The Inevitable, Just Sooner
People rush to throw our country under the bus the second someone shakes the precious, coddled economic snow globe they live in.
QUOTH THE RAVEN Writes on Substack
Maybe President Trump’s tariffs will cause a prolonged trade war and a Great Depression in the United States the likes of which we’ve never seen before, sending the nation into a spiral of chaos and hell on earth.
But walking around outside today, three days after the tariffs were announced and barely a day after many of the minimum tariffs went into effect, life seems oddly normal.
I’m in In New York City this morning, so I took a walk around Central Park. Despite the cool, rainy weather, the park was littered with tourists taking photos, New Yorkers playing with their dogs, couples holding hands, and joggers getting in their workout for the day. Yesterday, as I went on my own run up Park Ave. at lunchtime, I watched junior bankers pour out of J.P. Morgan’s office by Grand Central Station, joking with each other, smiling and happily ordering their lunches.
If we’re in the midst of armageddon, it sure doesn’t seem like it.
So imagine my surprise today when I read that the Wall Street Journal editorial board had declared China’s Xi Jinping as the person emerging as the “winner” from President Trump’s tariffs.
President Trump’s across-the-board tariffs will change the world order in many ways, and one winner is already emerging: Xi Jinping. The Chinese President has had an excellent week.
Putting aside whether you think tariffs are a good idea or not, to me it just seems stunning to declare a “winner” barely a day after the 10% minimum tariff has gone into effect. What if China came to the table tomorrow and wanted to strike some type of deal? I’m not saying this is going to happen, but if it did, it would immediately render such a headline completely erroneous.
I don’t want to argue the merits of whether or not Trump’s tariff policy is going to yield results. I did that all day yesterday and I feel like I understand clearly the argument against his policy and how he arrived at it. We will know at some point in the future just how effective or ineffective they are going to be.
If it turns out to be a horrific idea, I will admit as much and, as I have done many times before in the past, simply state that I got it wrong. My take isn’t consequential. I’m not advising the President on trade. But just hours after these policies have gone into effect seems like an awfully minuscule amount of time to be declaring winners and losers.
Let’s get one thing straight. The vicious pushback on these tariffs is, in my opinion, completely being driven by the move in the stock market. People were marching around waving Jeremy Siegel’s quote from yesterday that the tariffs are the ‘biggest policy mistake in 95 years’ like it was handed down from God himself.
Mind you, this is the economist who, in a sheer panic 8 months ago, called for an emergency 75 basis point rate cut during the yen carry trade sell off…
…then was promptly neutered by analyst and trader Guy Adami on-air that same night, and then immediately issued a mea culpa two days later when the market didn’t crash as he thought it would.
He’s throwing around 75bps rate cuts — which in the balance hangs the homeostasis of the entire $100 trillion global economy — like he’s daytrading a memecoin.
I believe the impetus for his reactionary response is the same now as it was back in August: “the stock market is going down, and I don’t like the way that makes me feel.”
Again, I wrote back in February that this next market crash would break people’s brains because of how erroneously conditioned we’ve been to believe that the stock market should always go up and always be on solid footing, regardless of valuations, geopolitics or current events. But that simply isn’t the reality of things, as we are seeing this week.
If we hadn’t been conditioned to think that everything should be perfect all the time, this correction in the markets wouldn’t be treated as though it’s a guarantee of a coming century of Armageddon, like people are doing. The fact is, anybody who’s ever had a brokerage account knows that when you look at your portfolio and the numbers are red instead of green, it elicits a full-body nervous system response to panic. This is what sets great traders, who can endure volatility and make money on the way down as well as up, apart from unsophisticated traders.
The panic is why people sell at lows, it’s why people overtrade, and it’s why economists and financial news media hosts panic on live television and break down, crying for relief at the first sign of any distress.
And the market driving decisions and commentary is almost irrelevant because this sell off was gonna happen one way or the other. With rates where they are now, it was a mathematical certainty that the economy was going to slow and that the market would eventually have to correct. There’s no mystery as to why Warren Buffett raised his cash pile to $330 billion just two months ago. He did it because the market was, on any historical valuation metric possible, extraordinarily overvalued.
The Shiller price-to-earnings ratio was at its third highest level in recorded history, second only to right before the housing crisis and right before the 2000s tech bubble.
To the layperson, this means that going into this tariff announcement, stocks were almost the most aggressively valued they have ever been in history.
And so President Trump comes along with his tariff strategy and pricks the bubble that was going to burst relatively soon anyway, and people react to the bubble bursting — not the effects of his policy.
Items aren’t missing from store shelves yet, prices haven’t gone through the roof yet, and despite sensationalist headlines about businesses shutting down as a result of these tariff plans, most measured, reasonable business owners haven’t even had time to recalibrate and adjust, as many businesses will do.
For example, Restoration Hardware — whose stock has been decimated over the last few sessions as a result of the tariff news — recently said they are relocating some of their manufacturing to North Carolina. They watched their stock get cut in half due to the market’s reaction, but their CEO still had the clarity to say of Trump’s policies:
“I think we’ve got a very smart administration negotiating at a level we haven’t seen any administration, at least in our lifetimes, negotiate.”
That makes it clear the company has competent, levelheaded management.
Any business owner who preemptively shuts down their business or claims that these tariffs — which are in no way guaranteed to go on for any prolonged duration of time — have caused them to shut down, may have been mismanaging things to begin with or may be reacting to feelings, not facts.
Make no mistake about it: the overwhelming reaction we are seeing in the media over the last 3 days is coming directly from the pullback in the stock market, which is tied directly to the nervous systems of the people writing the headlines and publishing the commentaries.
I got thrashed in the market on Thursday and, especially Friday when gold and silver sold off. I didn’t let that blind me from keeping an open mind about these policies. I’ve been saying since 2022 I thought gold and silver would get smashed during the period before the Fed steps in to save markets the next time. I understand change causes discomfort, and the stock market doesn’t like that. I also understand chaos creates opportunities. I calmly nibbled away at some names I like and trusted that over a longer period of time, we’ll reach a new homeostasis in markets.
And sure, the market has “crashed,” as people have been saying in the media and on television — but in reality the average price-to-earnings ratio of the S&P 500 right now, 25.1x, is still about 40% higher than the historical average of 16.1x.
That’s not the historical low — it’s the historical average.
That means that despite this “Armageddon,” stocks are still really expensive compared to where they have traded throughout the course of history.
The Dow Jones is trading at about 38,000 — where it was almost one year ago to the day. It’s still up 82% over the last 5 years.
Again, store shelves aren’t empty. People aren’t fist fighting at Costco yet. The price of oil has gone down, not up. To me, it looks like the only thing other than the stock market that has changed as a result of Trump’s tariff policy is the amount of screeching from market participants, economists, financial news media commentators, and columnists, all eager to declare the United States as the loser in this new world of trade — simply because looking at their brokerage statement is making them uncomfortable for the day.
Again, this tariff policy may not work, and everyone’s entitled to their opinion.
As for my opinion? These quick, reactionary declarations of failure — when this policy has only been in place for three days — simply seem like people rushing to throw our country under the bus the very second someone picks up and shakes the precious, coddled economic snow globe that they live in.
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