“You cannot buck the market.”
– Margaret Thatcher
I didn’t want to go near politics again this week. By Tuesday I’d pre-written some thoughts about the FCA’s plan to increase the FSCS deposit limit to protect up to £110,000 of saver’s cash.
A sensible bit of technocratic rule-tweaking to marginally improve consumer protections. How lovely!
But then Donald Trump threw a wrecking ball into the markets – and, worse, the global economic system – by unveiling a tariff policy so moronic that even his critics were left momentarily meme-less.
The tariffs themselves are the least of my concerns, dreadful though they are on the face of it.
Trump has been clear about his love of tariffs for decades. He told everyone he was going to go hard on them. They were in his election pitch. His opponent Kamala Harris told voters he was serious.
Of course I’m concerned he’s declared a national emergency to grab the power to enact his tariffs. They are supposed to be set by Congress.
But nobody – least of all voters or the tech oligarchs who backed him and whose companies lost hundreds of billions of dollars in value this week – can say they weren’t warned.
At this dreadful juncture for American democracy, perhaps it’s even a small positive that Trump has followed through on his campaign promise.
Decline and fall
No, what really bothers me – terrifies me – is the ongoing ramifications of stuff like this:
Source: BBC
On the face of it, that’s a list of eye-watering tariffs that Trump plans to deploy against any countries that don’t come grovelling back to him begging for access to American markets.
That’s bad enough, given that if nothing changes it’ll plunge the world into a recession if not a depression.
But what should be troubling to everyone – but which while widely-covered by the wonks is being lost in the mainstream noise around trade wars and crashing markets – is that Trump is brazenly lying.
Lies, statistics, and bullshit
Trump stated to the American people that those countries imposed the tariffs he listed.
America was being kind, he suggested, by only reciprocating in half measure.
But I watched the Rose Garden speech live and like many I knew his figures were absolute garbage.
Soon enough author James Surowiecki and others had figured out that the numbers represented trade balance ratios. A short while later the administration put out a confirmatory statement.
Now, obviously such imbalances are a ridiculous way to measure the fairness of trade between the world’s richest country and, say, Cambodia.
Even more disturbingly, there are signs the paper might have been devised by leaning on ChatGPT.
But what should really frighten us all is that this is the erstwhile leader of the West lying to his own people in the baldest possible terms.
These numbers are not tariffs. He is lying.
Yes I know it’s Trump. I know everything he says is bullshit until fact-checked.
But when I was growing up this kind of theatre was the preserve of totalitarian communists, banana republics, and frontline reports from toppling dictators.
Not the US, of which I and most of the rest of the world expected far better.
Top of the populists
When this blog became radicalised in 2016 into covering politics, it wasn’t because I was a sore loser or even because I rued the self-harming decision of 52% of the electorate.
It was because that vote – and shortly afterwards Trump’s first win – were based on fabrications that the mainstream parties proved unable to counter.
Even worse, despite the manifestly terrible outcomes from that first flowering of an industrial-fabrication complex – a permanent hit to the economy here, an attack on the Capitol there – the anglophone populist leaders continue to make ground. And their supporters aren’t for turning.
Reform is topping the UK polls. We are on-track for mob rule – in both sense of the word – and too many people are still dismissing it all as larks.
Yes I’m aware politicians always stretch the truth, and lie now and then. Unlike some of my critics I was interested in politics long before Wetherspoon’s started putting slogans on beer mats.
But this wholesale deceit – and the lack of any accountability when it’s exposed – is from another category.
I’ll leave the history of where this could take us for a later escalation. Feel free to do your own research.
Unmade in the USA
Many optimists believe that the $6 trillion wiped off Wall Street valuations in two days this week will prompt a change of tack from the Trump administration.
Others speak with faux-sophistication about how these tariffs are just an opening gambit for deals. As if that’s its height of second-level thinking to understand that Trump is a bullshitter.
Yes I’m sure we’ll see deals and backtracking. But that will only undo some of the economic damage.
Besides, even taken seriously as a tool to drive Trump’s vision of a US manufacturing renaissance, this is a witless way to go about it.
One could imagine a less reckless US president who had vaguely the same aims constructing a new scaffolding of trade barriers, particularly targeting the likes of China and its proxy manufacturing bases.
Such an administration would set out a clear policy direction, show its sums, offer concrete timeframes, and give business some measure of certainty to plan the re-shoring of an element of production.
It would do so understanding that you do not re-work your global supply chain based on this week’s latest negotiating wheeze, let alone relocate physical factories from Vietnam to Kentucky on policies that might change tomorrow.
That’s because besides the sheer profit-wrecking cost of doing so – and the ongoing uncompetitiveness of your new factory once you’ve stood it up – the whole damaging exercise risks being done for nothing, and thus rewarding competitors who did nothing.
So without any certainty, Trump’s policy-making is likely to change very little.
Which is ironic because identifying certain unfair trading relationships, particularly with China, is one of the scant sensible planks of the Trump agenda.
True, far from being “looted, pillaged, raped, plundered” as Trump put it, the current arrangements have made America the world’s richest nation. No surprise when America set it up that way.
But the world has changed a lot, and the terms of trade with Asia in particular are up for renegotiation.
