What we’re reading (4/21)
“It’s Gotten Riskier To Be A Long-Term Investor” (New York Times). “Many people can ignore these shifts and hang on to their government bonds and bond funds. And those looking to lock in high yields may find occasional bargains, when Treasury yields jump close to 5 percent, as they did earlier this month. But everyone — even if not an investor — is being exposed to innumerable risks that may not be entirely appreciated.”
“Why It’s So Difficult For Robots To Make Your Nike Sneakers” (Wall Street Journal). “Nike’s effort was the boldest. The company aimed for large-scale automated production in under a decade, which it said would save on labor costs and allow it to deliver new models of shoes to Americans faster…The effort quickly ran into trouble. The robots struggled to handle the soft, squishy and stretchy parts that are integral to shoemaking. Shoe fabrics also expand and contract depending on the temperature, while in shoemaking no two soles are exactly alike. Human workers can adapt to such challenges, but it proved difficult for machines.”
“The Pepperoni Price Index” (Business Insider). “‘This happens every sort of downturn in the economy — there’s increased demand for premium frozen pizzas, high-priced frozen pizzas,’ said Craig Zawada, the chief visionary officer at Pros Holdings, a price optimization company. It’s a bit counterintuitive, he added, since you'd think consumers are more cost-conscious, but it's actually a trade that makes sense because ‘they’re replacing eating out to having a good frozen pizza at home.’”
“Long-Run Effects Of Trade Wars” (David Baqee and Hannes Malmberg). “[This paper] shows that accounting for capital adjustment is critical when analyzing the long-run effects of trade wars on real wages and consumption. The reason is that trade wars increase the relative price between investment goods and labor by taxing imported investment goods and their inputs. This price shift depresses capital demand, shrinks the long-run capital stock, and pushes down consumption and real wages compared to scenarios when capital is fixed. We illustrate this mechanism by studying recent US tariffs using a dynamic quantitative trade model. When the capital stock is allowed to adjust, long-run consumption and wage responses are both larger and more negative. With capital adjustment, U.S. consumption can fall by 2.6%, compared to 0.6% when capital is held fixed, as in a static model. That is, capital stock adjustment emerges as a dominant driver of long-run outcomes, more important than the standard mechanisms from static trade models — terms-of-trade effects and misallocation of production across countries.”
“Pope Francis, First Latin American Pontiff Who Ministered With A Charming, Humble Style, Dies At 88” (Associated Press). “Pope Francis, history’s first Latin American pontiff who charmed the world with his humble style and concern for the poor but alienated conservatives with critiques of capitalism and climate change, died Monday. He was 88.”
What we’re reading (4/19)
“Trump To Replace Acting IRS Commissioner” (Wall Street Journal). “President Trump is replacing the acting IRS commissioner that he appointed just three days earlier, according to people familiar with the matter, making a sudden shift that continues an unusual upheaval at the tax agency. Deputy Treasury Secretary Michael Faulkender will now run the Internal Revenue Service on an acting basis, becoming the fifth person to hold that job so far this year.”
“Trump Studying If Removing Powell Is Option, Hassett Says” (Bloomberg). “Donald Trump is studying whether he’s able to fire Federal Reserve Chairman Jerome Powell, his top economist said Friday, a day after the president publicly criticized the head of the central bank for not moving fast enough to slash interest rates.”
“Strange Sell-Off In The Dollar Raises The Specter Of Investors Losing Trust In The US Under Trump” (Associated Press). “Among the threats tariffs pose to the U.S. economy, none may be as strange as the sell-off in the dollar. Currencies rise and fall all the time because of inflation fears, central bank moves and other factors. But economists worry that the recent drop in the dollar is so dramatic that it reflects something more ominous as President Donald Trump tries to reshape global trade: a loss of confidence in the U.S.”
“Capital One And Discover Merger Approved By Federal Reserve” (CNBC). “Capital One first announced it had entered into a definitive agreement to acquire Discover in February 2024. It will also indirectly acquire Discover Bank through the transaction, which was approved by the Office of the Comptroller of the Currency on Friday.”
“OpenAI’s Latest Move Makes It Harder For Rivals Like DeepSeek To Copy Its Homework” (Business Insider). “In a bid to protect its crown jewels, OpenAI is now requiring government ID verification for developers who want access to its most advanced AI models.”
What we’re reading (4/17)
“Trump Again Calls For Fed To Cut Rates, Says Powell’s ‘Termination Cannot Come Fast Enough’” (CNBC). “A senior White House official told CNBC that the post should not be seen as a threat to fire Powell, but rather as a reinstatement of Trump’s frustrations with the Fed chief. However, Trump doubled down on his post later in the day, telling reporters: ‘I don’t think he’s doing the job. He’s too late, always too late … Slow, and I’m not happy with him. I let him know it, and if I want him out, he’ll be out of there real fast, believe me.’ Trump also ignored multiple follow-up questions on whether he was trying to remove Powell.”
