By David Enna, Tipswatch.com
What a week. I made a point to watch President Trump’s tariff announcement on Wednesday live and yes, it was a shock. Beyond the politics, I felt the United States was pushing the world into a new, and probably dangerous economic era.
Obviously, I was not alone. Just before Trump spoke, the S&P 500 index closed Wednesday at 5669. Friday, it closed at 5075, a drop of 10.5% in two days.
Friday morning, I was taking my morning walk when I happened to hear Bloomberg’s best contrarian anchor, Lisa Abramowicz, interviewing Oaktree Capital’s Howard Marks about the state of credit and world markets in the aftermath of the tariff decisions.
This was a fascinating and insightful interview, especially since Abramowicz simply let him talk. Marks, 78, is a noted author, credit expert and financial theorist who publishes “memos” detailing his market insights. “When I see memos from Howard Marks in my mail,” Warren Buffet once said, “they’re the first thing I open and read. I always learn something.”
His company focuses on high-yield debt, an area I know little about or care to follow. But Marks has some great insights into U.S. markets. Here is the interview:
And here are some highlights from the interview:
Marks: You know, obviously the state of the world, which equity prices depend on, is completely in flux and has been radically changed. Most investors think for the worse. That’s why prices are down. The question, of course, is whether they’re down too much, just right or not enough. And almost nobody can say.
Abramowicz: How do you start to even measure something like a potential paradigm shift, like the tariffs that were announced earlier this week?
Marks: Well, first of all, of course, measure is the wrong word because that suggests some quantification, which is impossible. There’s nothing to measure. …
This is the biggest change in the environment that I’ve seen probably in my career. You know, we we’ve gone from free trade and world trade and globalization to this system, which implies significant restrictions on trade in every direction and a step toward isolation for the United States.
I believe that the last 80 years since World War II have been the best economic period in the history of mankind. And one of the major reasons was the growth of trade. …
There was a 25-year period which I cited in one of my memos ten years ago in which the cost of durables in the U.S. went down by 40% in inflation-adjusted terms. That kept a lid on inflation here. It made goods available cheaply to all Americans. If we don’t have world trade, we don’t have that benefit. …
The tariffs are designed to encourage production at home. But who could imagine that that most things produced in the United States will be as cheap as they are coming from abroad. In other words, things will cost more. … There were financial benefits from globalization, including keeping a lid on inflation.
And so, you know, tariffs are an increased cost. Somebody has to pay them. And, you know, most people think the consumer will pay them.
Abramowicz: You’ve thrived during your almost five-decade career during times of dislocation. Is this a time of dislocation to play or not to?
Marks: Well, it’s a time of dislocation. Everybody has to judge for themselves whether the reduction in asset prices so far is right, inadequate or excessive. If it’s excessive, you should jump in with both feet. If it’s inadequate, you should wait until things adjust further. And it’s impossible to make that judgment qualitatively. …
Normally, we think we know what’s going to happen in the future. We normally assume the future will look mostly like the past. We extrapolate. And usually it works because the world doesn’t change that much. But the world economy and the world order beyond the economy, meaning geopolitics and international relationships, has been shook up like a snow globe by the events of the last days. And nobody knows what it’s going to look like. Nobody knows.
And today, whatever your forecast may be, you have to say the probability that I’m right is lower than ever. Because the probability that we know what the future is going to look like is lower than ever.
Abramowicz: Do you still think that the US is the best place to invest?
Marks: It’s I think it’s probably still the best place, but it’s less best than it used to be.
Thoughts
I try very hard to keep Tipswatch.com focused on policy and economics, not politics. And I define myself politically as “an observer,” but of course I have opinions. This was a dangerous week for the U.S. economy and the nation’s role in the world, especially if you care about the U.S. dollar’s status as the world’s reserve currency.
I think the case can be made for some logical retaliatory tariffs in cases where the United States — the richest nation on Earth — is being abused. But because we are so rich, and so consumer-oriented, we will always run trade deficits with many nations where products can be produced at lower cost.
I am sure some readers will agree, some disagree. Please keep comments focused on the issues, not name-calling or taunting. Thank you for reading.
