I love strategic and/or reciprocal tariffs as our country was financed by them prior to the draconian 16th amendment. They force choices.
I think Trump should and will re-calculate as when you are the big hammer everything becomes a nail. He needs to start using them to incentivize countries rather than punish them(except China).
I design and manufacture highly profitable durable goods and we make all of our key parts and assemblies so costs haven't been impacted, but our sales are down perhaps due to tariff adjustments among other things.
Would it not be fair to say that tariffs as an offensive tool in the US economic toolbox has been sitting there rusting and accumulating dust whilst our trade partners -- particularly the EU -- have been using them to our disadvantage?
I think Trump is the only President in my lifetime who has used them with a facile hand meaning he will invoke them and then adjust them with pace.
The market response to Trump's Tariff announcements have been illustrative of, well, how unpredictable markets are. The rapid drop at the beginning of April was a panic and the market then bounced back. But why then did the market keep rallying higher to record highs? If everyone expects interest rate cuts then why would the market rally on that news? If the cuts are due to a slowing economy then why is not the market taking that into account?
I greatly appreciate the view that equities can only be valued on the "long term". Yet clearly the market moves in the short term in the most unpredictable ways and this apparent chaos is what writes the headlines.
Why are equities and asset prices so elevated? The logical explanation is because the dollar and fiat currencies in general are deemed to be so cheap. On that premise one can argue that equity prices should be even higher since claims on equity (assets & goodwill) are the best hedge against a declining currency.
But what if that expectation changes? Could it change? What is the investment risk in the US government deciding it no longer wished the dollar to be devalued at the rate it has been?
Or a trade based on your long experience in markets, and some decent understanding of the short term hysteria in the markets then b/c of tariffs.
My view is that the impact of widespread tariffs (as opposed to trade restrictions, which are common and hurt US exports in particular) is not well understood in a modern global economy...which is incidentally changing significantly as climate invoked suppression of energy is unwound--as well as impact of various countries resisting the "new world order" rubric of 15 minute cities, etc. Many changing parts.
BTW, iirc, the tariff income for the first half of 2024 was $14B--so $100B is a significant increase
Tariffs are just one component. I agree with you, they are a very suspicious tool, especially how willy nilly Trump applies them. However so many things are going on to offset them. I remain bullish
While I forget the exact indices used to determine inflation, I seem to recall that the principle one used to determine how the federal government determines increases in social security and federal retiree payments excludes food and fuel. I have heard many talking heads in the media say this needs to be factored in to determine what the true rate of inflation really is, but what happens if those two areas decrease in price? If you look at food and fuel costs, at least in my case, they have dropped over the last six month. So what does that say about the true rate of inflation for the average family?
Even though the FED has come out and said they pay more attention to PCE, or Personal Consumption Expenditures, as their primary inflation indicator, the PPI and CPI, Producer Price Index and Consumer Price Index, we have a separate release excluding food and energy, and those are also watched.
I agree. The Big Red Car ran a post about all the other ways countries can impose costs outside of tariffs. It was an eye opener. The one thing that people seem to forget is that it is hard to change the tax rate. You need the approval of the legislature, either way you go. Lots of arguments, wheelings\dealings, trade offs. Russell Long use to say: Don't tax you. Don't tax thee. Tax that fellow behind the tree. Everyone wants a tax break and higher taxes to pay for things, just not their taxes. Tariffs? Presidents can do it with the stroke of a pen. Huge advantage as a negotiation tool.
The President recognizes tariffs are very effective tool to negotiate fairness regarding trade policies. Whether or not he attempts to use them to replace taxes is another story and hopefully he doesn't try to do that, but we're living in a much different world than decades and centuries ago. Some of your ideas for tax revisions are wonderful ideas and if there is a resounding Republican victory in the 2026 midterms, then your suggestions could come to fruition, but unless and until that takes place, it's unlikely there will be any changes of significance in the tax codes. President Trump knows how to play the long game, so his threat of using tariffs to replace taxes is a less palatable compromise for the majority of the members of Congress and if we can get a much bigger majority, we stand a decent chance of seeing significant tax changes. I'm not saying that I know for certain that's his strategy, but it would not surprise me in the least, based on conversations I've had with multiple people, none of whom are Cabinet members mind you, but most of whom are members of the inner circles or members of the inner circles of the inner circles.