Alas many years of multiple rounds of intricate trade talks aren’t of any interest to a regime set upon creating maximum instability, along with a diet of bread and circuses for its credulous supporters.
Markets in MELTDOWN (Copyright CNBC)
Okay, that’s enough about these tariffs. Everyone who knows anything knows they’re disastrous, and has said so this week. I’ve included more links below.
If the tariffs do somehow persist then the rest of the world will just have to come together to trade more closely among themselves, sans the US, and so enjoy the benefits of free trade while America regresses.
But what about the markets?
Well on the one hand, here’s where UK investors are year-to-date:
A global tracker (dark blue) is down about 13% since 1 January, mostly due to falls in the US, with the Nasdaq now down 15% year-to-date (light blue).
The UK market (orange) is pretty flat though. And the iShares core UK gilt ETF (yellow, long-ish duration) is up nearly 3%. (Both excluding any dividends).
So that gives a bit of a broader perspective after the shellacking portfolios took this week. Indeed if you’ve been following your portfolio closely, then you’ll have seen the US markets fell as fast on Thursday and Friday as five years ago when Covid swept the world.
But we might look back a year (same assets as above) as follows:
On this view everything is pretty flat. You could say all we’ve done is blown the exceptional exuberance off the US market.
Remember many of us were already queasy about US valuations a year ago. So while earnings for the best US companies have advanced mightily over the past 12 months, from this perspective we can’t complain too much that a bit of a reckoning has taken place.
Fall in line
I don’t say any of this to make light of the pain of losing money.
Most people with risk-on globally-tilted portfolios will have seen at least 5% of their invested wealth wiped out in the past seven days or so.
Maybe a lot more. I know people who invest only in small-caps and growth stocks who are down double-digits.
The Magnificent Seven were already in a bear market – so more than 20% lower – even before Trump walloped them further on Wednesday.
But we know markets do this kind of thing, fairly regularly. They take the stairs up and drop down mine shafts.
Volatility and drawdowns are the price of admission for the higher returns we’re all so tempted to dial up when doing our long-term calculations.
Rationally irrational
Will the decline continue? I think it’s quite possible (although like everyone I know nothing).
You might remember a couple of weeks ago I explained why I wasn’t penning the ‘do not sell’ type post that some readers had requested, warning 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.”
Well on the face of it that’s what we got this week.
The mob is into the machinery of the global economic engine that brought us wealth and prosperity for the past 80-odd years, and they’re wrecking it.
Set against that though, I think for the first time there was an element of panic in Friday’s sell-off.
The S&P 500 being down nearly 6% in a day isn’t actually irrational if we are going back to the 1930s – it’ll be an under-reaction – but markets don’t reset on a dime. There will be counter-reactions, usually after short-term plunges.
And on Friday a disorderly element was creeping in.
For instance, gold actually fell after climbing for months. That makes little sense unless it’s because over-leveraged hedge funds and the like were having to sell to meet margin calls.
What to do next
As always the time to prepare for a crisis in the markets is before it happens.
Hopefully you kept some bonds and other safety-first assets.
And hopefully you didn’t go all-in on the Magnificent Seven. Maybe Moguls bought some of the boring British stuff I’ve been writing about rather than loading up on Palantir and other wunderstocks.
The riskiest portfolios should still do better in the long-term. But portfolios and investor psyches have to survive the short-term to get there.
For most of us that requires balance, whether it be a passive investor properly diversifying across assets, or a stock-picker diversifying across sectors and geographies (or both!)
Naturally if this sell-off continues we’ll be revisiting these classic themes in the months to come.
But for now put on your special T-Shirt or make a comforting brew and then go out for a walk in the sunshine.
Markets are bad and the politics is worse.
But our portfolios will still be there on Monday.
More tariff talk:
- What tariffs does the UK impose on US goods? – This Is Money
- Trump’s aggressive push to rollback globalisation [Search result] – FT
- What Trump’s tariffs could mean for UK consumers – Guardian
- Learning from Smoot-Hawley – Scott Sumner
- Trade deficits do not make a country poorer – Noahpinion
- American foreign economic policy is being run by the dumbest motherfuckers alive – Drezner’s World
Have a great weekend.
From Monevator
Best multi-asset funds – Monevator
Ten good reasons to hold cash – Monevator
From the archive-ator: The coronavirus crash, as told by the Monevator community – 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 proposes hike in FSCS limit to £110,000 – Reuters
UK businesses to pay billions more in wages and taxes from this week – Morningstar
Motor finance compensation ruling ‘goes to far’, says FCA – Guardian
London Stock Exchange continues to shrink – Peel Hunt
Consumers ‘protected’ as Rebel Energy supplier ceases trading – Sky
UK homes are getting more affordable according to this data… – This Is Money
…but house prices struggled in March as London stagnated… – Guardian
…in part because its poshest homes being sold at huge discounts on non-dom changes – T.I.M.