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Treasury Inflation-Protected Securities 
The more I think about it the more I see Trump as a Mayor Daley type Democrat (former mayor of Chicago). Brutish, corrupt, racist who ruled with an iron fist. I can’t think of a modern Republican president that he resembles.
Let’s face it though, stocks were totally overvalued trading on margins that were propped up by the dual – trade deficit (heh, we can hire slave and child labor over there) and fiscal deficit which flooded the economy with free money allowing Americans to consume way beyond their means. Politically great for those that stood by and let it happen or even promoted it but there is hell to pay for those that have to clean it up.
Since almost all of these comments appear to be opposed to Trump’s tariffs, I will suggest that Trump’s tariffs might be a good idea. Now that I have angered almost everybody, I will give my simple view. Let’s wait and see what happens. If things turn out as horrible as almost everyone here predicts, Trump will have to change his policy. We will probably know in 3 to 6 months. None of this stuff is irreversible for now. Also re-shoring manufacturing, especially of strategic items, is a good idea even if the products end up costing more. Manufacturing plants are planned or are opening in the US that probably would not have happened without the threat of tariffs.
As for me personally, I am still a T-bill and chill guy with a lot of I-bonds, maybe too many. I have nothing in the stock market, my investment horizon is too short for that. Your horizon needs to be 20 or 30 years if you want to ride out the crashes (it took 25 years and a world war after the 1929 crash to return to pre-1929 crash levels). I would have bought stock when I was under 40, but then I had no money. Stock markets always crash, and the current bubble is no exception. One never knows when, of course.
Now I have a fair amount of money, enough to live reasonably well off of interest and even save a little. So I don’t care if the stock market goes up or down, or whatever daily psychotic gyrations occur, although I admit it is fun to watch. Current economic indicators suggest no recession, with some increase in inflation. But the future is anyone’s guess.
I appreciate your point of view, Patrick. Couple points:
1) A lot of global damage can happen in 3 months. Look at Canada, where American products are being pulled off shelves, travel plans to the U.S. are being canceled and our national anthem is being booed. And these are pretty much our best friends in the world. This kind of acrimony is spreading to Europe, our other set of best friends. Thousands of U.S. farmers could be cut off from Asian markets and be wiped out in three months. The tariffs could trigger a recession and the U.S. budget deficit will increase. Think these nations will be investing in U.S. Treasurys in the future? We still need to finance our debt and China won’t be buying.
And 2) Bringing jobs back into the U.S. is a great goal but it would take years and billions of dollars. Meanwhile, the tariff policy is shifting by the minute. So U.S. corporations have no reason to plan to build plants here while things are so much in flux. A better solution would have been targeted tariffs for the worst of the offenders who are harming our strategic industries. Not bananas from Brazil or olive oil from Italy.
David, I am not sure many Americans care as much as you do about European or Canadian views of America. Some “American products are being pulled off shelves”, some “travel plans to the U.S. are being canceled”, and “our national anthem is being booed” by some. I added the word “some” in the interest of accuracy.
You say “farmers could” and “tariffs could”. Of course, and Trump’s tariffs “could” work.
Do you really think China is going to jeopardize the value of their $760 billion dollar holdings of American Treasuries by driving their price down in a quick sell-off? They may gradually sell to bring their holdings down zero, but Treasury securities outstanding are $28 trillion. China’s current share is only 2.7%. It would be a bit of a bother if they sold all at once, but they won’t do that, unless they are insane (always a possibility).
You say “So U.S. corporations have no reason to plan to build plants here while things are so much in flux.” I can’t see why American companies would build outside of America and subject their products to tariffs. Any tariff negotiations with a country, once started, should be ironed out in a month or so. BTW, Honda is building a huge new factory in Indiana. Trump says other foreign companies have committed huge sums to investing in America because of his tariffs: I do not know if this is true or not.
It does seem like a lot of American billionaires are squawking about Trump’s tariffs. They are probably worried about their stock market holdings. Somehow, this does not bother me much.
I am looking forward to your April 10 column on the new I-bond inflation component. I am assuming that Trump’s tariffs have not completely collapsed the U.S. economy before then.