“Private Equity World Engulfed By Perfect Storm” (Wall Street Journal). “One of Wall Street’s most consistent profit engines is close to breaking down. Even before President Trump’s tariff chaos, buyout firms had been struggling to sell their portfolio companies and return money to anxious investors. Now recession fears and market turmoil have brought dealmaking to a near standstill…The longer the deal logjam lasts, the harder it will be for firms to hand money back to clients such as pensions and endowments. The amount of unrealized value the funds owe their investors has hit record levels, according to an analysis by credit-ratings firm Moody’s Ratings. That makes it tougher for the firms to raise new funds.”
“Moody’s Boosts Default Forecasts As Global Trade War Heats Up” (Bloomberg). “The credit-grading firm said it now sees the default rate for speculative-grade companies reaching 3.1% by the end of the year, compared with its prior expectation of 2.5%. If that forecast materializes, it would still amount to a decline in the default rate from the year prior, but Moody’s says it wouldn’t take a major negative shock for the rate to rise instead, possibly to as high as 6%.”
“Why Trump Will Lose His Trade War” (Paul Krugman). “The overall point is that even relatively sophisticated Trumpers like Bessent are still thinking in terms of Chinese access to the markets of the United States and our imagined trade war allies, when the real issue now is whether China can strangle the U.S. economy by disrupting our supply chains.”
“Why Value Investors Are Looking At Japan, Korea, And Brazil” (Institutional Investor). “In speaking this week to Dave Iben, portfolio manager at Kopernik Global Investors, who was also present at the event, the implication was that this is in fact feeding time at the value investor zoo. While the U.S. has seen sharp decreases, it remains expensive, he believes and because the shocks are being felt around the world there are in fact increased opportunities to buy companies that have been identified as undervalued elsewhere.”
What we’re reading (4/15)
“Treasury Secretary Scott Bessent To Yahoo Finance: Not All Tariff Deals Will Be Done In 90 Days” (Yahoo! Finance). “‘Let's set aside China. There are 15 large trading partners. We set aside China. There are 14, and we're in rapid motion and setting up a process for the 14 largest trading partners, most of whom have very large deficits. So, in 90 days, are we going to have a complete doc, a formal legal document done and dusted? Not likely,’ US Treasury Secretary Scott Bessent told Yahoo Finance Tuesday in an exclusive interview. ‘But I think if we follow the process, we could have substantial clarity on those 14 away from China in terms of agreements in principle. And then once we reach a level that we've agreed on and they've agreed to lower their tariffs, lower their non tariff barriers, currency manipulation, and subsidies of industry and labor, then I think we can move forward,’ he continued.”
“Is Dollar Weakness A Panic Signal Or Healthy Rebalancing?” (Joachim Klement). “In short, we may be seeing the end of U.S. exceptionalism in real time. But it is not the end of the U.S. dollar as the world’s reserve currency. What we are witnessing is likely a rebalancing of international investment portfolios, which, over the last decade, have become increasingly concentrated in U.S. assets. For example, the U.S. share of the MSCI World stock market index has risen from 48% in 2010 to 73% today. In a way, this is reminiscent of what occurred after the tech bubble burst in 2000. Back then, investors gradually reduced their U.S. portfolio allocations in favour of European and Asian investments after the U.S. market share in the MSCI World had risen from 40% to 60% in just five years.”
“Fed Resists Pressure To Rescue Treasury Market” (Semafor). “[T]he Fed isn’t accelerating regulatory changes that would encourage banks to load up on government debt, people familiar with the matter said, even though Treasury Secretary Scott Bessent and JPMorgan CEO Jamie Dimon both support the idea. Tweaks to rules that currently penalize banks for holding big slugs of Treasury bonds are instead winding their way through a painstaking internal process that could take months, the people said.”
“Inside Mark Zuckerberg’s Failed Negotiations To End Antitrust Case” (Wall Street Journal). “Mark Zuckerberg called the head of the Federal Trade Commission in late March with an offer: Meta would pay $450 million to settle a long-running antitrust case that was about to go to trial. The offer was far from the $30 billion that the FTC had demanded…[o]n the call, Zuckerberg sounded confident that President Trump would back him up with the FTC, said people familiar with the matter…FTC Chairman Andrew Ferguson found the offer not credible, and wasn’t ready to settle for anything less than $18 billion and a consent decree. As the trial approached, Meta upped its offer to close to $1 billion, the people said, and Zuckerberg led a frenzied lobbying effort to avoid the FTC trial. It wasn’t enough. On Monday, the trial kicked off.”
“Red-Hot Netflix Is Proving Itself As A Recession-Resistant Stock” (Insider). “As major stock indexes have gotten off to a rocky start this year, Netflix has been a beacon of strength, handily outpacing the broader market and its mega-cap tech peers. The company has climbed more than 10% since the start of January, compared to an 8% loss for the S&P 500 and an even-sharper 17% decline for the elite Magnificent 7 cohort.”
What we’re reading (4/14)
“Put The P/E Ratio In Timeout For Now” (TKer). “The forward price-earnings (P/E) multiple has limited value during normal times. And the metric arguably has even less value during periods of elevated uncertainty. That’s because the E is based on analysts’ estimates for the near future. And when the outlook for business is increasingly uncertain and rapidly changing, it can take time for many analysts to adjust that E. This is especially the case right now as many companies have not yet factored the impact of tariffs into their guidance, which analysts lean on when they establish their earnings forecasts.”