Tesla sales plunge after Elon Musk backlash – BBC
Billionaires are getting by – Sherwood
Products and services
Nine cheap and free things to do over the Easter holidays – Which
Cut the cost of your mobile phone contract – Be Clever With Your Cash
You can get up to £250 cashback when you open a SIPP with Interactive Investor. Terms and fees apply. – Interactive Investor
An unsuccessful journey into Netflix’s ad tier – Six Colors [h/t Abnormal Returns]
How much could you save by switching to a 0% balance transfer credit card? – 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
A review of the Cheddar app: get cash back when you spend – Be Clever With Your Cash
How to find out how much your home is worth – Which
Edwardian homes for sale, in pictures – Guardian
Comment and opinion
Frontline reports from customers of the Bank of Mum and Dad – iPaper
The Londoners making thousands by hiring out homes for shoots – Standard
Investing in parking spaces as an alternative to buy-to-let – This Is Money
A decade of pension freedoms: the numbers are in – Interactive Investor
Are you seeking too much certainty from bonds? – Humble Dollar
Work is for wages not wellbeing – Spiked
Gary Stevenson: portrait of the trader as a young rebel – Jacobin
Would $2m make you ‘set for life’? – Of Dollars and Data
Is tax destroying the middle-class second home dream… – This Is Money
…and if so, should we really be angry about it? – Guardian
Naughty corner: Active antics
The activists focussing on smaller companies – Klement on Investing
A new industrial military complex [Podcast] – Invest Like The Best
Alphabet’s YouTube now worth as much as $550bn – Variety
Rebuffed: a closer look at options-based strategies – AQR
Kindle book bargains
A Man for All Markets by Edward O. Thorp – £0.99 on Kindle
Million Dollar Weekend by Noah Kagan – £0.99 on Kindle
Great Britain? by Torsten Bell – £1.99 on Kindle
The Moneyless Man by Mark Boyle – £0.99 on Kindle
Environmental factors
Climate crisis is on track to destroy capitalism, warns top insurer – Guardian
Half of UK butterfly species in long-term decline… – Butterfly Conservation
…with Britons urged to stop mowing lawns to help boost numbers – Sky
Average person will be 40% poorer if world warms by 4C – Guardian
Robot overlord roundup
DeepMind’s 145-page on AGI safety may not convince skeptics – TechCrunch
How to learn very quickly with NotebookLM – Khe Hy
Breakthroughs in image generation – One Useful Thing
Runway claims to have achieved consistency in AI videos – Ars Technica
UK government tries to placate opponents of AI copyright bill – Guardian
Wikipedia is struggling with voracious AI bot crawlers – Engadget
Bill Gates says AI will replaces doctors and teachers in ten years – Yahoo Finance
What if the truth about AI is more boring than we’d like? – Conspicuous Cognition
Not at the dinner table
Can Trump serve a third term as US president? – BBC
Marie Le Pen’s conviction could boost the far-right – Semafor
How to save a democracy – Foreign Affairs
The latest episode of Mad King Trump – Noahpinion
Dan Carlin: what’s good for the goose [Podcast] – Common Sense
Off our beat
White Lotus IPO opportunity [Published 1 April…] – White Lotus IPO
Former MI6 boss says Britain must get ready for war – Independent
Five years on, are we ready for the next pandemic? – John Hopkins [h/t A.R.]
Breakthrough brain implant turns paralysed woman’s thoughts to voice – Smithsonian
An expert guide to mudlarking on the Thames [Search result] – FT
Mathematician Adam Kucharski: “Concepts of what we can prove are shifting” – Guardian
And finally…
“Professional men have been hit hard by the depression. This is particularly true of doctors and dentists. Their overhead is high and collections are impossible. One doctor smoothed a dollar bill out on his desk the other day and said that was all the money he had taken in for a week.”
– Benjamin Roth, The Great Depression: A Diary
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Don’t think I’ll be able to resist buying something with my cash on Monday morning…
Great take @TI. With a geopol-historian hat on: is the ‘western’ BS-Industrial complex emerging since Fox, the Tea Party & then Trump and QAnon ‘went mainstream’ just catalysed by an attempted ‘reverse colour revolution’ by Russia via their Internet Research Agency (whether DJT is actually Agent Orange here (i.e. FSB/GRU asset Krasnov), or just a wholly unwitting dupe); or is this decoupling and deglobalisation symptomatic of the much deeper malaise of an unsolvable polycrisis of demographic cliff edges/ dependency ratio driven debt & deficit disasters, inequality inflexion points, the rise of Eurasian authoritarian nationalist pseudo-capitalisms, and soon the effects of climate change?
Re: Markets in Meltdown charts – I recommend zooming out over 10 or 20 years and changing the price scale to logarithmic for a better perspective.
@Algernond. Ditto. By intellectual prescience (yeah really) I sold a load of USA stuff and was wondering what to do. I haven’t been active for ages. But it’s very difficult to resist.
Goos read and food for thought.
There’s a great difference between “help, my ETFs have tanked” and a global recession of rocketing prices, job losses that might be around the corner.
Will only our portfolios suffer? Only time will tell.
It does shatter my view that the confluence of.power/wealth means the rich get richer to the detriment of the masses.
He has I think Ratnered, unless we now say Teslaed, the US brand.
I sold my US and vwrl in October because I think this shot at AI is going nowhere. I looked yesterday for a world ex USA tracker for when I want to go back in. There is no such thing *except in the US*.
Think about that. Holding US is such a natural and desirable thing that the only point of an ex USA tracker is to dilute 100% SP 500 portfolios into 95% SP 500. Pretty sure trump has destroyed that mindset.