When I first started out on the exchange floors in the early 80s I was told that the only proper way to judge economic change was to accept that the shortest term assessment acceptable is on a quarterly basis, but that has changed dramatically over the years with so many advancements in technology. Unfortunately, the makeup of how so many economic reports are determined has not kept pace and many of them are notoriously inaccurate and frequently revised, although in the last Administration it was obvious, especially in the employment numbers, that hanky panky was taking place, particularly before the election. Case in point, the Biden Cabinet member who was unaware that her Department had revised employment figures by a record 828,000 jobs and was asked about it at a press conference the next morning and was "unaware" of it, despite her Department being the one who reported it.
Here's my wise guy, Hot Take. By the end of this month, equities will be plunging (total reversal starts early next week), and throughout the late summer to early fall, Powell will be cutting. Whether longer duration goes along with the program is anyone's guess.
I am old enough to have experienced stock markets long before computer and algorithmic trading when the advice on summer markets was "sell in May and go away."
Summer markets even now are slower and less volatile. This is still true but computers and algorithmic trading blunts that pattern.
We are almost through summer -- Memorial Day to Labor Day -- and it has been completley impacted by Trump and not much else.
Powell is standing firm on interest rates based on a faulty analysis of the impact of tariffs that has not materialized. US interest rates are a full 2% higher than the rest of the world.
Just made this handy chart on comparable Home Loan rates
Country 10-Year Fixed Rate
Canada ~4.29%
USA ~6.50%
England ~4.50%
France ~3.40%
Germany ~3.30%
Something is out of whack on our interest rates.
This is the kind of smart fact-based data that makes the Internet a good thing. Bravo and well played. Insightful.
JLM
www.themusingsofthebigredcar.com
I love strategic and/or reciprocal tariffs as our country was financed by them prior to the draconian 16th amendment. They force choices.
I think Trump should and will re-calculate as when you are the big hammer everything becomes a nail. He needs to start using them to incentivize countries rather than punish them(except China).
I design and manufacture highly profitable durable goods and we make all of our key parts and assemblies so costs haven't been impacted, but our sales are down perhaps due to tariff adjustments among other things.
Would it not be fair to say that tariffs as an offensive tool in the US economic toolbox has been sitting there rusting and accumulating dust whilst our trade partners -- particularly the EU -- have been using them to our disadvantage?
I think Trump is the only President in my lifetime who has used them with a facile hand meaning he will invoke them and then adjust them with pace.
JLM
www.themusingsofthebigredcar.com
Correct.
The market response to Trump's Tariff announcements have been illustrative of, well, how unpredictable markets are. The rapid drop at the beginning of April was a panic and the market then bounced back. But why then did the market keep rallying higher to record highs? If everyone expects interest rate cuts then why would the market rally on that news? If the cuts are due to a slowing economy then why is not the market taking that into account?
I greatly appreciate the view that equities can only be valued on the "long term". Yet clearly the market moves in the short term in the most unpredictable ways and this apparent chaos is what writes the headlines.
Why are equities and asset prices so elevated? The logical explanation is because the dollar and fiat currencies in general are deemed to be so cheap. On that premise one can argue that equity prices should be even higher since claims on equity (assets & goodwill) are the best hedge against a declining currency.
But what if that expectation changes? Could it change? What is the investment risk in the US government deciding it no longer wished the dollar to be devalued at the rate it has been?
Funny thing. My dad had a chunk of cash in April. We bought 100% equities with it on April 16. Lucky trade.
Or a trade based on your long experience in markets, and some decent understanding of the short term hysteria in the markets then b/c of tariffs.
My view is that the impact of widespread tariffs (as opposed to trade restrictions, which are common and hurt US exports in particular) is not well understood in a modern global economy...which is incidentally changing significantly as climate invoked suppression of energy is unwound--as well as impact of various countries resisting the "new world order" rubric of 15 minute cities, etc. Many changing parts.
BTW, iirc, the tariff income for the first half of 2024 was $14B--so $100B is a significant increase
Trump has been very good for certain sectors -- nuclear, semiconductors, AI, crypto, defense.