“Tim Cook’s ‘Long Arc Of Time’ Prepared Apple For The Trade War” (Wall Street Journal). “Tim Cook and his adherence to the “long arc of time” won—again. The iPhone is exempt from the White House’s latest escalation of the trade war with China, the Trump administration quietly announced late Friday. The disclosure came after more than a week of existential dread. At one point, Apple had lost almost $800 billion of market value after Trump officials claimed imposing sky-high tariffs on Chinese-made goods would shift iPhone assembly to American factories.”
“China Suspends Rare Earth Exports, Kneecapping US Industry Reliant On Beijing’s ‘Monopoly’” (New York Post). “China has stopped shipping some heavy rare earth metals and magnets critical to US production of everything from cell phones to fighter jets as Beijing’s trade war with Washington simmers, leaving American industry in a bind. Effective April 3, China is no longer exporting seven heavy rare earth metals processed exclusively in the Asian power, as well as heavy rare earth magnets — of which about 90% of the world’s supply are also synthesized on Beijing’s territory.”
“China Can’t Spend Its Way Out Of Trouble” (Project Syndicate). “China’s prolonged reliance on fiscal stimulus has distorted economic incentives, fueling a housing glut, a collapse in prices, and spiraling public debt. With further stimulus off the table, the only sustainable path is for the central government to relinquish more economic power to local governments and the private sector.”
“Tariffs, Saving, And Investment” (John Cochrane). “I haven’t written much about tariffs, because so many other economists are doing such a great job. Tariffs are easy: The right answer is unilateral free trade. Tariffs are hard: The rest is explaining why 100 objections are wrong. I’ll get there. One aspect is less clear than the others: the whole business about saving, investment, “reserve currency” and so forth. Most economists reacted in horror at CEA chair Stephen Miran’s essay claiming that US reserve currency status — that we can print money, send it abroad and other countries work hard and send us stuff in return — is a burden for the US. Actually there is a kernel of logic here, and a great danger, though tariffs will do absolutely nothing to rectify the situation at least without huge economic cost.”
What we’re reading (4/12)
“Wall Street’s ‘Smart Money’ Braced for Tariff Chaos. It Was Still Caught Off Guard.” (Wall Street Journal). “Hedge-fund manager Edouard de Langlade had the best trading day of his career after President Trump unveiled his sweeping ‘Liberation Day’ tariffs. Markets plunged the following day, resulting in a huge payoff for Langlade’s multibillion-dollar bet against U.S. stocks and the dollar. ‘When Trump was elected, I thought, ‘The crash is about to come,’’ said de Langlade, founder of Swiss hedge-fund firm EDL Capital, which gained 6% that day. What he didn’t fully see coming: Stocks ripping higher Wednesday after Trump delayed most of his so-called reciprocal tariffs.”
“Investors Are Growing Concerned About A U.S. Asset Exodus As Treasuries And The Dollar Decline” (CNBC). “The April sell-off for financial markets has been wider and more volatile than typical pullbacks, fueling concern that the aggressive and constantly changing trade policy from Washington, D.C. could be doing long-term damage to the financial standing of the U.S.”
“America Risks ‘Moron Premium’ After Trump’s Tariffs Chaos” (The Telegraph). “After Liz Truss’s ill-fated mini-Budget blew up the bond market three years ago, the former prime minister was forced into an embarrassing climbdown. As well as sacking her chancellor Kwasi Kwarteng, she also quickly unwound her package of unfunded tax cuts to keep the markets at bay. However, despite the radical reversal, borrowing costs did not return to their old levels and Britain was left paying what was unkindly dubbed a ‘moron premium’. The US is now at risk of suffering a similar fate.”
“What We’ve Learned From 150 Years Of Stock Market Crashes” (Morningstar). “So, what does this history tell us about navigating volatile markets? Mainly, that they’re worth navigating. The markets recovered after their stressful period in 2022—just as they did after a 79% decline in the early 1930s. And that’s the point: Market crashes always feel scary when they happen, but there’s no way to know right now whether we’re encountering a minor correction or looking down the barrel of the next Great Depression.”
“The Russian Paradox” (Marginal Revolution). “So much education, so little human capital”.
What we’re reading (4/10)
“Stocks Dive Again As Angst Rises Over Trump’s Trade War” (New York Times). “The S&P 500 tumbled 3.5 percent on Thursday, signaling renewed investor concern about the worsening trade war with China and the destabilizing effects of President Trump’s tariff policies. One day after the stock market had its best day since 2008 as it reacted to Mr. Trump’s decision to postpone many of his tariff plans for three months, Thursday saw a significant portion of those gains wiped away. Early Thursday, the president clarified that he had raised tariffs on Chinese goods by a total of 145 percent since taking office.”
“How The Bond Market Helped Make Trump Blink On Tariffs: ‘I Was Watching It.’” (Yahoo! Finance). “President Trump hit the pause button on reciprocal tariffs — and the bond market convinced him. In the lead-up to the president's pivot, markets were unraveling: Stocks slid sharply, with the S&P 500 on the brink of a bear market. But the real alarm bell? A sharp, unexpected surge in long-term Treasury yields — a move that seemed to force the president’s hand. ‘The bond market is very tricky. I was watching it,’ Trump admitted to reporters shortly after the announcement. ‘People were getting a little queasy.’”