@TI. Ricardo must have been a complete blur as he spun ever faster in his grave. Players had views on whether tariffs would be high or low. What no one expected was a retaliatory tariff that had no correlation at all with the tariffs they were meant to be retaliating against! A complete fabrication but Trump knows a majority of his fanbase are either so thick they won’t understand or don’t care since as their chosen messiah can do no wrong.
It’s all perfectly rationale for Trump. He loves tariffs because he doesn’t need the legislature to agree to them. He controls the revenues they raise. He can play king. Force people to prostrate themselves for handouts to offset the damage these tariffs will do to the US. In return, they can pay him or his family. As an extortion racket, it makes total sense.
I say this to my G10 hedge fund colleagues when they look shocked. Stop looking at the history of developed countries. Start looking at South Africa under Zuma, Hungary under Orban, Russia under Putin, Turkey under Erdogan. All democratically elected (many times) but none a real democracy anymore. That’s the playbook.
Put’s the Fed in a difficult position. Just hope they hold the line and force him to confront their independence.
This article link below has a good go at putting a rational explanation to the decisions made. Namely get US debt and refinancing costs under control by deflating the stock market, money flowing to treasury bonds lowering interest rates, Musk reducing central spending, local US manufacturing being “reborn”, and restoring US global leverage.
It comes with huge risks; inflation and recession, a massive gamble with global consequences but the payoff has a chance of working in the longer term for the US.
Compared to the actions taken in the UK, increasing employer NI, cutting 5% of the growing £100bn forecasted welfare bill by 2030, putting VAT on private school fees, it will have an impact, good or bad.
The question now is what investment choices to make to come through this rollercoaster of a ride the US has put the world on……
https://tanviratna.substack.com/p/trumps-tariff-gambit-debt-power-and
@Algernond @Bob — I had a tiny nibble on some Alphabet and Apple. Not to say both couldn’t halve from here but I want to always be covering as many squares on the roulette wheel as I can at reasonable prices where uncertainty is this high.
@Delta Hedge — I think it’s mostly a factor of technology and as a second derivative media freedoms (cable then the Internet) followed by the greatest generation having passed on and the Western world having forgotten just how bad things can get if you carry on down this road.
@PC — Absolutely, but even we’d lose our readers if we only posted every 10 to 20 years so we have to strike a balance. 😉
@GFF — Well it’s all relative. From an international point of view the only way this is a ‘win’ for America as a country is if, for example, it makes some impoverished African nations even poorer. I’d imagine the likes of the EU and Japan would inch ahead relatively if this did hold for decades, which surely it won’t?! Global recession very possible yes.
@B. Lackdown — Yes, we can never remind ourselves enough that Trump’s big lie is that America is not the most economically successful nation on earth. For sure that wealth has been spread unequally, and yes more could have been done about that if it was so minded. The idea Trump and his band will do that though is laughable.
@ZXSpectrum48K — We’ll see re: the Fed. The trouble is Trump is itching for a conflict whether with institutions or the masses. There’s nothing he’d like more than some protests turned violent to put down. On the other hand, agree you have to stand up to bullies. China at least knows that much, not that I wouldn’t rather be cheering for Team America.
@Cantseethewoodforthetrees — Cheers, but I saw the Twitter thread that post was first released as, and it struck me as like when a little old lady explains that her cat is miaowing to express that it would rather she wore the red hat instead of the blue, especially with that handbag.
There’s no making sense of this, even on its own terms, as an economic policy. (As a tool of swagger and spectacle, and as @ZX says extortion, sure.) Engineering a recession to bring down interest rates makes about as much sense as burning down your own house without insurance as a motivational tool to force yourself to try harder at work.
@B. Lackdown “I looked yesterday for a world ex USA tracker… There is no such thing *except in the US*”
Check out Xtrackers MSCI World ex USA UCITS ETF (ticker: XMWX)
The most worrying thing about all this IMHO is the real possibility that we’re living through the beginning of a regime change in markets and in the real economy. The US dollar not only failed to react as a safe haven for what seemed like an eternity but even went down during the market sell off (https://www.reuters.com/markets/wealth/next-up-markets-crisis-confidence-dollar-2025-04-04/). It was only late on Friday (UK time) that it started to go up after the FED said they would not necessarily lower interest rates. Cable was about 1.3 now it’s about 1.28.
My own portfolio was down on Friday (after the market closed) by 5.2% from its latest all time high on the 7th of February 2025. I will stay invested of course but have changed the future contributions to my company DC pension from 100% in an all world equity tracker to only 80% with 10% now going to a Japan equity tracker and 10% to a continental Europe equity tracker.
Political changes and Cultural upheavals often seem to trump economics -certainly in the short term but never forever (except in the case of Armageddon which indeed may be just around the corner)
This particular set of changes / upheavals has been in the works for a few years now with Trump just the latest obvious manifestation
Not sure what the investment answer is but I personally will be making no changes and will be looking to ride out the storm -as usual
Worked so far but will it this time?
xxd09
Fair enough @TI, was hopeful the article provided at least an explanation, perhaps even some logic behind the decisions made and a way to consider how to best position ones own investment.
Any thoughts on how we can prevent this going down the same route as Brexit on monevator? Avoid the emotion and strong opinions, make more room for consideration and discussion of what can we do as armchair investors to channel our resources.
