First, for the fun bit. Just like someone in the White House uses ChatGPT so can I. This has cost Open Ai about $100 Billion to do. Stupid crazy huh? The picture below took 30 seconds to make.
Last night, Trump said the ‘Markets’ unflattering applause and response to his edicts were to be expected. He said it, as if to say, “let them eat cake,” as Marrie Antoinette may have said. Marie Antoinette was Queen to King Louis XVI of France. It did not end well.
https://en.wikipedia.org/wiki/Let_them_eat_cake
This is a fun read and perhaps a good guide to the future?
OK seriously. This is not fun, and it is stressful. However, it is going to be ok, and here’s why.
History does rhyme and it repeats. And that is the reason for this late-night note.
It is likely that everyone is well aware of the mess that Donald Trump is making. April 2, 2025, may go down as the day his reigning power peaked. He called it Liberation Day. Most just felt lighter in their pocket. In The Game of Bridge, you could say, he did not make the ‘contract’ in the hand he played yesterday.
Jeremy Siegel, a highly respected economist and Professor of Finance at the Wharton School of the University of Pennsylvania, as well as the author of celebrated books like Stocks for the Long Run, was interviewed yesterday on Bloomberg TV. He was asked to provide a brief history lesson in economics by comparing the Smoot-Hawley Tariff Act of 1930 to yesterday’s proclamations from
Trump. He’s a nice and now aging man, but still very sharp, and I was genuinely concerned for his health as he exploded and downloaded in a coherent description how what Trump just did, was 50% worse than what caused the great depression. The reporters, who usually rudely interrupt the guest commentators, let him run. It was beautiful.
There are several issues we wish to address given the current turmoil. It will be a little longer than ‘normal’ because we want you to understand how we think. But first, we want you to be confident that your investments are all in strong and durable businesses. Think of this moment as a flight to Florida Nassau. The plane will arrive safely, but there will be turbulence.
First, the truth—and yes, you’ll need to read to the end for the good news. We're presenting it this way so you understand, not to alarm you. If you want fearmongering, just turn on the TV. This is commercial-free. Everything is going to be okay.
Here’s why.
Some might say these tariffs are just a ploy to negotiate a better ‘deal’. These recent Trump Tarriff Policies (TP) may very well have been drafted with the help of ChatGPT! The formula used, as described by The White House, is an old, deemed useless, mess of a calculation that was long ago abandoned. Why? Trump may be employing the smartest guys on Wall Street, and of course then, there is Elon too, but they didn’t bring along their 26-year-old business interns to think things through and build the Power Point presentation. Maybe they had already been fired? Because if they had… we wouldn’t be in such a mess right now.
First yesterday, from Larry Summers, formerly the U.S. Secretary of the Treasury and Harvard University big wig President.
“Never before has an hour of Presidential rhetoric cost so many people so much. Markets continue to move …. The best estimate of the loss from tariff policy is now closer to $30 trillion or $300,000 per family of four.”
What has been proposed is roughly equivalent to a $700 billion direct tax hit to America per year. This does not include any secondary impacts like job losses and / or business failures that result from the massive hit to the economy. Now, if things don’t change soon everyone in America will get really angry. Politicians don’t like angry people and the angrier the people get the harder it is to hide.
Second, all day yesterday, while watching the horror show unfold and listening to other investors and businesspeople speaking on ‘business news,’ not only was every one of them baffled by how dumb and dangerous these trade policies are, but they were also angry. Every one of them. Big money is angry because they are watching their wealth melt away in real time, as the market voted immediately. Fail. Or as Trump might say, SAD! It doesn’t matter how wealthy you are, losing a couple of million or billion in a day is irritating. Before you know it, it adds up to real money and you get fed-up. The big money that paid for Trump’s campaign is incredibly angry and shocked. I would be SHOCKED if Trump and Co. are not fielding lots of calls from “dear friends.” Oh, to be a Chinese fly on the wall, hacking those phone calls. I’m sure Xi was reading the transcripts as we slept last night. I’m sure the brief was titled ‘For Your Reading Enjoyment.’
