At this rate, I need my ‘Traders Clutching Their Heads’ calendar—and a tariffed tequila—to endure CNBC’s ‘Markets Sell-Off’ meltdown. S&P’s down to 5,778, as Canada is slapping 25% tariffs on ~$30 billion of our stuff, China’s got 15% of their own and Mexico promises tariffs of their own just as soon as they wake up from their siesta. On top of that Ukraine’s aid is on pause, fiscal policy is a shoulder shrug emoji and we are heading towards a government shutdown. It’s a good time for me to launch my ETF, ticker TRASH - you see it’s just the S&P 500, but your statement goes straight to the trash so you don’t ever see it. As a result you can mark your position to whatever you like - or in other words it’s a PE Fund.
Tariff Wars: from UFC Flop to KO?
Tariff wars are kind of being in a UFC fight. One fighter (Country A) throws a jab (initiates tariffs on goods from another country B), Country B punches back with tariffs of its own, but it’s all kind of the boring feeling-out part of the fight. The bad fights stay that way, nobody’s winning, and really both fighters are losing as Dana White contemplates never booking the fighters again because they’re just bad at fighting.
I’m not sure I want tariff wars to involve good fighters, but just like most UFC fights they tend to escalate out of the feeling-out phase, and sometimes someone really gets hurt. As it relates to tariffs the escalation that follows is where additional goods are scoped into the tariffs. From there you generally wait to see the effects, does the originally affected country shift exports to other countries, what is the impact on supply chains, what industries are impacted, and various other questions come into play. In other words, after one fighter has taken the guy down, wrestled for position, he’s going to try to get the other fighter to tap out. You just hope the fighter you're hoping wins is a black-belt in brazilian jiu jitsu.
Like a UFC fight, maybe someone wins outright or it goes on for a while and ultimately to the judges scorecard. In tariff wars, history tends to show they often end in long-term stalemates, partial decoupling and declines in trust between the countries involved.
Sticking with the UFC analogy, a bad outcome is the fading star fighter has a poor showing, gets called out on social media by the hungry up and comer and they decide they have to fight it out. For tariffs, that worst case is what some political scientists term as Thucydides's Trap, a reference to the Peloponnesian War, and a theory that when the great hegemon is threatened by an emerging power, the end result is the escalating likelihood of a real war. Some historians believe the attempts by Germany and others to isolate Great Britain in the late 19th century and start of the 1900s set in motion the web of alliances that led to WWI.
I wrote this before Trump’s address to Congress last night, but perhaps we’ll learn more about the administration's tariff goals. From what we know to date, we can generally say tariff goals fall into headings like border control, revenue generation, trade deficit reduction, protecting domestic industry and jobs and getting other countries to pay their fair share.
With the way these tariff negotiations go, we’ll probably have some deal or escalation, by the time this is published.
NY Fed Williams took a break from R Star to sit down with Bloomberg and tell us nothing
Williams bailed on his R Star research to mumble ‘tariffs? dunno’ on Bloomberg—data-dependent as ever. Rate cuts? Why bother asking him, your guess is as good as his. I do appreciate his fretting about inflation expectations and tariff price pops . Thanks, Johnny—I appreciate the Yellow Powell Ranger perspective as the cautious, number-crunching side kick to Powell.
The Knowledge and Service Economy Meets Tariffs
We’re a knowledge and service economy, don’t think tariffs matter there, we’ll see how many times the word “tariff” shows up in this month's report. But the real action will be seeing whether by the end of Trump’s speech we’ve already changed tariff policies and ended all wars.
If both the stock market and the 10Y Treasury keep falling, at least we’ll get to test the theory that Trump doesn’t care about the stock market and is measuring success by falling 10 year yields.
XTOD’s
XTOD: Current drawdowns: S&P 500 -6% Nasdaq 100 -9% Russell 2000 -15% Private Credit +0%
XTOD: Just checked my Private Credit marks, everything is still at par. No worries over here.
XTOD: This is a classic rotation out of stocks and into poverty.
XTOD: For most investors: 99% of good investing is doing nothing, the other 1% is how you behave when the world is going crazy.
XTOD: No one on their deathbed ever said "I wish I'd beaten the S&P 500 by another point."
They wish they'd spent time with family, travelled more, or worried less about money
Your financial plan should serve your life, not your returns! What financial goals matter most to you?
https://x.com/awealthofcs/status/1896973748173201580
https://x.com/HighyieldHarry/status/1896953383568986229
https://x.com/dougboneparth/status/1896922335720173767
https://x.com/morganhousel/status/1896937930071154964
https://x.com/joyofcompoundin/status/1896915225552752876
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