@TI Yes, Trump’s actions makes no sense to me either and I think a lot of people. That nearly sums it up. I tried making sense of parts in isolation but overall, it’s riddled with contradictions. Noah’s article hit the nail on the head for me.
After announcing the tarrifs, Trump was off at his golf course having fun. I think that speaks volumes.
He simply doesn’t care, in a very broad wide sense. He has everything he wants – power, mostly. He’s untouchable. So who cares about the US or the world really or anything? If these policies don’t work, so what? I don’t think he even cares much about being re-elected and that’s a long way off anyway. He’s having too much fun doing whatever he wants and devil take the hindmost.
This one doesn’t feel like a blip and more like a long term switch to a less global (and thus less dynamic and mutually profitable) world.
However, I have always claimed to be a contrarian so time to prove it. We sold £20k of a dividend income ETF and the same in corporate bonds on Tuesday to fund our ISAs on the 6th. The ISAs have also got a shave over £20k in there in cash from dividends over the last few (probably 9) months that I haven’t got around to investing.
On Monday, I will download a snapshot of our portfolios, past it into my spreadsheet, and let it tell me what to top up. I may also scout around for ETFs in unloved sectors (most of them!) on tasty discounts to see if there are some good entry points.
We also have enough cash in our SIPPs to cover our drawdown over the next 3-4 months, so no need for any forced selling yet.
Across all of our pots (ISAs, SIPPs, etc.) we’re down less than 4% over the peak total that I ever noted, which I can live with.
“Even worse, despite the manifestly terrible outcomes from that first flowering of an industrial-fabrication complex – a permanent hit to the economy here, an attack on the Capitol there – the anglophone populist leaders continue to make ground.”
Well, yes. Of course the current situation is lamentable and discomforting.
However, the astonishment and regret at the progress made by the popular right is naïve. It’s precisely the bien-pensant middle-class commentators who failed to speak up when the anglophone populist left started to dominate the cultural discourse. Jacinda Arden or Nicola Sturgeon who pioneered crazy, identitarian ideas about gender, security and race, were radically at odds with what normal people really thought, and once they had seized power, a counter-reaction was inevitable. Even the UK’s “Conservative” party started to go woke.
If you want stability for business growth, you need to oppose extremists on both sides of the spectrum. Political extremism and radical ideologies are like mental illnesses, and we need to inoculate society against such unbalanced positions. If not, the consequences are severe and costly.
It’s not just the popular right which is dangerous. It’s the cosy, nice, correct-thinking left too.
“For instance, gold actually fell after climbing for months. That makes little sense unless it’s because over-leveraged hedge funds and the like were having to sell to meet margin calls.”
The tariff announcement explicitly exempted bullion, so the tariff premium bid evaporated.
(The forward price in the U.S. had been trading at a premium to fair price off the London spot because of the possibility of tariffs on gold imports. There was therefore an arb which resulted in physical gold stocks in London ending up in the U.S.)
Am sure there were plenty of momentum jockeys too who got shaken out too.
This has been one of them weeks where decades happen. It’s remarkable. Seismic. As much as we won’t enjoy the next few years I believe we can be confident MAGA won’t last; crippling the economy and losing position as the world boss won’t see the hijacked GOP fair well at the midterms / next general. All the Dems have to do it is pop a deck chair on the middle ground and not say anything too wild. JB Pritzker, the floor is yours.
@Cantseethewoodsforthetrees. The article you linked is an example of people trying to rationalize the unrationalizable
Narrative: tariffs will increase manufacturing jobs. In the 60s, US manufacturing was around 30% of the workforce. Now it’s about 10%. If you flattened the whole US trade deficit in goods to zero, manufacturing jobs would rise back to … 12%. Losing manufacturing jobs has little to do with the trade deficit. It’s 90% about automation and productivity increases.
Narrative: tariffs will onshore manufacturing to enhance US geopolitical security. So how is hitting Bangladesh with a 37% tariff achieving that? Because the US, the global military power, is concerned about their security vulnerability to cheap clothes made in Bangladeshi sweat shops? Umm.
Narrative: Tariffs will raise revenues for tax cuts. Consensus estimate think tariffs might raise $600bn per annum but raise inflation by 3%. US personal household expenditure is around $19 trillion. A 3% rise in inflation would mean about $600bn more in household spending. It would just net off if 100% of tariff revenues were used for tax cuts
Trump wants big tariffs. He’s surrounded by sycophants who tell him what he wants to hear. People need to stop trying to reverse engineer a logical rationale.
@TI excellent update, I’m glad I have a fair amount of cash, not sure now is the time to be buying anything though.
I agree with @Jonooooo, we may have reached peak MAGA, we’re seeing some signs of Republican discontent. I’ve spent time in the US and have family there, I find it hard to believe that people will put up with this. That’s with my optimistic hat on anyway…
On Tanvi Ratna’s Substack post, which @Cantseethewoodforthetrees #8 links to:
Yes, there’s clearly some hope that the US can use tariffs to renogotiate its $36 tn national debt (headed for 156% of GDP in 2055, on the CBO’s optimistic projections).
Hudson Bay Capital’s Dr. Stephen Miran’s December 2024 paper “A User’s Guide to Restructuring the Global Trading System” illustrates that.