“The U.S. And China Are Going To Economic War—And Everyone Will Suffer” (Wall Street Journal). “Many businesses had begun to adjust to a reality of higher tariffs that started during the first Trump administration. But if the new tariffs remain, they face a loss of access to Chinese production altogether—with profound changes for American consumers. Americans, already stressed from a 24% rise in prices over the past five years, could end up paying even more for a smaller selection of everyday goods. Many businesses had begun to adjust to a reality of higher tariffs that started during the first Trump administration. But if the new tariffs remain, they face a loss of access to Chinese production altogether—with profound changes for American consumers. Americans, already stressed from a 24% rise in prices over the past five years, could end up paying even more for a smaller selection of everyday goods.”
“Retail Investors Are Running Head First Into This Topsy-Turvy Market” (CNBC). “Institutional investors ran for the hills during that week, causing the S&P 500 to briefly dip into bear market territory, which refers to a 20% drop from recent highs. But data from market insights firm Vanda Research, a trusted authority on retail investor trends, showed mom-and-pop traders…doing the exact opposite. ‘What marks an equity drawdown? It’s usually retail capitulation as the final shoe to drop,’ said Marco Iachini, vice president of research at Vanda. ‘We’re clearly not seeing that.’”
“Robot Rogue Traders Could Rule World And Make Bankers Even Richer, Experts Warn” (The Daily Star). “Bots are increasingly being used by financial companies hoping to develop new investment strategies, cut down on dull administrative tasks and automate decision-making around loans. A recent International Monetary Fund report showed more than half of all patents - new financial plans - produced by trading firms are related to AI.”
What we’re reading (4/8)
“Stocks Slide Again As US Forges Ahead With 104% Tariffs On China” (Reuters). “The United States said on Tuesday that 104% duties on imports from China will take effect shortly after midnight, even as the administration of President Donald Trump moved to quickly start talks with other trading partners targeted by sweeping tariffs.”
“Trump’s Tariffs Put Fed Chair Powell In A ‘No-Win Situation’” (Wall Street Journal). “Federal Reserve Chair Jerome Powell is facing an increasingly dreadful task. Economists, business owners and investors are betting that the uncertainty created by the sudden rollout of President Trump’s large tariff hikes, many of which are set to take effect Wednesday, will push the economy closer to a recession by weakening hiring and spending. That would call for cutting rates to cushion any downturn. At the same time, the magnitude of tariff increases is likely to lead prices to rise substantially for many imported goods, including materials used by domestic manufacturers.”
“A Contagion Of Uncertainty” (Tyler Cowen, The Free Press). “It is not merely that the policies keep on changing. We are seeing that the policies didn’t have much of a rational basis to begin with. Exactly how were all those threatened tariff rates calculated to begin with? A debate is raging across the internet and social media, but it seems they did not have much of a logical basis. We even were ready to put a tariff rate of 10 percent on the Heard Island and McDonald Islands (where?), which are inhabited mostly by penguins. Not a single step of this process has inspired confidence.”
“Signs Of Wall Street Stress Pile Up Amid Trump Tariff Turmoil” (Yahoo! Finance). “One concerning development is that there were no new offerings in the investment-grade and high-yield bond markets for three days, according to Reuters, as credit spreads widened due to concerns about the rising odds of a recession.”
“De-Extinction Company Announces That The Dire Wolf Is Back” (ars technica). “On Monday, biotech company Colossal announced what it views as its first successful de-extinction: the dire wolf. These large predators were lost during the Late Pleistocene extinctions that eliminated many large land mammals from the Americas near the end of the most recent glaciation. Now, in a coordinated PR blitz, the company is claiming that clones of gray wolves with lightly edited genomes have essentially brought the dire wolf back. (Both Time and The New Yorker were given exclusive access to the animals ahead of the announcement.)”
What we’re reading (4/7)
“U.S. Stock Meltdown Gives Way To Global Rout” (Wall Street Journal). “U.S. stocks took a heavy beating for two days in a row last week. On Monday, it was the rest of the world’s turn. Historic turmoil in financial markets left investors with few places to hide as President Trump’s challenge to world trade intensified stock losses from Hong Kong to France. Hopes that the White House would ride to the rescue over the weekend, pausing the tariffs, were dashed.”
“The Tariffs That Led To The Biggest Stock-Market Drop Since COVID May Have Been The Result Of An Error” (MarketWatch). “‘The idea is that as tariffs rise, the change in the trade deficit will depend on the responsiveness of import demand to tariffs, which depends on how import demand responds to import prices and how import prices respond to tariffs,’ AEI senior fellows Kevin Corinth and Stan Veuger pointed out. The problem is the White House used 0.25 as the elasticity of import prices. Per the research paper the USTR cited in the tariff determination, the elasticity is actually closer to 1, or 0.945 to be precise. The AEI authors say the White House may have used the elasticity of retail prices instead of import prices. The AEI team went and recalculated tariffs based on using correct numbers — and found no tariff rate would exceed 14%, and most would be at the 10% floor the Trump administration set. It stands to reason that if the revised calculations were used, the stock-market reaction would have been much different.”