MAGA: It will take at least three to five years to build enough manufacturing capacity in America to make all the goods being tariffed, including those two dollar hats and T-shirts tossed about at Mr. Trump’s rallies. Making America Great Again will take some time. No wonder they are evicting the low labour cost workers right now. That’s for four years down the road! It’s not even certain that given the now DOUR mood of business owners, and the daily chaos Trump sews, that they know what the rules will be tomorrow, much less in two years. Why would anyone invest a nickel to build a T-shirt factory much less a $20 billion chip factory today? By the time the factory is built, Trump and his party will be destroyed. In 2 years! Lame duck presidents’ usually start after the mid-terms. I’m not sure it will take that long this time. This wise guy may not be a duck; it may be a turkey.
Here’s why.
The U.S. is a democracy. There are checks and balances. That’s why America has been such a highly functioning political disaster for so long, while at the same time being an economic powerhouse. Politicians don’t interfere with business. Businesses employ politicians. Yes, we Canadians find this distasteful, but let’s not think about our situation too much right now! We are all stressed enough!
There is this thing called The Constitution. It was designed, in part, to prevent the U.S. from being government by a monarchy or a dictator. Generally speaking, Kings are not welcome in America (unless they are friends from the Middle East), and Queens? Well, let’s not get political! Anyway, The Senate and the Congress have slowly adorned much power to the Executive Branch (the President), but they (all the elected guys and gals, ex the president) still have the power, and they just must use it. Mostly they don’t use the power because, well, it’s just too hard, and the private sector just works it out anyway. We bet that if things don’t change soon, self-preservation amongst elected officials will kick-in, particularly for the republicans in both houses. Businesses will tell them to smarten up or a new team may be elected. This happens regularly!
Here’s why.
The Smoot-Hawley Tariff Act, enacted in June 1930, added about 20% to the United States' already high duties on over 20,000 imported goods in an effort to shield American industries from foreign competition during the onset of the Great Depression. Needless to say, these measures served only to worsen economic conditions, and the Republican President, Senate, and Congress were subsequently held accountable for the fallout and destroyed at the next election. Today, mid-term elections are in about 18 months. Today’s tariffs, if enacted as presently proposed, are 50% WORSE than in 1930. That’s just not going to happen. Trump himself and all his Klingons said pretty much the same yesterday, last night, and probably, to their Wall Street buddies on some unsecure chat line.
Short Term Concerns
As I have written in the past, overconfidence can be a killer. While we are confident that the businesses you own and your properly diversified, balanced portfolios will generate satisfactory results over time, volatility is a transitory fact of life that we must all accept. We see volatility as an opportunity and your portfolios are positioned to capitalize on this over the long term. As we said back in January:
“The question about what is next, is not about the companies you own doing less of what everyone likes to buy. It is about ‘investors’ desire, confidence, and ability to own anything period.”
I alluded to Trump overplaying his hand, as one might when for example, playing the game and ‘bidding’ in Bridge or Euker. But Trump is not playing a game with those who need to play the game as he wishes, nor at his pace and time of choice. That is the history of the World. Leaders who do not understand history and those facts are doomed to suffer its consequences. Trump’s Friends and Foes may alter the tempo and characteristics of the game. Overconfidence often leads to errors.
Here’s how.
Bill Ackman: a famous and successful investor said this today: “sometimes the best strategy in a negotiation is convincing the other side you are crazy”. I think this properly describes the TP strategy and the Man. Crazy. Some say like a fox, others think just plain crazy. You choose. It may not matter in the short-term.
Why not threaten the Bully?
Yesterday, the U.S. Commerce Secretary and Secretary of The Treasury (Both chums with Wall Street and billionaires in their own right) warned the world “you better not retaliate’ against the President’s policies (I thought it cute that they pinned the tail on Trump as if they were just the messengers), but what if they do?
Trump has played his cards and now he must wait for the others at the table to play theirs. He has caused many people both Friend and Foe harm. This is not a simple game with only 52 cards. Retaliation is certain. Cards placed on the table have been played. Sometimes in the game of international politics, new cards, not previously imagined, are placed on the table by others. Sometimes you lose in games of chance.
Additionally, some dear friends of Trump are appalled at who he admires, as they are authoritarian in their tendencies. Europe is dealing with one of those cards and it is not pleasant.
The biggest companies in America fell sharply today. From a foreigner’s perspective that probably feels good. A cup of comeuppance self-served. Maybe those most offended by Trump will add some cream to the American pie.