But hopium is not a strategy, and the track record of tariffs and trade wars is pretty awful for all involved.
Moreover, this is beyond the worse case in terms of the implementation ineptness:
https://bsky.app/profile/lumber.trading/post/3llvqoxwslc2s
As @TBDW #11 notes, the really scary thing about last week was not the $6 tn wiped off US equities, but that the $ did not act as a safe haven asset.
SPX drawdowns should see the $ rallying, and the most convex $ appreciation usually coincide with the worst and the fastest equity drawdowns, like last week.
But as equities have rolled over since December the $ has steadily lost ground.
The only other periods when the $ weakened alongside SPX were 1998, 2002 and H1 2008.
Practically this has been a double blow for UK £Sterling investors with exposure to SPX.
I agree with TBDW, this is more ominous than the speed and depth of the current SPX drawdown itself.
Promises made promises kept
I’ll refrain from political debate for the obvious reasons.
Can we just be happy about the timings of all this though. Literally smack on the end of tax year date. 20k into an isa Sunday and you can pump it into the market next week. Having said that when you look at the prices of the tracker funds they have not dipped too much. It’s not like 5 years of gains has been wiped out or anything. Infant I’m sure when I looked mid last week the prices were still higher than last April? Similar to the covid pandemic in 2020 was right around new tax year things started to go down?
@Jim #21 >Can we just be happy about the timings of all this though.
It’s an ill wind and all that, eh?
With, of course, a nod to the significant human misery both with Americans who may have lost their jobs, and of course the knock-on elsewhere.
I’m backing up the truck on Monday. I’ve accumulated a bit of cash over the last year and I’m deploying it all in our tax sheltered accounts on Monday, about 60 – 80k.
My favourite part of the fear bit of markets is when weak hands start to confidently state they are calmly waiting for a 30% drop before buying back in. Maybe it will happen, but there’s enough fear out there to tempt in this long term bull.
Whatever happens, I’m extremely confident that todays price of VWRL will be a good buy over the next 20 – 30 years.
Ignore the noise, keep calm, carry on. You can’t get the long term prize unless you take some punches to the face along the way.
I’ve averted my eyes from the tariff tantrum so didn’t know it bypassed Congress. Well it’s up to those highly paid and privileged Congressmen to stand up for their much claimed American democracy.
Reckon the economic implications are far less than the assault on democratic process.
Thanks for the informative article.
[Quick postscript to #2: thank you @TI for the link embedded in your own text to the Leszek Kolakowski May 1983 piece in Commentary. What a gem. And a timely one. Michael Burleigh’s twin volumes Earthly Powers and Sacred Causes might be of interest.]
“But hopium is not a strategy”
It’s the economic strategy that the USA has pursued for decades. Its debts grow. Its entitlements burgeon. It pursues reckless and expensive wars. All it has had is hopium.
All that’s different now is that it’s Trump rather than President Vegetable. Plus, admittedly, the possibility that he’s less keen on those stupid wars than the Dems.
@dearieme #27: to quote Tom Cruise’s character Brian Flanagan in ‘Cocktail’, “Everything ends badly. Otherwise it wouldn’t end”.
My own feeling is that, historically speaking, someone isolationist like Trump, or something like MAGA, was likely (eventually).
America had Charles Lindbergh and America First in the 30s after all, and the nativist Know Nothing Party (America Party), in one guise or another, from 1844 to 1860.
But no-one can now or will be able to say for sure in the future if Trump is ultimately cause or consequence of America’s relative decline from its peak paramount ascendency in August 1945.
If sleepy Joe or Karmala won in November or indeed Hillary in 2016 the US would still be looking at the same fundamental problems and a trajectory of just becoming one of a handful of great powers in an increasingly polycentric world struggling with the four headed polycrisis of demography, debt, climate change and really impactful technologies becoming harder to find (the low hanging fruit’s gone).
If America still had wise and prudent leadership – as it perhaps it did under FDR, under (the much underrated) Truman and under Eisenhower from 1933 to 1960 – then it just might try and learn how to decline (relatively speaking) gracefully from us Brits.
We’ve been in Starmer’s tepid bath of managed decline since at least 1914.
You might think our American cousins would realise our experiences hold some lessons for them.
@TI:
Nice write up and great links. I particularly liked Drezner and Spiked.
Some great thoughtful – and thought provoking too – comments.
Interesting times ahead!
I take some comfort in reflecting upon the US in the Sixties and Seventies, Vietnam, students shot on campus, the Kennedy assassinations, MLK, Nixon and Watergate – what a mess that was, and it puts Trump into perspective. As for being blatantly lied to by the Government with statistics – did you not watch the news during Covid?
Changing subject to a more slow moving geopolitical disaster, did anyone see the Kurzgesagt YouTube video released this week on South Korea and the consequences of extremely low birth rates?
A few other countries get a mention later on for being on a similar albeit less extreme path, including China, USA and UK.
Ties in with recent discussions about state pensions, long term effects. The comments on the video from South Koreans seem in general agreement, there’s really no way out, the disaster is 100% baked in now.
Yeah @Rob #31: it’s case study #1 for the inversion of the population pyramid. A 0.75 TFR having been as low as 0.72 (some sources give 0.68) and just 0.55 in Seoul. The North’s at 1.8-1.95ish so over on YT at Caspianreport they speculate Pyongyang’s plan is to wait till the 2060s when the South will need to enlist 3x the %age of fighting age men just to maintain the current size of the RoK forces.