David, Chander, yes it is useful to have a variety of opinions. I notice the 10 and 20 year Treasuries are now higher than they were on the day before “Liberation Day”. When yields dropped on Thursday and Friday, most figured it was caused by an escape from the stock market carnage. But today, the Dow dropped from a high of +1400 to -300, yet 10 and 20 year rates shot up. It makes me think a few big players are calling the shots in both the stock and long term bond market. Pump and dump, a favorite phrase of conspiracy theorists. The problem is that conspiracy theorists have been right a little too often lately. Interesting times. I’ll stick with my boring T-bills and I-bonds. A yield of 4.3% on the former and 5% on the latter, both with no risk (imho) is fine for me.
Patrick, you have an opinion. I have an opinion. Now we can wait about six to eight months to see who was even close to being right.
Hi David, I just noticed that the 10-year treasury yield is back to 4.37% and its real yield at 2.06%. Tariff inflation, higher inflation expectations, foreigners less excited about the dollar, what else?
Chander, yes some weird things are going on in every financial market. I wouldn’t expect to see the 10-year real yield back up to 2%+ … except if inflation fears are truly settling in because of the tariff decisions. This time around, apparently, the US Treasury market isn’t seen as a “safe haven.”
The Wall Street Journal theorized: “The answer may be that bond traders are reflexively pricing in the simplest scenario—a short-term economic shock followed by a rapid return to the status quo. Bonds are also being pulled in two different directions: fears of a recession are mounting, but tariffs raise the prospect of higher or stickier inflation.”
https://www.wsj.com/finance/investing/the-stock-market-is-in-chaos-why-are-treasury-yields-above-4-a34228ab?page=1
Yeah, those are guesses. The entire article is full of guesses, including: “The scariest possibility is that markets are becoming concerned about the government’s ability to refinance $37 trillion of public debt.” (That would be causing 4- and 8-week T-bill yields to be rising, which isn’t happening.)
But it is good to see that inflation-protection remains a good investment option as this potential crisis unravels. As the WSJ notes: “Conversely, the 2.1% yield offered by 10-year inflation-protected Treasurys, or TIPS, seems very attractive”
Yes, US Treasuries “safe haven” status is challenged. Today’s $39B 10-year Treasury note auction will tell us a lot on how the world is reacting to owning the, so called, safest asset. Tomorrow’s CPI may tell if and how the Fed may decide to act as they are caught between the prospects of a recssion and growing long-term inflation expectations-that they deeply care about. At my miniscual level, trying to find money in my accounts (taxable and tax deferred) to potentially buy 10 year T-Bills at tday’s auction. Yes, TIPS is the best choice in these times.
Crisis are moving fast from equities to bonds…..hope someone will blink to reverse this catastrophic turmoil and chaos before it’s too late.
We Never Had Free Trade, some historical perspective on globalization (more accurately, multiple approaches to managed global trade since the FDR era), and a belief that Trump’s poorly reasoned tariffs, combined with Trump’s personal impulsivity and ceaseless quest for “making deals,” will not accomplish their supposed goal.
https://prospect.org/economy/2025-04-08-we-never-had-free-trade/
A different way to look at Trump’s tariffs is that he just imposed the highest tax in history on the wealthiest 10% of Americans who own 93% of stocks, while bringing down interest rates for everyone. Unfortunately he is also going to crash the economy.
Could Trump still be a Democrat?
Commentary by Dean Baker of the Center for Economic & Policy Research, under the headline Trump’s Trade Wars Hark Back to an Economy That No Longer Exists.
https://www.thenation.com/article/society/trump-tariffs-manufacturing-liberation-day/
Thomas Friedman has a good article in a recent NYT.
https://www.nytimes.com/2025/04/02/opinion/trump-tariffs-china.html
I dislike referring to article that I can’t link but… Some weeks ago, I chanced upon an article about the kind of people who make factories and production lines possible. China has zillions of them, we have a few. Replacing imports with domestic manufacturing is not going to be a six month process.
Similarly, I noticed another recent article about a Chinese fusion researcher who has gone to China. The article mentioned several other examples of “brain drain.” That used to work in our favor. Not any more.
Idiot tariffs are not going to fix any of our real problems.
