The Emperor Has No Tariffs

A memo from the desk of someone who saw this coming

TO: Subscribers who thought 2025 would be boring
FROM: Your cynical market observer
RE: The unraveling begins

Well, well. Here we are, two days into September, and the markets have decided to throw their seasonal tantrum early this year. The S&P 500 slumped 0.6% yesterday to 6,460, tech got walloped again, and volatility is spiking like it just remembered what uncertainty tastes like.

But let's talk about the real story everyone's dancing around: a federal appeals court just told Trump his tariffs are mostly illegal, and he's scrambling to the Supreme Court for an "expedited ruling" because, as he so eloquently put it, "the stock market's down because of that."

Ah yes, blame the markets for noticing that your entire trade architecture was built on constitutional quicksand.

The 7-4 ruling from the U.S. Court of Appeals for the Federal Circuit isn't some progressive judicial activism — it's basic separation of powers stuff they teach in high school civics. Congress controls trade policy. Presidents can't just wave emergency powers around like magic wands and reshape global commerce because they feel like it.

But here's what's delicious: Trump's own reaction proves he knows exactly how precarious this whole house of cards was. "We're going tomorrow and we're going to ask for an expedited ruling because, you know...the stock market's down because of that," he said Tuesday, as if judicial review operates on market timelines.

The irony is thick enough to cut with a butter knife. This is the same administration that spent months telling us tariffs were "beautiful" and that trade wars were "easy to win." Now suddenly, when faced with the possibility of having to refund billions in duties collected under illegal authorities, it's an emergency requiring Supreme Court intervention?

Meanwhile, businesses that paid billions in trade duties are suddenly staring at the possibility of refunds — which sounds great until you realize the bureaucratic nightmare of unwinding three years of illegal tax collection. The Treasury doesn't exactly have a "oops, we took your money illegally" department.

The market's reaction tells you everything. Treasury yields spiked, volatility jumped, and tech stocks slumped as traders tried to price in a world where Trump's signature policy tool might evaporate. Energy was one of the few sectors posting gains yesterday, probably because oil doesn't care about your constitutional crisis.

What's particularly rich is watching the cognitive dissonance play out in real-time. Evercore's Julian Emanuel just boosted his S&P 500 target to 6,250 for year-end and 7,750 by 2026, powered by what he calls "a once-in-a-generation technological shift from AI." Sure, let's ignore the constitutional crisis and focus on the robots. Nothing could possibly go wrong there.

The broader question isn't whether the Supreme Court will save Trump's tariffs — though given the composition, they probably will. The question is what happens to market confidence when core policy assumptions can be invalidated by federal judges on a Friday afternoon.

We've spent two and a half years building investment strategies around the assumption that presidential emergency powers are essentially unlimited. Turns out, some judges disagree. Who could have seen that coming? (Anyone who paid attention in constitutional law, but apparently that's a rare skill in modern finance.)

The S&P 500 posted its smallest monthly gain since July 2024 in August and is heading into September — historically its worst month. How perfectly timed. Nothing says "confident bull market" like constitutional uncertainty heading into the market's seasonal graveyard.

Here's the memo the Street doesn't want to write: we built a recovery on policies that a 7-4 judicial panel just called illegal. The emperor's tariffs have no clothes, and everyone's suddenly realizing they're naked at the constitutional ball.

Sweet dreams, and don't forget to hedge.