What caught my eye this week.
A long-time Monevator reader asked me this week why we haven’t written something in the vein of the Covid crisis Do Not Sell special that inspired a thousand (okay, four) T-Shirts?
The quick answer is – as my co-blogger The Accumulator said on that day in March 2020 – we don’t like to get involved in day-to-day market commentary. Especially not for passive investors.
This isn’t just because we don’t think we have much insight into where the market will go next.
(No great humility on our part, we think almost nobody has that edge).
Rather it’s also because we believe it’s unhelpful for most people to try to make the market timing decisions that thinking you know better can inspire.
Calm tweaks to allocations decided on a Sunday morning when the markets are closed are one thing.
Dumping half your stocks on Monday because a man on YouTube is shouting: very different.
Chronic disability
But there’s a more difficult explanation as to why this isn’t a Covid crash moment to my mind.
In short some of the drivers of this US sell-off are arguably more serious than a global pandemic. At least from an investing perspective, but maybe on a long-term human history view, too.
That’s because something is happening in the US that I don’t think we can dismiss as business-as-usual.
True, it’s too soon to know what America apparently going rogue will mean for geopolitics and trade.
And for sure if after all the shouting we just have a bit more defence spending in Europe, some self-defeating but limited tariffs, and an even more winner-takes-all society in the US, that’s hardly existential.
But if this does escalate into a 1930s-style tit-for-tat global trade war then we can probably look forward to a deep recession, if not a depression.
And that’s to say nothing of the obvious threats to stability of a truly disintegrating global order, if that came about too.
The nukes haven’t gone anywhere.
No vaccination against economic illiteracy
So how should markets price in all this?
Probably much as they are is my best guess. The declines seem pretty orderly to me.
That might sound odd after one of the fastest circa 10% corrections in US stock market history – and against a cacophony of ‘hold the lines!’ from US commentators that mostly make things feel worse.
But we could expect a lot worse given the potential lasting damage to growth and cooperation that we’d see from a Trump administration that truly did what it’s saying it’s going to do.
Without wanting to re-litigate every turn of the pandemic, once it was clear that most people recovered from infection and that the oldest were the most vulnerable, it was always likely to end relatively quickly.
We had a ton of medical history to show that.
Millions might die – did die – and the upheaval could have – is having – long-term social and political consequences. But global productivity didn’t have to be indefinitely impaired.
However that’s not true of destructive nationalistic trade wars.
The global economy will surely become less efficient. And nationalism goes hand-in-hand with conflict.
I hardly need to state the worst cases from the last century to demonstrate where this could lead.
Do not sell. Probably.
Of course most people shouldn’t sell on this escalating drama.
But that’s because a strategy of regularly trying to make such decisions will probably reduce your long-term returns, due to poor trading decisions.
It’s not because hindsight won’t show us that selling this particular time and buying back in one, five, or ten years time wasn’t retrospectively the right move.
However if you have that kind of foresight, you probably already know about it. But nearly everyone doesn’t. And nobody is even close to perfect.
(Spoiler alert: the shouting bloke on YouTube doesn’t make the grade.)
Never-ending stories
Remember too that – as always – there’s a confluence of factors behind this recent sell-off.
China unveiling of its supposedly el cheapo DeepSeek AI innovation has blown the froth off the largest US tech firms. These had become such an enormous share of the market – as discussed here and elsewhere – that even small de-ratings have huge consequences on the index level.
Then there’s the US exceptionalism story that was at its height by the end of 2024.
This basically boiled down to ‘US stocks go up the most because US stocks have gone up the most’.
I’m serious!
I could write a fancy treatise about capital going to where it’s treated best or the European regulatory burden, the privilege of having the world’s reserve currency, or the role of Silicon Valley VCs and high-skilled immigration in keeping North America on the cutting-edge.
But honestly, from a market perspective I think US stocks went up a lot for a very long time and that this probably sucked in too much money in the expectation of even more.
Whereas now investors are slashing their US holdings by the most ever, according to Bank of America.
Money is piling into a fiscally-emboldened Germany as it reportedly flees the US.
Global fund managers are even – pass the smelling salts – putting more money into the UK.
Finally, if we take Trump and Elon Musk at their word (you do you) then the US has embarked on an enormous shrinking of the state, ultimately in an effort to reduce its vast deficit and national debt.
Compare that with Germany – finally taking the spending brakes off – and you could paint everything we’re seeing as yet another QE/fiscal story. Capital leaving a retrenching US to go where money is getting easier in Germany.
Crashing bore
Could the US fall to proper bear market levels? Could it be down 20-30% by next year?
Yes, I think that’s quite possible.