Great article, thanks. Another dangerous trend lately is immigration intimidation of foreign students studying in the United States, along with anti-science rhetoric. Many of these students are the “best” of their nations, future PhDs. Many could be offer great contributions to our country. But now they are being prodded to flee the United States.
Thanks, David, for recommending this interview. I also follow another high-quality podcast called Inside Economics, hosted by Mark Zandi, Moody’s chief economist. In the latest episode (for which he used a sad face emoji as the title..), a group of economists breaks down the potential impact of the new tariffs. It’s a great educational piece, especially for those who are still trying to understand how tariffs work.
Just in case the link above doesn’t work I put the link here as well: https://www.moodys.com/web/en/us/about/insights/podcasts/moodys-talks-inside-economics/sad-face-emoji.html
Any thoughts that this could be an intentional scenario where first there is a market lowering of the nominal rates the US debt is financed at, and then just letting inflation run (devaluation of the US dollar) for a while in order to magically turn the debt balance into a non-issue (with a corresponding GDP increases in depreciated US dollars)?
I’m not sure how that would actually work and letting inflation run won’t be good for the wage earner.
What has occurred to me, though, is that falling interest rates and a shrinking economy with higher inflation would probably devalue the dollar, make our bonds look less attractive to foreign investors, who would then refuse to buy them except at much higher interest rates.
0:11 “We also have come this discussion of the Mar a Lago accord, this idea that perhaps holders of Treasury bills will be forced to roll their money over into low yielding long term bonds. I mean, this is crazy, right?”
Peter Berezin of BCA Research
https://www.youtube.com/watch?v=iEF1ZqZtS9I
That is a default and it would devastate the Treasury market. So, yes, it is crazy.
Trump has spent his political capital and is now less able to make further crazy moves. At some point his billionaire friends will turn on him. I am less certain about GOP senators… how much more of the craziness are they willing to take before deciding enough is enough?
Treasurydirect.gov is down
Looks like the Treasury Direct site is back up with an update.
Great video, appreciate the link and commentary.
It’s also good to hear someone I follow expressing some concern about the world order that has allowed our country to prosper for the past 75+ years being turned on it’s head. I see plenty of youtube personal finance people preaching that recessions are normal and it’s best to “stay the course” when there is nothing normal about what is happening in the world economy right now. We’re demonstrating to the rest of the globe that we’re not a reliable ally or trade partner as we retreat from the world stage. Someone else will fill the void that we leave behind and it it will not be good news for our country.
Originally we were or for tariffs because Trump was a Tariff Man. Then it was because it’s magic money that the other countries will pick up the tab for and will pay off our national debt. This would not increase prices. Repeat. The other countries would pay the additional tax and not the consumer. Then it was a leverage device to force other countries to stop supplying drug addicts in our country with the drugs they wanted to buy. And then no one was buying the fact that consumers wouldn’t be impacted so now we say that there will be short-term high inflation and your retirement account will be gutted on a short-term basis but that okay becasue this will magically turn the clock back to 1975. Disco will be back in style, Abba will be all the rage, everyone will be rollar skating – it will be awesome! This is insane. The world is being torqued around by the whims of one man and then afterward people are jumping through hoops making up stories to explain it away.
I was fishing around for a good analogy to todays insanity. Here’s what I came up with.
Remember the Beatles song “I am the Walrus”? It was written by John Lennon as a response to a fan who claimed that there were hidden messages in the band’s songs. Lennon crafted the lyrics to be intentionally obscure and nonsensical to create a song that would confuse and baffle those who tried to ascribe some deeper meaning to it that didn’t exist.
The same goes for the tariff plan. The underlying rationale that foreign countries pay tariffs is fake. That’s Trump. The tariff rate chart was nonsense. That’s Trump. Trump is the Tariff man. He is the walrus — Goo goo g’ joob.
Already since I posted yesterday I see that the explanation of why is evolving. Evidentially some percent of fox viewers must have realized that turning the clock back to 1975 was dumb as a box of rocks so now the talking point is the old trump trope everyone is ripping us off and that nothing is fair. All of these other countries on the globe are now ripping us off and Donald Trump is the savior king who will deliver us to a new golden age.