These sectors have in turn dragged along others -- data centers being one in particular.
Make no mistake, the market is responding solely to Trump and his every utterance.
The attack on Iran -- which is not the final chapter with the Ayatollahs still in charge -- stabilized markets.
Trump has been good for markets because he understands them.
JLM
www.themusingsofthebigredcar.com
Tariffs are just one component. I agree with you, they are a very suspicious tool, especially how willy nilly Trump applies them. However so many things are going on to offset them. I remain bullish
While I forget the exact indices used to determine inflation, I seem to recall that the principle one used to determine how the federal government determines increases in social security and federal retiree payments excludes food and fuel. I have heard many talking heads in the media say this needs to be factored in to determine what the true rate of inflation really is, but what happens if those two areas decrease in price? If you look at food and fuel costs, at least in my case, they have dropped over the last six month. So what does that say about the true rate of inflation for the average family?
Even though the FED has come out and said they pay more attention to PCE, or Personal Consumption Expenditures, as their primary inflation indicator, the PPI and CPI, Producer Price Index and Consumer Price Index, we have a separate release excluding food and energy, and those are also watched.
My grocery bill is softening, too. Except for steak, and Cattle futures keep chugging along at all time highs.
Unfortunately I am addicted to the "prime" steak cut over at Costco....but do they ever taste good!
I agree. The Big Red Car ran a post about all the other ways countries can impose costs outside of tariffs. It was an eye opener. The one thing that people seem to forget is that it is hard to change the tax rate. You need the approval of the legislature, either way you go. Lots of arguments, wheelings\dealings, trade offs. Russell Long use to say: Don't tax you. Don't tax thee. Tax that fellow behind the tree. Everyone wants a tax break and higher taxes to pay for things, just not their taxes. Tariffs? Presidents can do it with the stroke of a pen. Huge advantage as a negotiation tool.
The President recognizes tariffs are very effective tool to negotiate fairness regarding trade policies. Whether or not he attempts to use them to replace taxes is another story and hopefully he doesn't try to do that, but we're living in a much different world than decades and centuries ago. Some of your ideas for tax revisions are wonderful ideas and if there is a resounding Republican victory in the 2026 midterms, then your suggestions could come to fruition, but unless and until that takes place, it's unlikely there will be any changes of significance in the tax codes. President Trump knows how to play the long game, so his threat of using tariffs to replace taxes is a less palatable compromise for the majority of the members of Congress and if we can get a much bigger majority, we stand a decent chance of seeing significant tax changes. I'm not saying that I know for certain that's his strategy, but it would not surprise me in the least, based on conversations I've had with multiple people, none of whom are Cabinet members mind you, but most of whom are members of the inner circles or members of the inner circles of the inner circles.
When I first started out on the exchange floors in the early 80s I was told that the only proper way to judge economic change was to accept that the shortest term assessment acceptable is on a quarterly basis, but that has changed dramatically over the years with so many advancements in technology. Unfortunately, the makeup of how so many economic reports are determined has not kept pace and many of them are notoriously inaccurate and frequently revised, although in the last Administration it was obvious, especially in the employment numbers, that hanky panky was taking place, particularly before the election. Case in point, the Biden Cabinet member who was unaware that her Department had revised employment figures by a record 828,000 jobs and was asked about it at a press conference the next morning and was "unaware" of it, despite her Department being the one who reported it.
And yes that revision was made public after the election haha
Here's my wise guy, Hot Take. By the end of this month, equities will be plunging (total reversal starts early next week), and throughout the late summer to early fall, Powell will be cutting. Whether longer duration goes along with the program is anyone's guess.
I am old enough to have experienced stock markets long before computer and algorithmic trading when the advice on summer markets was "sell in May and go away."
Summer markets even now are slower and less volatile. This is still true but computers and algorithmic trading blunts that pattern.
We are almost through summer -- Memorial Day to Labor Day -- and it has been completley impacted by Trump and not much else.
Powell is standing firm on interest rates based on a faulty analysis of the impact of tariffs that has not materialized. US interest rates are a full 2% higher than the rest of the world.
Good luck and God bless us all.
JLM
www.themusingsofthebigredcar.com