But then again, it’s always possible. No need to send me a prize if it happens.
It’s nothing likely a certainty, however. And in some ways improbable.
American household and company balance sheets are in good shape. Meanwhile the US Central Bank has shown little stomach for deep drawdowns, so we could expect some kind of emergency rate-cut package to take the edge off any falls.
And this is not to even get into exactly what the US administration will do, versus how much is noise.
Trump is such a chaos agent, you could even argue his reputation has made this latest drawdown more orderly than it would be under a traditional US leader with a similar trade agenda.
While the enthusiasm for US tech stocks, say, got very giddy, I doubt hedge funds and other massive pools of capital went all-in on business as usual following Trump’s election last November.
Which in turn implies such institutions wouldn’t have gone overboard with leverage and the like, either.
It was perhaps telling that Bill Ackman said in his recent Pershing Square report that the fund didn’t put on any of the asymmetric bets that have made it billions previously. For Ackman’s taste the options and other securities Pershing Square uses to put on those trades never got cheap enough.
Which might tell us markets, perhaps surprisingly, weren’t overly-complacent about risk in 2024 after all.
Reinvigorating reading
We’re now going deep into the weeds for the tastes of most readers, though. So I’ll conclude with three good articles on the recent wobble.
They are well worth a read if you’re anxious:
- The price of admission – Charlie Bilello
- A correction, not a crisis – Optimistic Callie
- If equity markets didn’t fall as much their returns would be lower – Behavioural Investment
Have a great weekend!
From Monevator
What is the UK safe withdrawal rate? – Monevator
How to waste money – Monevator
From the archive-ator: Monevator is an investment site, whatever the weather – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Bank of England holds its rate at 4.5% amid trade war uncertainty – Sky
Record demand for gilts from retail buyers affecting prices – Proactive Investors
With more than 300,000 Londoners classed as too sick to work… – Standard
…and more than a fifth of UK adults not looking for work… – BBC
…Reeves set to unveil biggest spending cuts since austerity – Guardian
Flawed revision wipes £2 trillion off estimates of UK household wealth – IFS
London closes in on New York as the top financial centre – CityAM
US offices still barely above half of pre-pandemic occupancy levels – Apollo
Number of buy-to-let companies passes 400,000 – This Is Money
UK and US hit new lows in World Happiness Report – Axios
Brexit a key factor in worse UK medicine shortages in four years – Guardian
Why has the price of gold risen so much? – Econofact
Products and services
Half a million homes in conveyancing ‘log-jam’ ahead of stamp duty hike – This Is Money
£5,000 cashback mortgages to offset stamp duty hike – This Is Money
Joint-life annuity rates at 17-year high [Search result] – FT
Get up to £1,500 cashback when you transfer your cash and/or investments through this link. Terms apply – Charles Stanley
Rates tumble on instant-access savings accounts – Which
What the new rules on pension inheritance may mean for you – Guardian
Is it cheaper to renew move at the end of your rental contract? – Which
Get up to £4,000 when you transfer your ISA to InvestEngine our link. (Minimum deposit of £100, other T&Cs apply. Capital at risk) – InvestEngine
Can you pay less on your council tax? – Be Clever With Your Cash
Six ways to capitalise on the bust in luxury watch prices – Forbes
Be the sharpest in your hood with a Monevator hoody – Shop
Four Barn conversions for sale, in pictures – Guardian
Comment and opinion
The madness of the £100,000 childcare tax trap [Search result] – FT
Buy, borrow, die: how US billionaires avoid taxes – The Atlantic
The secret to happiness? Doing pretty okay, I guess – Sherwood
Europe’s fiscal splurge could herald a decade-long bull market – Reuters
Navigating your finances in your 40s – Flyover Stocks
What’s in the centre of your portfolio? – A Teachable Moment
How to approach liquid alternatives in your portfolio – Morningstar
Yet another study showing the many ways active funds fail investors – Morningstar
How much do Gen Z and millennials save compared to Gen X? – This Is Money
Naughty corner: Active antics
Ten best-value stocks to buy for the long-term – Morningstar
Retail investors take on hedge funds in Europe’s answer to meme stock mania [Search result] – FT
Buffett and Munger Unscripted… – The Rational Walk
…and Buffett’s Early Investments – Enterprising Investor
Kindle book bargains
Poor Charlie’s Almanack by Charlie Munger – £0.99 on Kindle
How to Run Britain by Robert Peston and Kishan Koria – £0.99 on Kindle
Invisible Women by Caroline Criado Perez – £0.99 on Kindle
Chip War by Chris Miller – £1.99 on Kindle
Environmental factors
Carbon dioxide levels in atmosphere highest for 800,000 years – Yale