David, what are your thoughts on gold as a hedge against stagflation?
I don’t invest in gold, don’t follow it and so I don’t have any opinion.
The reason I ask is because of a concern some other commenters have voiced on here, which is that this administration might fiddle with the statistics to manufacture an artificially low inflation rate for I-Bonds and TIPS. Do you view this as a valid concern?
I get this question on manipulating the inflation statistics every day. Do I think it could possibly happen? Yes, it could. (And would that mean a technical default on TIPS?) But at this point it hasn’t happened and we need to be alert to the possibility.
I was always told, charge what the market can take. If people need shoes and are willing to pay $50, the mfg should charge it. In any product, the price is driven by the market. The only question is if your shoe company can make a profit at that market price.
if tariffs are so bad, why do other countries keep them in place for years ?
Because they are not wealthy. The US would rather let Asian countries manufacture and sell things like t-shirts, sneakers, bamboo baskets, toys and so on and sell them to us for almost nothing. If we made those things we wouldn’t be able to afford them!
What we should be doing is not bringing back manufacturing of such cheap things. Instead, we should manufacture things other countries cannot easily manufacture, such as Nvidia chips, Boeng airplanes, GE aircraft engines, medical equipment, heavy machinery, biotech products, nanotech and so on. We can charge a premium for these products because other countries cannot easily copy us.
Let other countries manufacture cheap things like toys and t-shirts. We’ll buy their products low and sell our high-tech products high.
Tariffs themselves aren’t necessarily bad. Blanket applying tariffs without any real thought or reason is just nuts.
Asprin, when used as intended, isn’t bad. Trying to live on it as the biggest part of your diet might be a problem
“This level of misrepresentation. Is all over that chart…”
On the lighter side, in case anyone missed it, the chart shows that the Heard and McDonald Islands charge a 10% tariff on US imports, so they’re getting slapped with a 10% US tariff. That’ll teach those nasty, nasty penguins! (There are no humans on the Islands, aside from the scientific expeditions Australia has been sending every 3 years.)
Oops … this was a reply to @marce607c0220f7.
It’s funny but it’s hard to be light hearted with such serious ramifications for people. I don’t know whether to laugh at the incompetence or cry at the stupidity. But mostly, I’m angry at the intentional dishonesty and misunderstanding underlying the policy by the people designing it, and the arrogance and callousness they show about the ramifications (“I don’t care if car prices go up” and “I’m not thinking about the stock market” and “There will just be a little disruption” when we basically had the worst two-day stock market crash in our lifetime — and it was all intentional and self-inflicted that literally wouldn’t have happened with any other president ever.
If this continues badly Trump may reverse his decision on tarriffs. I believe his ego may be in issue on that, but at the same time he hates to see the market going down on his watch, and it is most certianly something he now owns. The market drop is just the first sign. Nothing else has really happened yet. All that is ahead of us.
I am an importer from China. I have nothing in the pipeline at the moment, but the fact is if my prices go up, I just pass that on. If no one buys my items because they can not afford them. I go out of business, and no one in the USA is going to make the items I sell, period.
Should things really unravel and Trump holds firm on these Tariffs the congress can overturn his executive order through legislation. Unforunatley Trump can veto any new law and so we must have 2/3 majority to get it through. Going to require a lot of Republicans to jump ship. I don’t have much faith in that but if thier own constituents start feeling a lot of pain it could be possible. Hopefully we don’t have to travel that road.
I’ve been thinking that iBonds and short tips (vtip) may be the best bet for stagflation where inflation increases but fed holds rates due to layoffs/unemployment.
There is a business / finance figure in Europe that made a prediction that hopefully comes true. Trump’s current Tariff position is pushing the USA into isolationism with devastating effects on US business and inflation. The prediction is that at some point this will be political suicide for Trump and his own party will turn against him. Trump will therefore reverse many of these positions to a more reasonable position.
