If it feels to you like equities are stuck in the mud after weeks of fireworks, and that risk sentiment’s mired in what threatens to become an intractable quagmire, it’s not your imagination.
The April 2 tariffs, “paused” or not, walked back or otherwise, were a shock. I hope Donald Trump was serious about wanting to alter the course of history by rewriting the rules of global trade and commerce as they’ve existed for decades, because to the extent the world didn’t take him seriously last time, it does now.
Howard Marks, in his latest memo, mentioned something important: Trump’s tariffs, and de-globalization in general, are tantamount to a de-specialization push. He (Trump, not Marks) is effectively disavowing comparative advantage, which is a really — really — silly thing to do.
“Every country has some things it produces better and/or cheaper, and others where the reverse is true,” Marks wrote, adding that in a system where every country focuses on what it does best, exporting its specialties and importing the specialties of other nations, “collective welfare is maximized thanks to increased overall efficiency.”
Folks, this is basic stuff. And as Marks suggested, it’s the foundation on which our daily lives are built in modernity. We want the Swiss to focus on watches and chocolate, the Italians on pasta and fine clothes, the Japanese and Germans on cars and so on. Because those nations do those things really well and everyone benefits when they’re able to share that expertise with the world through free and open trade.
I talked about this in “Tariffs Aren’t A Free Lunch,” in which I gently warned that no one wants de-specialization. To just abandon the concept of comparative advantage like it never did anything for us is ludicrous and it’s tantamount to developmental backsliding.
That’s one, among many, reasons everyone’s so aghast at the current situation. Unless and until Trump at least nods to the fact that what he’s doing isn’t just “contrarian,” it’s counterintuitive, markets are going to look upon it with wary eyes.
Fund managers now harbor the worst global growth outlook in three decades, according to the April vintage of BofA’s poll, consumer sentiment in the US has never been worse, and the bear share in the AAII individual investor survey just spent another week above 50%.
As the figure shows, this marks eight weeks of AAII bears above 50%, the longest streak ever. And the survey goes back to 1987. Note also that individual investor sentiment has spent 20 of the past 22 weeks above the longer-term average.
There’s no getting around it: People are concerned. Worried, in fact. Scared, even. Gold damn near hit $3,400 this week.
Sentiment’s “less acutely negative after Trump’s tariff ‘step-downs,’ Scott Bessent’s [remarks] on Treasury’s willingness to intervene with bond buybacks and Chris Waller going dovish [by] prioritizing downside labor risks over inflation upside, but that doesn’t mean ‘constructive,'” Nomura’s Charlie McElligott said on Thursday afternoon, ahead of the long holiday weekend.
In the same note, Charlie cautioned that “we’re now in the ‘chronic’ stage of the growth bleed.” For the C-suite, he went on, it’s a “pick your poison” situation. “Pass through costs to customers to maintain margins, [risking] lower sales, earnings and profits or absorb costs and see margin compression, which eventually becomes lower earnings [and] forced cost-cutting, i.e. laying off employees.”
Specialization and comparative advantage are pure Adam Smith’s Wealth of Nations published in 1776. Trump’s tariff regime is indeed counter-intuitive. It also contradicts the professed beliefs of these so-called free market advocates. I have long thought that the word “conservative” has been reduced to a tribal identity and lost its meaning as a philosophical framework. This whole mess is just another of many others who are Republicans but not republican.
It’s actually more david Ricardo, but your overall point is correct anyway…
Trump clearly trying to return to the golden age of pre-1776 when Wealth of Nations hadn’t been published, we still had a king, and you could tar and feather a man without due process.
“Folks, this is basic stuff.”
I couldn’t have said it better myself.
The only play I can come up with right now is atomic element 79 (Au) until this tariff nonsense calms down and capital stops leaving the USA. I sure hope earnings hold up over the next few quarters, but that seems like a long shot today. We may be burning our Adam Smith books in the town square as this progresses…
I mentioned in a comment to an article on tariffs here a couple of weeks ago that it was if Trump and his economic team had never read the basic works of David Ricardo.
Also, I watched Bessent’s interview with Bloomberg, and as he is agreeing that the Treasury Department has tools to intervene with in the bond market, he is actually shaking his head from side-to-side as if to say “no, I don’t think that will become necessary.” That seems to be what he was trying to communicate, but it also struck me that it could be a huge “tell” that he simply has no intention of doing so even if things were to get worse. (You can see it at about the 15:00 minute mark during the interview.) It is likely I am reading too much into it.
I’m pretty sure neither Trump nor any member of the “team” has ever actually read any book by anyone, let alone Ricardo. Although drt purports to have a degree from Penn, it isn’t a business degree. Anyway, papa supplied surrogates to sit in on sonny Don’s classes in his place so he could do other important stuff like golden showers.
GEE, I wonder if dt will say something this long weekend, now that market is closed, that will help market go up Monday?
Alternatively, maybe something takes it the opposite direction. See section 6 subpara b if this, published on 20 January 2025: https://www.whitehouse.gov/presidential-actions/2025/01/declaring-a-national-emergency-at-the-southern-border-of-the-united-states/
“(b) Within 90 days of the date of this proclamation, the Secretary of Defense and the Secretary of Homeland Security shall submit a joint report to the President about the conditions at the southern border of the United States and any recommendations regarding additional actions that may be necessary to obtain complete operational control of the southern border, including whether to invoke the Insurrection Act of 1807.”
That 90 days ends this Sunday.
A little bonus pre-holiday market color: https://heisenbergreport.com/2025/04/17/why-good-news-may-not-be-enough-to-make-stocks-rally-again/
You could make the case for a contrarian buy, but you won’t just lose a finger or two here if wrong…you’ll wind up line the black knight in Monty Python. Elements starting with “A” may hold up, but door stops and folks who dig for them are not signs we are moving forward in a positive manner as a species…
Next Fall on Fox, “Miner wants a Marriage!”
All the trashy TV is on Netflix these days, but based on their earnings, they have certainly optimized for eyeballs.
Maybe trump will say “ok, I was kidding…………or , was I ?” The amen corner will still praise him.
For the President, the challenge of China (the US needing to be self sufficient for the upcoming war), and gleaning revenue to pay down the debt, and to carry out tax cuts for the rich, etc., trumps any benefits from competitive advantage.
Thinking about Mega reports to come.
Obvious reasons to expect weaker or uncertain guides, or guides that don’t answer investors’ concerns, from at least META, AAPL, NVDA, TSLA.
Thinking about Mega reports to come.
Obvious reasons to expect weaker or uncertain guides, or guides that don’t answer investors’ concerns, from at least META, AAPL, NVDA, TSLA.
I know it’s all about T & his Ts but perhaps a septet of Mega whiffs will matter too.
Oops