The fish collectors hoping to save rare species from extinction – CNN
Defra asks England’s biggest landowners how they’ll restore nature – Guardian
Is any nation serious about climate change? – The Conversation
Now forest to be created in West of England, 20m trees by 2050 – Guardian
EVs (the new PCs) mini-special
The slow but steady advance of driverless vehicles – BBC
BYD says it can charge an electric car in five minutes… – Gizmodo
…which could be EVs’ DeepSeek moment – Axios
China’s EV boom is bad for US tech – Crazy Stupid Tech
Can you fool a self-driving car? [Video] – YouTube
Robot overlord roundup
AI has a search citation problem – Columbia Journalism Review
Majority of AI researchers say scaling is a dead end – Futurism
Dating apps are all-in on AI, whether users want it or not – Sherwood
Why AIs still struggle to extract data from PDFs – Ars Technica
30 ways to use AI to make life better and easier – Art of Manliness
Not at the dinner table
Whitewashing American history – Can We Still Govern
Doubt – The Edgy Optimist
The architect of Project 2025 is ready for his victory lap – Politico
Trump halted Agent Orange cleanup in Vietnam – ProPublica
Dollar devaluation and the anti-system youth – Kyla’s Newsletter
Destroying America’s brand – Paul Krugman
Off our beat
The prehistoric psychopath – Works in Progress
Six secrets to a long awesome life – Barking Up The Wrong Tree
William Bernstein: Oracle of the Apocalypse – Advisor Perspectives
19.2 minutes – We’re Gonna Get Those Bastards
The last decision by the world’s leading thinker on decisions – WSJ [h/t Abnormal Returns]
How the Irish pub became one of Ireland’s greatest exports – The Smithsonian
Labour’s plans to get Britain building again might just work – The Conversation
The blonde advantage: fair hair completely changed my life – Guardian
British Rail wasn’t all bad – The Conversation
R.I.P. quant-father Barr Rosenberg – FT Alphaville
And finally…
“We need to distinguish what is actually dangerous from what sounds frightening.”
– David Spiegelhater, The Art of Statistics
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It’s been quite interesting for me this market dip since mid-Feb.
My bucket of ~ 10-15% allocation to small/micro/nano caps have actually gone up overall. Been a good diversifier.
To paraphrase Alan Jacobs, writing about “the seductions of prediction,” and using William Goldman’s famous lines as an ending:
“…the single most important fact..of the entire [investment] industry.. “Nobody knows anything..”
“If there is a Roman numeral I to this.., that’s it….”
“Not one person in the entire [investment] field knows for a certainty what’s going to work.”
“Every time out it’s a guess—and, if you’re lucky, an educated one.”
Is right now, here in late March 2025, a September 1929, a September 1987, a February 2000, an August 2008, a February 2020 or a December 2021 moment?
Are we, as in each of those months, at the precipice of a great and imminent fall?
Don’t know.
Can’t know.
What I do know is that you cannot find your house keys – if you lost them outside at night – if you’re only looking for them by the street light because that’s the only place that you can see clearly in the dark.
Everyone knows Trump’s into tariffs.
Everyone now knows that he’s at least prepared to begin implementing some of them.
That’s in the market price.
There’s no new nor any widely unappreciated or misunderstood information there.
So doing anything portfolio wise based upon it (tariff panic) and it alone makes no logical sense – even if action now (whether sell or buy) does, retrospectively, actually turn out to be the ‘right’ choice.
In early Feb 2020 the little appreciated info was that Covid was not going to be contained like China, S. Korea and Vietnam were (initially) managing to do with it at that point in time.
Then, later in the month, the info came in about uncontrolled spread in Spain and Italy. The market reacted with lighting speed to price that in.
To now read the tariff situation (and to assess its future impact on asset returns) right you have first to understand fully what’s really going on in Trump’s head – and no-one does; not Steve Miller, not Steve Bannon, nor Elon Musk; and probably not even ‘the Donald’ himself.
@DH. I disagree. “the Donald” does know what he’s doing. Yes, Trump is a failed businessman, and he’s an abysmal statesman. But he’s a very successful reality TV star and he’s leveraged that skill to become a phenomenal political operative in a world where social media is dominant. And as every media star knows, it’s all about ratings and followers. He hasn’t got a political base. He’s got a fanbase.
To keep those fans tuning in requires constant conflict and chaos. There is no need for a political ideology or economic plans. There is just a need to, every day, dominate the headlines by flooding the zone. This keeps people glued to their screens, awaiting the next tweet, next conflict, disaster etc. It all makes total sense if you look at him as a reality TV star. It’s brilliant.