I am most concerned about the dishonest rationale underlying the policy. The Administration has stated that tariffs are a penalty paid by the foreign country when they are actually paid by American importers who either partially or wholly pass along that cost to American distributors and American consumers. Tariffs are a tax and we’ve just witnessed one of the largest tax increases in our lives. This from a political party that in the past would’ve preferred death by electrocution over raising taxes. Then we are shown a chart which purportedly shows the tariff rate imposed by foreign countries on American products which bears no resemblance to the actual tariff rates. The example of Vietnam with a 90% rate was an egregious falsehood when Vietnam’s average applied tariff rate is actually around 9.4%, with trade-weighted averages even lower, at 5.1%. This level of misrepresentation. Is all over that chart, I’m not sure what we can trust now. A trade war benefits no one but here we are. It’s non-sensical to think that America has to become less prosperous in order to become more prosperous. For over a century, we have been the most prosperous nation on earth even with uneven tariff rates. Is that really so bad. It will always be cheaper to produce good outside the US. There will always be a trade deficit. Just because there is a kernel of truth to the observation does not mean the solution is global economic disruption as the remedy. This is unforgivable. I’m afraid the only way out of the hole that has been dug is to accept any change or adjustment and declare victory to save face whether it is or is not. If we don’t concede, the damage will be long lasting and widely felt everywhere, this is a very dangerous time for investment, a completely self-inflicted wound. And when you don’t have honesty as a foundation, the times are truly perilous.
A former Charlotte Observer star reporter, Binyamin Appelbaum, wrote this New York Times opinion piece on the Trump tariff formula, which he calls “childish.”
Read it here.
Applebaum points out that Trump is targeting one of the poorest countries on Earth, Lesotho, with a 50% tariff rate. Lesotho has a gross domestic product of about $2 billion, compared to about $850 billion for the state of North Carolina.
U.S. imports from Lesotho in 2024 were $237.3 million, compared to $2.8 million in U.S. exports. That’s a “trade surplus” of 99% and thus the new U.S. tariff rate was set at 50%.
With catastrophic effects likely for Lesotho.
https://www.reuters.com/world/africa/trump-slaps-tiny-african-kingdom-lesotho-with-highest-tariff-all-2025-04-03/
Re Lesotho,
I read about it in The Post (I think… I subscribe to both the NYT and the WaPo). This is likely to be a pointless tragedy, the destruction of a stable African country for no good reason.
Prediction: When chairman Powell’s term ends he will be replaced by one of the administration’s lackeys who will immediately cut rates aggressively to satisfy the team in charge. And hence – even more inflation. We are probably in for a sustained period of erosion that will be tough to reverse. Think: Paul Volcker style policy in the early 80s.
No doubt our ability to buy cheap clothing, electronics, and other goods from overseas will diminish to the extent that tariffs remain in place. It’s been nice, but a luxury that we as a nation cannot afford; like being on vacation and spending $1000/day by a person who makes way less than that. At some point, the vacay is over and that person has to go home and earn the money to pay for the good time.
As the recent “supply chain” unpleasantness showed, we are totally dependent on foreign sources, some of whom are hostile, for many basic products, including pharmaceuticals, many forms of steel, lots of spare parts, etc. Specifically, when the Norks detonate an EMP device and all of our power transformers need to be replaced, we will all be freezing in the dark until China decides that it wants to help us, builds the needed stuff, and ships it to us.
Lots of people have made lots of money getting us into this predicament, and they are ensconced into power now. Unfortunately, there is no way to dissect these people out with a scalpel, and major amputation is needed. It will be painful, but my grandchildren are depending on us to get it done, or they will be the ones making T shirts at $50/month for rich Chinese people.
I agree except where it says major amputation is needed. A measured, calculated approach would have been better. Try bringing back manufacturing in one sector. If it works, use the learnings in the next sector. If it doesn’t work, figure out what was wrong in our calculations. Dropping an economic nuclear bomb on the world, inviting a recession, and putting our retirements at risk — it is hard to side with that.
Absolutely your suggestion would be an ideal way to go about it.
Practically, it can’t be done in the American political system. We have a choice of a bad way of going about our business (Trump), and a worse way (continuing our current policies). One will result in temporary disruption and ongoing viability for our nation. The other will result in temporary happiness and long term destruction.
