There's been a lot of talk about the recent drop in stocks due to the tariffs in the US.
Whoever won the election everyone should have been positioned as if something catastrophic would happen. Figures such as Jamie Dimon have been sounding alarm bells for a while now, and Berkshire Hathaway had been selling off securities at an unprecedented rate, having more cash in the bank than ever before.
Most indexes are double what they were in 2019. Does anyone seriously think businesses are twice as healthy as they were pre-pandemic?
Obviously Trump implementing global tariffs was the match that set the field on fire, but it is burning because it's filled with dead dry grass.
We've already seen something similar during a Trump presidency: in 2018, Trump implemented high tariffs on China amount many other things and it led the markets down 20% for the year, but the year after that saw markets rise nearly 30%. Now that's not going to happen this time because that was the largest stock market rise in history, but it shows that volatility in the short term doesn't mean low growth in the long term.
So two truths that contradict each other are about the effect of a market crash. On one hand, a shrinking stock market is generally good for inequality. The rent collectors in the stock market are affected more by a stock market drop than people who sell their labor. On the other hand, people who aligned themselves properly probably haven't seen a huge loss in wealth over this -- The Federal Reserve has given us a once in a lifetime opportunity to just park money at the fed and get 5-6% returns with absolutely 0 risk because the fed is the money printer, so if you want to sit out a fairly high risk moment in the market, you're still able to roughly match or beat inflation. Anyone holding such assets when things hit bottom can become immediately liquid and pick up some bargains.
As for why Trump set the field on fire, it should be obvious: he's a mercantilist who thinks America can't succeed without having a current account surplus. In the short term he's totally wrong about that, but in the longer term he's correct, and the increasing overwhelming debt both the American state and the American people find themselves in are evidence of that. You can't keep borrowing money to buy stuff from the third world forever.
The left and the right both are of two minds on the outcomes of merchantilism. On one hand, the left has become pretty anti-borders and pro-free trade, and the business right obviously wants a nice calm environment where they can export their businesses to low cost jurisdictions. On the other hand, they recognize the potential exploitation from rich countries outsourcing work to other countries including not paying workers domestic rates despite domestic profits and avoiding things like environmental regulations by jurisdiction shopping, and the populist right obviously wants the jobs to be in the country because it isn't some 1950s distant memory that America used to have lots of factories.
Agree or disagree with his mercantilist attitude (and most establishment economists would consider it outdated and wrong), he's acting more like a Chinese emperor than an American president -- instead of thinking in terms of quarters or even terms, he's positioning the US over decades. A drop in the short term probably isn't that important through that view, because it's looking at a longer term future.
Consider this parallel. JC Penney is considered a textbook failure for something they did: They stopped lying about "sales" that were always going on and just focused on low prices every day. When they did that, business dropped massively, and quickly they switched back. That was considered evidence that companies shouldn't change strategies like that -- but the rest of the story is that JC Penney went bankrupt after changing back to their own business model. Changing strategies like that was going to hurt in the short term, but low prices every day is how companies much bigger and more successful operate so if they stuck with it they may have survived. Instead they returned to business as usual and had short term success at the expense of long term success.
Whoever won the election everyone should have been positioned as if something catastrophic would happen. Figures such as Jamie Dimon have been sounding alarm bells for a while now, and Berkshire Hathaway had been selling off securities at an unprecedented rate, having more cash in the bank than ever before.
Most indexes are double what they were in 2019. Does anyone seriously think businesses are twice as healthy as they were pre-pandemic?
Obviously Trump implementing global tariffs was the match that set the field on fire, but it is burning because it's filled with dead dry grass.
We've already seen something similar during a Trump presidency: in 2018, Trump implemented high tariffs on China amount many other things and it led the markets down 20% for the year, but the year after that saw markets rise nearly 30%. Now that's not going to happen this time because that was the largest stock market rise in history, but it shows that volatility in the short term doesn't mean low growth in the long term.
So two truths that contradict each other are about the effect of a market crash. On one hand, a shrinking stock market is generally good for inequality. The rent collectors in the stock market are affected more by a stock market drop than people who sell their labor. On the other hand, people who aligned themselves properly probably haven't seen a huge loss in wealth over this -- The Federal Reserve has given us a once in a lifetime opportunity to just park money at the fed and get 5-6% returns with absolutely 0 risk because the fed is the money printer, so if you want to sit out a fairly high risk moment in the market, you're still able to roughly match or beat inflation. Anyone holding such assets when things hit bottom can become immediately liquid and pick up some bargains.
As for why Trump set the field on fire, it should be obvious: he's a mercantilist who thinks America can't succeed without having a current account surplus. In the short term he's totally wrong about that, but in the longer term he's correct, and the increasing overwhelming debt both the American state and the American people find themselves in are evidence of that. You can't keep borrowing money to buy stuff from the third world forever.
The left and the right both are of two minds on the outcomes of merchantilism. On one hand, the left has become pretty anti-borders and pro-free trade, and the business right obviously wants a nice calm environment where they can export their businesses to low cost jurisdictions. On the other hand, they recognize the potential exploitation from rich countries outsourcing work to other countries including not paying workers domestic rates despite domestic profits and avoiding things like environmental regulations by jurisdiction shopping, and the populist right obviously wants the jobs to be in the country because it isn't some 1950s distant memory that America used to have lots of factories.
Agree or disagree with his mercantilist attitude (and most establishment economists would consider it outdated and wrong), he's acting more like a Chinese emperor than an American president -- instead of thinking in terms of quarters or even terms, he's positioning the US over decades. A drop in the short term probably isn't that important through that view, because it's looking at a longer term future.
Consider this parallel. JC Penney is considered a textbook failure for something they did: They stopped lying about "sales" that were always going on and just focused on low prices every day. When they did that, business dropped massively, and quickly they switched back. That was considered evidence that companies shouldn't change strategies like that -- but the rest of the story is that JC Penney went bankrupt after changing back to their own business model. Changing strategies like that was going to hurt in the short term, but low prices every day is how companies much bigger and more successful operate so if they stuck with it they may have survived. Instead they returned to business as usual and had short term success at the expense of long term success.
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@sj_zero What Trump is doing here is like when you decide you are overpaying for cable, so you call the cable company and say you want to cancel. Your intention is to get transferred to someone who will give you a better deal, but there is always a small risk that they will say "ok you're cancelled."
In which case you can always sign up again in a few days, likely at a lower rate!
He will either get lower tariffs for American exports, or he will get domestic production back.
@sj_zero Trump has done a lot of wrong stuff in his second term (STFU about annexing other countries already!) but walking into a negotiation and turning over the tables is what he is experienced at.
Yes he went bankrupt, but he negotiated out of it, and wound up on top in the end anyway. America is pretty bankrupt at the moment.
The only reason not to buy stocks right now is that the sale is probably not over. There has been a lot of crack smoking in stock prices.