“Donald Trump Tells Americans Bracing For Economic Collapse: ‘You Have to Take Medicine’” (Vanity Fair). “The self-proclaimed ‘Tariff Man’ spent the weekend golfing and says he plans to stay the course despite Wall Street turning on him and stocks making wild swings in response to his new policy.”
“China Says It Will Never Accept US ‘blackmail’ In Escalated Tariff Threats” (DailyMail). “China said it will never accept the "blackmail nature" of the United States after the latter escalated tariff threats against it, the Chinese commerce ministry said on Tuesday. The U.S. threats were ‘a mistake on top of a mistake,’ a ministry spokesperson said in a statement, urging the U.S. to properly resolve differences with China through dialog with mutual respect and on an equal footing.”
“Trump’s Tariffs Will Wound Free Trade, But The Blow May Not Be Fatal” (New York Times). “The shock of Mr. Trump’s move is reverberating even more widely, given the larger size of the American economy and its place at the fulcrum of global commerce. Yet as with Brexit, its ultimate impact is unsettled: Mr. Trump could yet reverse himself, chastened by plummeting markets or mollified by one-off deals. More important, economists say, the rise of free trade may be irreversible, its benefits so powerful that the rest of the world finds a way to keep the system going, even without its central player. For all of the setbacks to trade liberalization, and the grievances expressed in Mr. Trump’s actions, the barriers have kept falling.”
March performance review
Prime: -3.58 percent
Select: -0.70 percent
SPY ETF: -5.89 percent
Bogleheads Portfolio (80 percent VTI + 20 percent BND): -4.87%
What we’re reading (4/4)
“Hedge Funds Hit With Steepest Margin Calls Since 2020 Covid Crisis” (Financial Times). “Hedge funds have been hit with the biggest margin calls since Covid shut down huge parts of the global economy in 2020, after Donald Trump’s tariffs triggered a powerful rout in global financial markets. Wall Street banks have asked their hedge fund clients to stump up more money as security for their loans because the value of their holdings had tumbled, according to three people familiar with the matter. Several big banks have issued the largest margin calls to their clients since the beginning of the pandemic in early 2020.”
“Wall Street Blew It” (The Atlantic). “After Thursday’s stock-market sell-off provoked by Donald Trump’s announcement that the United States would be imposing new tariffs on almost every country in the world, the one thing we can say for sure is that Wall Street blew it. In the three trading days leading up to Trump’s much-anticipated ‘Liberation Day’ speech, the market rose steadily as investors apparently convinced themselves that Trump would not do anything too crazy. Surely moderation would prevail. It did not[.]”
“The Big Losers In Trump’s Tariff Chaos—And A Couple Of Survivors” (Wall Street Journal). “Few areas were spared in the stock market’s huge selloff this week, with all 11 of its sectors ending in the red after President Trump unveiled his dramatic tariff plans. Banks and private-equity firms were among the biggest losers. Investors fear Wall Street firms would be hit hard by a recession, with companies and individuals pulling back on borrowing and dealmaking drying up. The consumer staples sector, meanwhile, was relatively unscathed, finishing with the smallest weekly decline. Those companies are seen as havens in a downturn since people still need essentials like groceries.”
“Your Life Will Never Be The Same After These Tariffs” (Justin Wolfers, New York Times). “These tariffs are going to hurt. A lot. By my calculations, this round of tariffs may be 50 times as painful as the ones Donald Trump instituted in his first term. That means they are going to reshape your life in much more fundamental ways.”
“The White House Cited These Economists To Justify Its Tariffs. They Aren’t Thrilled.” (Yahoo! Finance). “In a blog post complete with a bibliography and footnotes, the US Trade Representative said it had calculated ‘reciprocal’ tariffs at rates that would eliminate the US trade deficit with each country, using a formula that was in fact more sophisticated than met the eye and took into account factors like how much imports would fall as duties rose and how much prices would increase for consumers. It just so happened that some of the key variables canceled each other out, leaving behind the simple long-division exercise that had been widely mocked.”
What we’re reading (4/3)
“Tariffs Send Wall Street Tumbling To Worst Day Since Pandemic” (New York Times). “The S&P 500 fell almost 5 percent on Thursday, its worst drop since June 2020, as allies and adversaries alike criticized President Trump’s action and weighed their responses.”
“A Market-Rattling Attempt to Make the American Economy Trump Always Wanted” (Wall Street Journal). “Perhaps the most striking aspect of Trump’s dramatic move to reposition the American economy is the timing. The economy he inherited was the envy of the world with growth of 2.8% last year, faster than almost every other major developed economy, an unemployment rate of just 4.1% and inflation of 2.8%. Stocks were at record highs.”
“JPMorgan Analysts Say Recession Risk Increased To 60% Since Trump Announced Tariffs: ‘There Will Be Blood’” (Business Insider). “In a research note to clients published on Thursday, JPMorgan's Bruce Kasman, along with several other company economists, warned that the risk of the global economy falling into a recession has increased from 40% to 60% in response to Wednesday's ‘Liberation Day’ tariff announcement.”
“America Is Headed For A Grim Fiscal Reckoning” (Michael Bloomberg). “Amid all the blaring headlines coming out of Washington, here’s a piece of news that is getting far too little attention: The US is on course for fiscal breakdown. That’s the unambiguous message from the Congressional Budget Office’s newly updated long-term projections. Unless Congress changes course, there’ll be a reckoning, and it will be grim.”