Another point that must be made: You say we are like a person on vacation spending $1000/day while making way less than that. It is the US government that is doing that. The US government can reduce or even eliminate the deficit… by raising taxes on the rich. But this is not going to happen as long as GOP is running the country because their election candidates are bankrolled by billionaires like Elon Musk.
Why can we not afford it? We are the richest country in the world and were doing just fine using this method for decades.
If the concern was countries hostile to us, then why did we institute tariffs across the board regardless of their economic, political, or supply chain importance? Why put major tariffs on tiny countries that can’t afford to buy any of our goods and provide no economic or political threat, and merely happily supply cheap exports of meat, clothing, etc to us? Why put major tariffs on friendly countries that would help us in times of need? Why put tariffs on islands that have no human inhabitants, or only US military personnel like Diego Garcia, and therefore have literally no economic impact?
It is plainly obvious there was no thought or nuance put into this tariff plan because there is no logic or reasoning behind it beyond “trade deficits are bad”. There is no plan for investment or strategy to increase US manufacturing utilizing these tariffs. The whole thing was haphazardly thrown together to satisfy someone who doesn’t understand modern economics and legitimately thinks mercantilism is the best economic system.
David, thanks for posting much needed exchanges on the current state of affairs. So many have added highly informative and educational comments. For me, I am sticking with the same portfolio that I had back in 2022. For many years I have been building a portfolio where I will not be dependent on the equity side of the portfolio for 2-3 decades. I am 69 and my wife still enjoy working full time.
My learning from the current ongoing episode is to further reduce risk as and when markets recover, and they will, with a vengence.
I have dual citizenship of Canada and the US and I follow Canadian economy, markets and politics closely, because I have investments there. It’s worthwhile to notice that Trump has not spoken much about Canada as a 51st state since Mark Carney came on the scene. I have no idea in what shape or form but current administration will have to find a way to reverse the damage Tariffs are causing.
I remain a big believer in the US because our culture of working hard and taking risks will continue to build and grow our innovation economy. Administrations and their leaders will come and go. So Ooooooom!!! is the word for the moment….:)))))..this too shall pass….Greenback will remain the King Dollar and so will the Trade Deficit because we are not going to do low value add jobs…I can go on but I will stop….thanks for the opportunity to share my thought.
As an economist and engineer some of my favorite projects was capital investment analysis regarding where in the world to place a new manufacturing facility and the supporting logistics. Stability and predictability were key. Except the obvious solution of adding a shift or adapting an existing facility, new investments had very long time horizons. Instability and unpredictability led to pauses and indecision.
The hoped-for tariff-based US manufacturing jobs are most likely to appear from and after major capital investments that I expect are more and more paused awaiting clarity. Even adding an additional shift at a plant in one location is relatively costly and requires a demand forecast with some clarity.
In the near term I’m expecting economic slowdown with inflation pressures. If there was ever a reason to try to raise prices manufacturers now have one…and wait for clarity.
Long term, I admit my bias towards free trade and using tariffs/subsidies only as a response to predatory trade practices or protecting key supply chains (e.g., defense and medical preparedness). I doubt these will be seen as the “best of times” for equity investments until stability and clarity improves. That said, I won’t be changing my portfolio and am happy I have my decades long TIPS ladder in place.
Even on Friday, President Trump was hinting at reversing or lowering some of the tariffs, while at the same time saying they are “here to stay.” As you note … we have no clarity.
I am not an economist, but my understanding is that there is a connection, for the USA, there is an intimate connection between having the dollar as the world’s reserve currency and having a perennial trade deficit. This capture in “Triffin’s diliemma:
<< a country whose currency is the global reserve currency, held by other nations as foreign exchange (FX) reserves to support international trade, must somehow supply the world with its currency in order to fulfill world demand for these FX reserves. This supply function is nominally accomplished by international trade, with the country holding reserve currency status being required to run an inevitable trade deficit. >>
Triffin dilemma – Wikipedia
Likewise, Jeffrey Sachs notes:
<< A current account deficit signifies that the deficit country is spending more than it is producing. Equivalently, it is saving less than it is investing. […] Let’s look at the numbers. In 2024, the U.S. exported $4.8 trillion in goods and services, and imported $5.9 trillion of goods and services, leading to a current account deficit of $1.1 trillion. That $1.1 trillion deficit is the difference between America’s total spending in 2024 ($30.1 trillion) and America’s national income ($29.0 trillion). America spends more than it earns and borrows the difference from the rest of the world. >>
Opinion | Trump’s Absurd Trade Policies Will Impoverish Americans and Harm the World | Common Dreams
The bottom line of all this, it seems to me, is that shrinking the USA trade deficit will necessarily reduce international demand for Treasuries, which in turn will raise interest rates, thereby raising the cost of servicing the federal debt (among other things). Trump’s twin goals of reducing the USA trade deficit and maintaining the dollar as the world reserve currency, while perhaps laudable, are fundamentally contradictory.
