Nobody expects a recession.
Ok, that’s not true. Let me rephrase: Almost nobody sees a recession.
In the latest installment of BofA’s Global Fund Manager survey, just 16% said the global economy’s likely to suffer a downturn over the next 12 months.
As the figure shows, recession expectations are now the lowest in three years, which is to say the lowest since Vladimir Putin decided to invade his neighbor.
Some worry investors are tempting fate by taking a “see no evil” view of Donald Trump’s latest and, he’d surely insist, “greatest” tariff escalations. Put (slightly) different, some worry market participants, if certainly not the perpetually hagridden “liberal media,” are expecting the best and not planning for the worst, which is to say taking the opposite of a prudent approach in the face of imminent peril.
Do allow yourself a wry chuckle. I’ve just used “some worry” twice in succession. Pretty much anytime an editor uses the phrase “some worry,” it’s an effort to preemptively evade accountability for a wrong prediction by attributing one’s own view to other people. It’s a great trick. And I use it all the time.
But that’s not what I’m doing here. “Some” really are worried about the tariff situation, and one of the “some” is Richard Koo, chief economist at Nomura Research Institute. The Trump administration, he wrote in an opinion piece dated Wednesday, “is ignoring the bitter experience of the 1930s.” The full note’s a dozen pages long, and you’re encouraged to peruse it in full if you can get your hands on it. Below are four short excerpts which capture the gist of Koo’s concerns.
From a geopolitical standpoint, President Trump’s decision to unilaterally impose tariffs and curb imports will eliminate one of the key reasons that many countries have to ally themselves with the US, i.e., access to the US market. That, in turn, could lead to the breakdown of the postwar security framework that was established under US leadership. The Chinese economy is currently mired in a balance sheet recession. But if it were to recover and the nation decided to open its market to the world just as the US did in 1948, I think many countries that had sided with the US until now might shift their loyalties to China. This is a problem the US never faced during the Cold War.
At the time, the Soviet Union had a military that could compete with the US, but its market was only a small fraction of the size of the US one, and it could never have satisfied the countries that sought to develop their economies via exports. I think the situation would have been much more complicated if the US had been facing not the 1980s Soviet Union but rather today’s China.
Like the Trump tariffs, the Smoot-Hawley tariffs were introduced unilaterally by the US and threw the global economy into turmoil. It was that bitter experience [which] prompted postwar US leaders to set course in the opposite direction, towards a world of free trade. The bitter fruits of US actions in the 1930s were the main reason why both of the main US political parties viewed protectionist ideology as taboo. But Mr. Trump and those around him do not appear to share this view. I doubt that anyone who knew even a little about the history of that time would praise tariffs as a great policy tool as he has.
That leads to another concern that is often raised about this administration. While the first Trump administration included many Republicans with a sophisticated and cosmopolitan view of the world, this time there are few if any such individuals in the president’s inner circle. It is often said that those who do not learn from history are doomed to repeat it. I see a non-zero chance that the global economy will slide down the same slope it did 95 years ago.
Funny how nobody sees a recession when cash levels of asset managers are at the lows.
What if?
What is
Simple
I think
What if
What is
A depression is just one of the many unthinkable events I now put a non-zero probability on. In this moment, it feels like nearly anything is possible.
I actually envision more of a 1970’s style grinding bear market, like we saw after the Arab oil embargo. The market fell about 45% over a two-year period. That led to recession, inflation, rising unemployment, and eventually “stagflation” that persisted for several years. When I graduated high school in 1982, the unemployment rate was over 10%. People tend to view the 1970’s with some nostalgia now, but things were really bad then.
Tangentially, can you imagine if Zelenskyy were to reject Trump’s final “negotiated” treaty, and Russia were to re-escalate its war efforts? Europe would have to rally around Ukraine, Trump could at least temporarily walk away from negotiations, and we could potentially have a geopolitical re-alignment in Europe, without the U.S., or with the U.S. actually supporting some Russian claims. That wouldn’t be good for trade either. It makes my head spin.
It’s certainly interesting how calmly everyone is taking the U.S. now being ruled by an unpredictable mad king who is taking steps to consolidate power. So you have that and a goal to dramatically remake U.S. government spending. And apparently the geopolitical situation in Europe is about to become unpredictable. And possibly a pandemic looming but this time with an anti-vaxx kook in charge of prevention, and so on. Then the whole Deepseek saga illustrating how an unexpected technological development in a technology most of us probably don’t understand at a deep level could also be a black swan fragility event. Time to buy stocks? I don’t know. Is there an alternative? It makes “it looks like the sun, so maybe it’s a god” seem like a less bad investment rationale by comparison at least.
I think tariffs, DOGE and us foreign policies might be distractions. What worries me most is the constitution in the last ten years of enormously powerful monopolies. H and others explained the power of network and the ascent to deity of the leaders of the GAFAM and Musk backbin 2017. The historical parallel i see is with 1890 not 1930. The most dangerous affront to US democracy is the idleness of the competition bureau. I think the real goal is to thwart any effort to reign in the centibillionaires. Here’s a clue: Trump killed the miraculously accepted pillar 2 global tax and is taking aim at every country (europe, canada) trying to implement a pillar 1-gafam tax. Putin and Xi can keep them out which is why they get a break. Others are accused of museling “freedom of expression” (JD Vance, remember where he made his money). That gets little press unfortunately. We have new rubber barons and nobody seems to care in the US.
Is there an ETF for american monpolies? That’s what i would like to buy but otherwise S&P500 is a good proxy, hence TINA. And could last 10 years. Resistance seems futile.
Sorry to be a harbinger of bad news, but my sources tell me that your brain surgeons in the inner circle will be forcing Ukraine to virtually surrender to Russia, within weeks, otherwise the US will abandon Europe, specifically eastern and northern Europe.
That Nomura research may be on to something.
Ganishka on Heisenberg Report, never thought I’d see that.
Trump believes he can shake up world order on his economic terms, the US will be the winner and he’ll personally be the biggest financial winner of all. I wonder if he has an exit strategy for Musk. Historically the capo lets his lieutenants get only so close and then they’re shown the door – or worse. Trump is always transactional. I wonder what’s in his contract with Putin.