“Fed’s Cook Says Time For Patience On Policy Amid Inflation Risks” (Reuters). “Federal Reserve Governor Lisa Cook said on Thursday that the central bank can take its time to assess a highly unsettled environment before moving interest rates again, amid risks inflation could worsen due to tariffs. ‘Amid growing uncertainty and risks to both sides of our dual mandate, I believe it will be appropriate to maintain the policy rate at its current level while continuing to vigilantly monitor developments that could change the outlook,’ Cook said in a speech at the University of Pittsburgh.”
What we’re reading (4/2)
“Trump Announces Tariffs, The Highest Import Taxes Since The 1800s” (Axios). “President Trump announced a baseline 10% tariff on U.S. imports, with steeper reciprocal levies on goods from Europe, Japan, China and more than 50 other nations.”
“Oil Imports Exempted From Trump’s Sweeping Tariffs” (Reuters). “Imports of oil, gas and refined products were exempted from U.S. President Donald Trump’s sweeping new tariffs, the White House said on Wednesday. The exemption will come as a relief to the U.S. oil industry, which had expressed concerns that new levies could disrupt flows and raise costs on everything from Canadian crude oil serving Midwest refineries to European cargoes of gasoline and diesel to the eastern seaboard.”
“Amazon Said To Make A Bid To Buy TikTok In The U.S.” (New York Times). “Amazon has put in a last-minute bid to acquire all of TikTok, the popular video app, as it approaches an April deadline to be separated from its Chinese owner or face a ban in the United States, according to three people familiar with the bid. Various parties who have been involved in the talks do not appear to be taking Amazon’s bid seriously, the people said. The bid came via an offer letter addressed to Vice President JD Vance and Howard Lutnick, the commerce secretary, according to a person briefed on the matter.”
“Will Mortgage Rates Ever Be 3% Again?” (Yahoo! Finance). “In 2021, the average 30-year mortgage rate fell below 3% — now it’s well over 6%. If you’re in the market for a mortgage loan, you may be wondering if you should wait until interest rates fall significantly before buying a house. When will mortgage rates finally drop back down near the 3% mark?”
“Trump Attorney Studied Options For Third Presidential Term” (Wall Street Journal). “Epshteyn, who is now the president’s outside counsel, didn’t provide a comment for this article. Steven Cheung, the White House communications director, said that ‘it’s far too early to think about’ a third term.”
What we’re reading (3/31)
“U.S. Stocks Post Worst Quarter Since 2022 On Threat Of Trade War” (Wall Street Journal). “Worries about tariffs and the economy sent the S&P 500 and Nasdaq Composite to their worst quarters since 2022, a setback that is pushing some investors overseas…’For the first time in a while, you can have a conversation about: Might European equities be the best place to be for the next two or three years?’ said John Porter, chief investment officer at Newton Investment Management, which has been buying European stocks in many of its strategies in recent months.”
“First-Quarter GDP Growth Will Be Just 0.3% As Tariffs Stoke Stagflation Conditions, Says CNBC Survey” (CNBC). “Policy uncertainty and new sweeping tariffs from the Trump administration are combining to create a stagflationary outlook for the U.S. economy in the latest CNBC Rapid Update. The Rapid Update, averaging forecasts from 14 economists for GDP and inflation, sees first quarter growth registering an anemic 0.3% compared with the 2.3% reported in the fourth quarter of 2024. It would be the weakest growth since 2022 as the economy emerged from the pandemic.”
“Fed’s Williams Says Rates To Remain Steady For ‘Some Time’ Amid Trump Tariff Uncertainty” (Yahoo! Finance). “New York Federal Reserve president John Williams told Yahoo Finance he expects the central bank to keep rates unchanged for ‘some time’ as policymakers watch how new tariffs from President Trump affect the economy. The tariffs, he added in an interview Monday, could produce ‘more prolonged effects’ on inflation and he warned that it could take a few years to figure that all out.”
“The PE Glut: A ‘Towering’ $3.6TR Of Value Is Locked In 29,000 Unsold Companies” (Institutional Investor). “Private equity funds just have too much money: They are struggling to find potentially profitable investments, can’t sell companies they already own, and are being pressured by exasperated limited partners.”
“23andMe’s DNA Data Is Going Up For Sale. Here’s Why Companies Might Want It” (CNN Business). “23andMe, a standard-bearer for the at-home health movement, announced on March 23 that it has filed for Chapter 11 bankruptcy to facilitate a sale, prompting many of its 15 million customers to wonder: What happens to my genetic data now? Privacy advocates and two state attorneys general have urged Americans to delete their data on the service, even as 23andMe said the bankruptcy won’t change how it handles user data.”
What we’re reading (3/30)
“President Says He’s ‘Not Joking’ About A Possible Third Term” (New York Times). “President Trump said in an interview on Sunday that he was “not joking” about possibly seeking a third term, which would run afoul of the 22nd Amendment. The remarks, to the NBC News host Kristen Welker, were the most serious treatment he has given an idea he has mused about previously. The amendment says, ‘No person shall be elected to the office of the president more than twice’ but Mr. Trump said there were ‘methods’ to doing so.”