I’d be interested to hear others’ thoughts on this.
Thank you. And keep up the good work.
Great information, Sally. Because the U.S. dollar is the reserve currency, other nations are encouraged to “dump” their products into the United States to build up a dollar surplus. The result is lower prices for Americans, sometimes even lower than the price where the product is manufactured.
Nations with large populations and low wages are ideal for creating products like shoes, pants, shirts … and it is hard to imagine those products being produced efficiently in the United States. Less than 3% of apparel sold here is made here. It’s a symbiotic relationship. We are rich, we buy, and other nations get a chance to prosper.
One point frequently made is that goods reflect only a share of international trade especially for the US exports. We also sell US Treasuries which reflect desire for safety, liquidity, and higher interest rates. Services are essential, too.
Living near my alma mater reminds me of this example where international students pay $75,000+ to attend and reside here. Last year the US had a record 1.1 million international students. Rough calculation is $75 billion which is about 1/2 of the value of our goods sales to China. We sell many services on a much larger scale (e.g., patent and copyright licenses like using the Trump name on a hotel).
And, having a trillion dollar plus government spending deficit will affect goods and services trade either directly or indirectly (recipients of funds making purchases) but in the direction of trade deficit. A government spending deficit could help with some international sales but generally minimally.
The US dollars will remain the exchange currency for a long time – something like 90% of world trade is dollar denominated. I’m not convinced, however, that is important unless the change is due to a loss in the faith of the US Dollar or Treasuries.
@Sally – that is correct, we are a recipient of capital flows because we run a trade deficit. These capital flows make their way into US financial assets.
So when we buy foreign goods, we pay in USD. These USDs are invested in treasuries and other assets – stocks, real estate, etc. Less demand for US financial assets will lower their price.
Not running trade deficits will also impact the USD making it less available and less important as a reserve currency.
To me, the most significant comment he made is that the rule of law in the US has diminished. If he is correct, and if that continues, it is a greater problem than higher prices of goods and lower stock market prices. It could mean a decrease in the freedoms we Americans have enjoyed for so long. Thank for your excellent reports.
Great point, I loved his discussion of the rule of law. It is a very important factor for both U.S. and global investors wanting to invest in the United States.
Thanks for sharing some important commentary from a well-regarded investor on both sides of the aisle. I watch Surveillance daily while getting ready for work, on the way to work, and once I get behind my desk at work, and Bramo’s Bears (as John Ferro affectionately teases her on air from time to time) always offers a great counterpoint (hence, the bear moniker) to many of the guests. Lisa is a nerdy bond girl at heart, and Surveillance does a great job of just presenting the news “as-is” without too much editorializing. You know things are bad if even their bi-partisan approach to reporting can’t find anything good to say about this “liberation.”
The next week or two will probably be the best time to buy stocks but psychologically when prices are crashing people want to get out and when prices are rising people want to get in on it. I’m selling myself, at least within my IRAs. But the American memory is so short that everyone will have probably forgotten about the tariffs by April 15.
As I written about in the past, my wife and I rebalance our portfolios, checking a few times a year to see if asset allocations are getting out of line. We have only a 35% allocation to the stock market, so this decline isn’t a major blow, so far. Next week will be interesting because if there is no bounce higher, we could be heading to bear market territory for the S&P 500. At that point I will force myself to rebalance, which will mean buying low-cost stock ETFs.
35% allocation usually means you got a pension or other diversified sources of income?