Tomas Pueyo is also doing a series of blog posts on Korea, first one covers the history of it being separated and the ensuing war. So many gaps in my knowledge of world history that it’s embarrassing, but I suppose if everyone still knew this stuff he wouldn’t need to write about it
Noahpinion “Mad King Trump” piece in this week’s links: “I do not believe that Donald Trump is secretly a Russian plant, hired by the Kremlin to destroy America’s economy and global influence. But frustratingly, Trump’s actions are often indistinguishable from what he might do if he were a foreign agent bent on destruction”
As far fetched as it may sound, one perhaps shouldn’t just instinctively rule out ‘the Russia hypothesis’.
This ongoing investigation (part 4 below, links to previous parts on Sellers’ Substack) lays out the evidence:
https://open.substack.com/pub/michaeldsellers/p/trump-and-kgb-part-4-another-look
FWIW, I found this take (by Faisal Islam published earlier today at the beeb) quite interesting: https://www.bbc.co.uk/news/articles/cp34nkj1kv2o
if only for some of the historical points that it make
Interestingly, Regan and Milton Friedman respectively on why tariffs don’t ‘work’ and why free trade is essential for human flourishing:
https://substack.com/@marketsentiment/note/c-105593959
https://substack.com/@algorithm/note/c-106279279
Looks to be an exciting day – shall I sit on my hands, or play catch the falling knife?
The HMRC website is up, if you need to do the 24-25 tax return too.
How low can it go?
fomo vs the reality of the potential global recession…?
start drip-feeding the global tracker in the ISA from today? Or wait to see what happens tomorrow?
Oh if only we could see into the future, investing would be so much easier…
🙂
> The HMRC website is up,
More that you can say for the Vanguard UK w/s, which has the lights on but nobody home if you try to log in. Or is it just me 😉 Ah well. Other providers are available, this is why you diversify across platforms…
@iDoc: technically to zero, but historically to -89% (DJIA nominal price only 1929-32) and -86% (S&P 90, which preceded S&P 500, 1929-32) or -79% (global developed markets real terms with dividends 1929-32). That’s just the price of admission to equities. On the upside, from 1800 to 2024 US equities’ nominal total return (with dividends) turned $1 into $50 million and real total return turned $1 into $2.3 million after inflation. As the saying goes, you have to experience the dark days in the valleys to feel the full joy of looking down from those mountain peaks.
I had this crazy idea today. If Musk is such a bad steward of all the tech Tesla is pursuing (L5 FSD, Robotaxi, Optimus humanoid robotics, Powerwall) – which BEV is just the gateway to – maybe the best thing (in the round, so to speak) is that this all now fully unravels for Tesla, the Robotaxi event gets pulled, the share price really does finally collapse to what it would be for any other (i.e. normal) car company ($20-$25 on a buyout, say $80 bn) leaving Apple to acquire everything lock stock and barrel (but sans Musk) and thereby to bring both its wide moat and its massive balance sheet to bear to make the unrealised (but promising) Tesla future tech/IP an Apple brand reality.
I think Tim Cook could do what Elon can’t. There’s certainly no other car company which could replicate or acquire Tesla IMO.
I always quite liked the “ They take the stairs up and drop down mine shafts” analogy! Checked my live spreadsheet and my total PF is down nearly 10% since a recent high in March. Feel like I should have taken notice of Mr Ermine’s antics and got into some gold ETF but it doesn’t pay any dividends. Oh well.
I put the ISA dividend cash into a new position in TRIG / renewables IT today as finally HL are allowing it to be bought on their platform. Probably did me a favour as I’ve got it cheaper than I would have earlier. I wonder if they suspended their odd principles to make some trading fees in times of turbulence?
Logged onto HMRC to check the tax code after the new just in time annuity started paying out. BRX, never seen that one. Base rate tax on the annuity due to parallel SIPP drawdown.
Going to leave the 2025 GIA Bed & ISA for a while – selling OEIC funds to cash takes days in the VG account by which time who knows where we’ll be? I’m going to take a walk and look for some birds. Good luck to all!
Amateurish in its execution but I can get behind the idea that the situation is desperate and something different was needed – unchecked globalisation has left us with huge dependence on the good will of others in technology, security and debt. The elephant in the room for the US particularly is China and Taiwan.
@BillD (41)
The X signifies an emergency code and means that tax is deducted on a month 1 basis regardless of the time of year. I’m not sure of the significance of this on a BR code which just means that tax should be deducted at basic rate (20%).
I’ve had plenty of X suffices in the past when HMRC used to mess up my DB tax code with monotonous regularity. I can’t remember ever having one on my BR code on my own small annuity.
I’ve funded my ISA for the year this afternoon. I’ll watch and wait a few days before investing.
@Calculus,#42: why not just CHIPS Act 2.0? If the worry’s cutting edge fabs on Taiwan then encourage TSMC to open more and larger of their latest chip foundries in the US? State aid not tariffs. Tariffs are the wrong answer to the wrong problem. Like burning down a house to deal with the wrong colour wallpaper.