“Trump Team Weighs Broader, Higher Tariffs” (Wall Street Journal). “The Trump administration is scrambling to determine the specifics of its new tariff agenda ahead of its self-imposed deadline of Wednesday, weighing options as the president has promised to remake the American economy with a swath of new levies. One key point of debate is whether to impose individualized tariff rates for U.S. trading partners, as President Trump has previewed in recent weeks, or revert to his campaign pledge for an across-the-board tariff that would affect virtually every country doing business with the U.S., say people familiar with the conversations.”
“White House Officials Are Quietly Freaking Out About Trump Upcoming ‘Liberation Day’ Tariff Announcement” (Daily Mail). “The mood inside the White House is verging on panic with just days to go before Donald Trump’s ‘Liberation Day’ on April 2. Trump is expected to unveil sweeping new tariffs on America's global trading partners, but those tasked with implementing his agenda admit they're uncertain. Behind closed doors, top administration officials are deeply concerned, with many quietly admitting they're unsure what the president is actually going to do.”
“Consistency On Taxes And Tariffs” (Marginal Revolution). “Peter Navarro is arguing that the pending tariffs will raise $600 billion a year, which might make them the biggest tax increase in U.S: history…If you too are against the tariffs, and arguing they will raise prices by a noticeable amount, that also means you think most of the tariff will not primarily fall on foreign producers. In light of that, you might wish to reevaluate your stance on the domestic corporate income tax. Perhaps quite a bit of that tax also does not fall on producers, due to competitive forces.”
“Explaining Stagnation In The College Wage Premium” (Federal Reserve Bank of San Francisco). “After growing substantially during the 1980s through the early 2000s, the college wage premium more recently has been largely unchanged, or stagnant. We extend the canonical production-function model of skill premiums to assess supply and demand contributions to the slowdown in college wage premium, using annual CPS ASEC data from the early 1960s through 2023. To account for the rising importance of women in the college educated workforce, we estimate a hybrid model that incorporates components that are disaggregated by age and gender. We also allow for non-linearities and changes over time in the parameters of the aggregate production function. Our results suggest that the recent stagnation of the college wage premium primarily reflects demand factors, specifically a slowdown in the pace of skill biased technological change.”
April picks available now
The new Prime and Select picks for April are available starting now, based on a model run put through Today (March 30). As a note, I will be measuring the performance on these picks from the first trading day of the month, Tuesday, April 1, 2025 (at the mid-spread open price) through the last trading day of the month, Wednesday, April 30, 2025 (at the mid-spread closing price).
April picks available soon
I’ll be publishing the Prime and Select picks for the month of March before Tuesday, April 1 (the first trading day of the month). As always, SPC’s performance measurement for the month of March, as well as SPC’s cumulative performance, will assume the sale of the March picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Monday, March 31). Performance tracking for the month of April will assume the April picks are bought at the open price (at the mid-point of the opening bid and ask prices) on the first trading day of the month (Tuesday, April 1).
What we’re reading (3/25)
“Front-Running Target-Date Funds For Fun And Profit” (Barron’s). “No institutional trader would think of telegraphing to the rest of Wall Street that it was about to execute a sizable trade. Yet that, in effect, is what the multi-trillion-dollar target-date fund industry regularly does when executing rebalancing transactions, enabling shrewd traders to front-run those transactions and profit at the funds’ expense.”
“Does Balyasny Have Good — Or Bad — Timing With Its New Venture Fund?” (Institutional Investor). “Venture investing has hit hard times since the 2022 collapse of technology and growth companies in the stock market. As a result, more than 1,200 venture-backed unicorns — companies valued at more than $1 billion — have yet to go public or get acquired, according to CB Insights, which tracks the VC industry.”
“Want To Invest In A Private Company? All It Takes Is $5,000” (Wall Street Journal). “It is getting easier to invest in high-risk, high-reward private companies. Now, all it takes is $5,000 to buy a stake in a firm like artificial intelligence platform Glean or crypto exchange Kraken. EquityZen and Forge Global, which are marketplaces for trading shares of private companies, are lowering the minimum investment from tens of thousands of dollars, the companies said.”
“Let’s Stop The Trade Deficit Blame Game” (Maurice Obstfeld). “Many economists suggest that low US saving, partly due to a federal budget deficit that reached a whopping 6.4 percent of GDP in 2024, could plausibly play a role in causing America’s large and persistent trade deficit. Proponents of tariffs or other trade-limiting measures push back furiously. The United States is a blameless victim, they say. US trade deficits arise from other countries’ mercantilist policies, foisted on a US economy that previous leaders have fecklessly and recklessly left open to external actors. To restore balanced trade, they argue, it is time to take back control. Anyone who points out that the United States borrows abroad because its saving falls short of its investment faces the retort that foreign saving exceeds investment by the same amount (another consequence of arithmetic). But neither observation suffices to determine the origin of the pattern of global imbalances, because saving and investment rates have deeper fundamental drivers. It is only those that can justifiably be labeled as ‘causes’ of the US deficit.”