The absence of ideology makes any predictions about this President even more precarious and useless than normal.
British historian Dominic Sandbrook and Anthony ‘the Mooch’ Scaramucci had an interesting exchange of views on election night about whether Trump is a fascist.
Both were right in different ways.
Sandbrook to say that there was only one fascism and it was unique to one place and time – Italy 1922-43.
The Mooch to say that this was irrelevant because Trump does obviously fascist things even if they’re devoid of the pseudo-scaffolding of fascism (the ideology of the Corporatist State, the explicit invocation of Imperial Rome, elements of Italian futurism etc).
But having no vaguely coherent belief system (however abhorrent) makes second guessing which way Trump 2.0 is going to veer next an exercise in futility, and one which probably has negative NPV given the likelihood of getting it wrong.
Then again, the Guardian today thinks he does have an ideology, sort of:
https://www.theguardian.com/commentisfree/2025/mar/22/donald-trump-peace-imperialism-ukraine-gaza
As a Canadian, I pretty much divested of most of my US stocks for EAFE index funds in January. I am a bit worried about the uncertainty of the markets in the current political climate, for sure, but also it just doesn’t feel *great* to invest in the US right now. I know that we should not blahblah make emotional blahblah investing decisions but I am happy with my mix of CDN/EAFE/sml usa portfolio for now.
@ZXSpectrum48k – Guessing you watched the recent Wolff interview? Certainly an interesting view.
I don’t think Trump has any hard ideology, except to be the centre of attention. The ultimate narcissist. Trump is, however, a cipher for various competing ideological interests.
Project2025 delivered page by page. Christian nationalists who want to make the Taliban look progressive. White supremacists, misogynists. Bannon’s acolytes flooding the zone with shit. The South Africa tech and crypto bros destroying regulation to gain ‘liberty’ (for themselves, not the rest of us). They say the upcoming AI war with an authoritarian China cannot be won if we have with one hand tied behind our back by feeble democracy. An authoritarian system is required. Not fascism, but an illiberal democracy, an oligarchy, even a monarchy. So, with all these competing interests, all lobbying him, yes, it’s a many-body problem with no way to predict the outcome.
Nonetheless, saying all the above, I see one constant. Grift and corruption that are off the scale. Trump launching a meme coin the day before inauguration so that, say Putin, can pay him billions with no one any the wiser. The Trump family co-investing with the CEO of Binance. Who cares if he facilitated payments to Al Qaeda, ISIS and Hamas. Musk getting access, through DOGE, to competitors and individual citizen data. The IRS having cybercrime and fraud divisions gutted. The DoJ told to deemphasize white collar crime. This is total state capture.
State capture is an interesting investment case. I’ve seen it many times in EM. The US now fits the model. Do you exit and run for the door because it’s corrupt? Insider trading will be the least of your problems. Or do you double down because if a few oligarchs have just captured the largest economy is the world, their ability to make trillions is nailed on. Can you afford not get a slice of that?
Agreed, multiple things can be true about the Donald. He’s exceptional at what he does which is disruption and capturing attention to execute someones’ agenda, and still seemingly an appalling individual (seemingly because I don’t know how much of this is an act, negotiation gambits, being a mouth piece for various interests as most figure heads are). Things are certainly shifting, and seemingly wrong wards, on the global stage and in the US in a way they haven’t for decades. Again seemingly, because who knows what the 3rd, 4th etc order consequences will be or how much of the plan will get enacted.
I don’t see the need to pay any more attention to the orange cheeto than absolutely necessary. This served me well during his first term and meant I stayed the course (VT and chill), even through his 2018 trade war with China. Not sure why this time is so different?
From a personal standpoint, I’ve divested from most US work and travel at the end of last year and the mental/emotional dividends have been amazing.
>Or do you double down because if a few oligarchs have just captured the largest economy is the world, their ability to make trillions is nailed on. Can you afford not get a slice of that?
Is it going to be reflected in equity valuations though?
As investors (this an investment blog?) we must constantly remind ourselves the secret of successful investing is based on a few unalterable principles
We must combat our urge to tinker with and trade constantly based on our human make up ie acting on impulse ,emotions etc-staying the course is a winning investment strategy
Making investment decisions in reaction to political events invariably gives disappointing results-politicians come and go and do not have complete control over over world events
Know stockmarket market history and its normal many periods of volatility -making constant investment reactions based on current events is not a successful investment policy
Possibly keeping our investing and our human nature separate is impossible but those that can get nearest to that difficult to achieve state of separation will be the investment winners
xxd09