The world could script a little cautionary fable to the U.S. Commerce Secretary’s understanding of master/student dynamics. It might follow the Three Little Pigs and the Big Bad Wolf fable. Here’s what they might do.
The World could:
1. As the president of France encouraged today, businesses should delay investment in America, and they could also threaten to direct their institutions and pension funds to sell investments in America. A consequence of the large U.S. trade deficits is that foreign investors have come to own one-third of all the bonds and stocks of America. That would be a lot of selling.
This is how trade works.
Americans give foreigners their U.S. dollars in exchange for goods that they want to own. Maybe it’s a MAGA hat? These so-called foreign ‘rip-off artists’, have things for sale, and Americans buy the stuff, and these poor soulless aliens end up having all these American dollars. They sell so much stuff to these poor, unsuspecting Americans that these “aliens” have more U.S. dollars than they need and or want and so, end up investing in the American economy (think stocks, bonds, and real estate). Those are the simple terms of trade.
Just the threat of mass selling from these foreigners savings and investments in American assets would and should send shudders down the spine of any self-interested billionaire in America. Trump and Friends would not like this. They (foreigners) won’t do it because they can’t, but just the threat would pucker the tightest of lips. (If you really want to know why they can’t sell everything call me. I’ve already gone too long on this note.)
2. The world could roll out big fines and taxes on all of Trump’s big new Tech Bro Friends (TBF). Last night, the Europeans threatened to fine Musk’s X (formerly Twitter), $1 billion for breaking a rule. I would imagine Apple, Amazon, Google, Meta, and Microsoft are expecting a gift basket too, if this TP war continues. Let’s just assume the Europeans are being very friendly to Trump right now, just like he is being to them. The world won’t do it, but the fact they can suggest that it should and will be enough to shake the markets even more, further infuriating the Fuhrer’s Trump's bros and foes all. Just the threat is all that’s needed.
The world will come to an agreement because that is what’s best for all involved. Everyone knows Trump is playing a reality game show. Everyone knows the Chinese Communist Party is run by Capitalists who just want to make money and stay in power. Everyone knows the Europeans just want to make rules. And everyone knows the Russians are 6 months away from bankruptcy with a heavily tarnished reputation. Maybe Trump is a genius, maybe he’s a moron. We don’t care; we don’t do politics. We just know that everyone wants a deal, and some have stronger hands than others. Everyone is getting cranky.
Here’s why.
Trump will trade all the tariffs on China for a Chinese social media app called TikTok. He will cut the cheese with Canada. He will break tacos with Mexico. The Europeans just want to feel superior in
their sophistication. The Chinese (well one guy called Xi) just want the status quo (and TikTok). Russia doesn’t matter anymore. Trump will do a deal with Europe because he’ll be told to by his Tech Bros, bankers, Klingons and his family who drink Champagne and eat Brioche. He’s totally transactional, and when he’s told to go stand in the corner and stop wrecking his backers’ piggy banks, he will. The faster and harder he and his friends get that message, the better.
The Team at Davis-Rea is as strong as ever thanks to the coming together of Davis-Rea and GlobeInvest. We are battle tested veterans, who have navigated much more serious events than this. In January, I wrote:
“We have trimmed our tolerance for overindulgence in risky assets until such time as the ranks of bullish investment titans has thinned. Don’t get me wrong, I still think the ‘future is so bright you have to wear shades,’ I just think we are due for a little bit of ‘humble pie’ before the party continues."
Well, here we are. Investors have gone from euphoric to panicked beyond belief in less than 30 days. Picking tops of markets when it’s a full-on bubbly Champaign flavoured greed is hard(er), picking bottoms when its panicked fear, like right now, we’ve seen, and done before. Right now, that’s where we are, full-on panic and its all because one guy ‘floating in a tin can, far, far away’ is living his dream. Well, as David Bowie continued in A Space Oddity “Can you hear me Major Tom? Ground Control to Major Tom! Your circuits dead, there’s something wrong can you hear me Major Tom?”
I only know that when great companies are sold in panic for reasons that that are unsustainable, that’s called a fire sale. Smart, successful, investors are well advised to keep their eyes firmly on where the puck will be, not where the crowds are being told to watch. Trump is waving his arms wildly like an armature magician. Everyone knows it’s a charade. People will tire of this. Don’t listen to what he says, think what he is being told or will soon be told. Soon, this Emperor will have no clothes.