“The Economics Of Healthcare Fraud” (Jetson Leder-Luis & Anup Malani). “Healthcare fraud imposes a sizable cost on U.S. public healthcare budgets and distorts health care provision. We examine the economics of health care fraud and enforcement using theory and data and connect to a growing literature on the topic. We first offer a new economic definition of health care fraud that captures and connects the wide range of activities prosecuted as fraud. We define fraud as any divergence between the care an insurer says a patient qualifies for, the care a provider provides, and the care a provider bills for. Our definition clarifies the economic consequences of different categories of fraud and provides a framework for understanding the slate of existing studies. Next, we examine the incentives for committing and for prosecuting fraud. We show how fraud is driven by a combination of inadequate (expected) penalties for fraud and imperfect reimbursement rates. Public anti-fraud litigation is driven by the relative monetary, political or career returns to prosecuting fraud and by prosecutorial budgets. Finally, we examine the prevalence of health care fraud prosecutions across types of fraud and types of care, and across the US, by machine learning on text data from Department of Justice press releases.”
What we’re reading (3/24)
“Dow Jumps Nearly 600 Points On Monday As Investors Hope Trump Softens Tariff Stance” (CNBC). “Stocks jumped Monday on optimism that President Donald Trump may hold back from implementing some of his wide-ranging tariff plans and so the U.S. could skirt an economic slowdown from a protracted trade war.”
“Trade War Explodes Across World At Pace Not Seen In Decades” (Wall Street Journal). “Barriers to open trade are rising across the world at a pace unseen in decades, a cascade of protectionism that harks back to the isolationist fervor that swept the globe in the 1930s and worsened the Great Depression. It isn’t just President Trump’s extensive new tariffs, which have set off a barrage of retaliatory measures across Europe, China and Canada targeting hundreds of U.S. goods. Even before Trump retook the White House, many countries were increasing trade barriers, often against China, as they tried to beat back a flood of electric cars, steel and other manufactured goods pressuring their homegrown industries. Now those efforts are proliferating as countries brace for a new wave of goods redirected across the globe by the U.S.’s rising tariff shield.”
“What Does Musk’s ‘Dexit’ From Delaware Mean For The Future Of US Business?” (The Week). “Delaware's capitalist-friendly approach to taxes and regulation has long made it a lynchpin of the American economy: More than 1.5 million businesses from around the world are incorporated in the state. But Elon Musk's ‘Dexit’ to Nevada could change all that, and state legislators are scrambling to respond.”
“This Timing System [Allegedly] Beats The Market Using The Calendar. Here’s What It Says Now.” (MarketWatch). “Currently, for example, the [Seasonality Timing System] STS has investors 100% in cash until March 27, after which you would remain fully invested in the U.S. stock market until April 7. Fosback’s system has been successful because the market’s best and worst days don’t occur randomly. Instead they tend to follow a calendar-based rhythm. This year provides a good illustration.”
“The Trump Administration Accidentally Texted Me Its War Plans” (The Atlantic). “U.S. national-security leaders included me in a group chat about upcoming military strikes in Yemen. I didn’t think it could be real. Then the bombs started falling.”
What we’re reading (3/21)
“China Explores Limiting Its Own Exports to Mollify Trump” (Wall Street Journal). “During Donald Trump’s first presidency, China was determined not to yield to American pressure over trade like Japan did in the 1980s. Now, faced with an even greater economic assault from the second Trump presidency at a time of sluggish growth at home, Beijing may take a page from Tokyo’s playbook—on one specific issue it sees as in its own interest. Like Japan decades ago, China is considering trying to blunt greater U.S. tariffs and other trade barriers by offering to curb the quantity of certain goods exported to the U.S., according to advisers to the Chinese government. Tokyo’s adoption of so-called voluntary export restraints, or VERs, to limit its auto shipments to the U.S. in the 1980s helped prevent Washington from imposing higher import duties.”
“AI Wars” (Paul Taylor). “It is hard to know exactly how innovative DeepSeek is. Demis Hassabis of Google DeepMind has said that he doesn’t think it is an outlier, and many of the techniques described as novel in DeepSeek’s reports are similar to those implemented by others. The much quoted figure of $5.5 million for the cost of training the DeepSeek model is taken from a 2024 paper and refers only to the cost of the computation required for the final training run for the model that provided the foundation for R1.”
“A Solution To The Housing Shortage” (City Journal). “Housing is too expensive because its development is overregulated. Yet the regulations that drive up housing costs—arcane local zoning and building codes—are not the kinds that congressional Republicans are best positioned to fight. Moreover, many of the local codes protect suburban single-family-home neighborhoods, a residential ideal that Trump has pointedly defended.”
“Nvidia CEO Jensen Huang Says Every Company Will Become An ‘AI Factory.’ Here’s What He Means.” (Business Insider). “Huang, Rauch, and other technologists think modern companies will succeed by generating the most tokens. They will be AI factories churning out tokens that will be used to improve and run AI systems that help businesses make better products and services.”
“Federal Judge Pushes Back On Acting Social Security Head Over Threat To Close Agency” (Washington Post). “Acting Social Security commissioner Leland Dudek threatened Thursday evening to bar Social Security Administration employees from accessing its computer systems in response to a judge’s order blocking the U.S. DOGE Service from accessing sensitive taxpayer data. Less than 24 hours later — after the judge rejected his argument and the White House intervened — Dudek is saying he was ‘out of line.’”