early June notes, there was another commonality in that early June period, relative to the current situation: silver was breaking out.
We had this chart …
Today, we have this chart …
Silver continues to be one of the biggest movers of the year across global markets. Let's revisit the gold/silver ratio …
As you can see, this ratio around extreme levels, which has historically been associated with extreme moments of safe-haven demand.
And in these past cases, the gold safe-haven demand leads … pushing the ratio to extremes.
Silver later follows (higher) on both industrial demand (in war time) and relative value (as a safe haven asset).
And in these prior peaks, it's the outsized rise in silver that pushes the ratio back down.