@Calculus. The idea that the US is in Cold War 2.0 with China is not unreasonable and gets bipartisan support. The idea that you can have too much security dependence on some foreign suppliers is also reasonable.
Yet, that doesn’t explain why you tariff your (historical) ally Europe at 20% or Lesotho, a small impoverished country in Africa, at 50%. How does that achieve your security aims?
Moreover, if national security is the issue why does Trump want to kill the CHIPS act? Intel creating new foundries in the US was a clear way forward to reduce dependence on TSMC. He wants to kill it off because Biden did it. It’s pure animosity to anything Biden did.
The tariffs have nothing to do with reshoring jobs or reducing security vulnerabilities. They don’t even have any relation to the tariffs of other countries or the US balance of payments (why goods and not services?). They have everything to do with raising revenues that King Trump controls.
Of course it might be too late to move fabs to the US as some suggestion that the PRC has successfully gotten their hands on the design for High NA EUV lithography machines. Time will tell.
Maybe I’m overthinking but, even though the VIX hit 60, there’s maybe still a tad too much ‘BTFD’ type optimism in my Substack feed.
One after the other quoting buy when blood on streets, time to board the plane, stay the course etc. Example below:
https://open.substack.com/pub/businessinvest/p/stay-the-course
IIRC correctly, aside from Monevator, only one or two other voices – amongst seemingly hundreds – were saying back up the truck in March 2009. Doesn’t feel like capitulation yet.
@DH, ZX. It doesn’t make sense to read too much into the details level of course, this a TV personality with a team of yes men, and their levers for getting stuff done quickly are limited. Lesotho and the likes are sadly caught in the crossfire due to the somewhat David Brent tariff equation. We can double guess Trumps motives or the effectiveness of the tactic but certainly the market believes its going to have effect and there are noises of reshoring. Hopefully from an investing viewpoint this is an opening hand that will be tempered before too long.
Time will tell on the Chips act, no harm in taking time to review.
The Investor-I note that my link to follow up posts is not working
Anything I can do about this?
xxd09
@xxd09 — Can you be a bit more explicit please? Do you meant the link that you get via an email saying there are more comments from other posters on this thread? And is this the first time it’s happened? Cheers!
In the long-term, Trump’s antics may produce positive results. It would be a good thing for our country to become self-sufficient in defence. And that may even help restore some of our high-end manufacturing ability. It also seems a good thing that America will in time become less important economically (and culturally).
As for the violent market movements, these have been unpleasant for my portfolio but have not been fatal with government bonds and gold doing what they were meant to do and limiting losses.
Thing is (re @Hospitaller #50) tariffs are a political demonstration not an economic tool.
The Beltway understands this. Wall Street understands this. Main Street soon will intuit it (when they see the US HICP going up over 5% & all the recession indicators flash red).
But Agent Orange at 1600 Pennsylvania Avenue may not get it. That’s terrifying.
This idiot of a President may not get that whilst it *could* work as some sort of political (Nixonesque) ‘Madman’ strategy (to maybe win some geopolitical concessions at the margins, in a global game of chicken); if he actually goes ahead and uses the tariff ‘weapon’ in a full-on tariff ‘Wargasm’ strike (as on the 9th April he’s threatening to do), then he will in effect be wielding the tariff weapon against himself.
No so much beggar my neighbour as beggar my own voter base.
And less Mutually Assured Destruction than Self Assured Destruction (MAD v SAD) 🙁
Tariffs are a strange game. The only winning move is not to play.
I’m amazed more classical liberals (free marketers) haven’t been still more vocal on this.
I have a lot of issues with the classical libs (the Austrian school) and with the neo libs (the Chicago boys), but at least their positioning is internally coherent and consistent – and (at least) somewhat vaguely convincing, more or less.
Contrastingly, Trump’s / Navarro’s’ ‘thinking’ on this is garbage.
Bill (a classical hard money lib if there ever was one) has the low down:
https://open.substack.com/pub/bonnerprivateresearch/p/harvard-men
Yes that’s it described in a nutshell
It’s a recent phenomenon-follow up notifications were working well up until about a month ago
xxd09
@all — Has anyone else experienced the issues xxd09 describes? Please do share if so, and also say when they started. (Not being lazy — I don’t use the feature myself as I see every single comment in the Wordpress backend).
@xxd09 — Have you tried checking your spam folders or similar?
@BillD (41)
An update on my comment #43. I did actually also initially have a BR X code on my small annuity. This was towards the end of the tax year and it updated to BR the following tax year. More detailed information in my comment over on ermine’s blog, where you also give more detail of your annuity payment.
Nothing in junk file
Running on an iPad with all Apples updates in place
Is there a blocker operating?
xxd09
Rather sobering take:
https://open.substack.com/pub/marketsentiment/p/the-slow-yet-certain-walk-towards
@Delta Hedge — I see that you’re subscribed to receive comment updates. Are you getting them okay, or are they not coming through like for xxd09? Thanks in advance! :0
@xxd09 — Thanks. Until someone else reports the same problem I don’t know where to start, nothing has changed as far as I’m aware. (Doesn’t mean something hasn’t broken though, things are always breaking with websites haha!)
Thanks @TI: I think it’s working OK for me on this thread (although, separately, I did spot that I’d dropped off a Moguls’ thread update, which I’ve now resubscribed to).