What I Read Yesterday
27/03/2025
“The fact that China manufactures so much but consumes so little and the U.S. manufactures so little but consumes so much is an imbalance that must be solved eventually. But the process requires the U.S. to endure a severe recession, including a worse financial crisis than 2008.”
Peter Schiff
Corporate America’s Euphoria Over Trump’s ‘Golden Age’ Is Giving Way to Distress
CEOs and investors are fretting over what they see as whipsaw policy changes and complacency about the risks of recession - Wall Street Journal
Company bosses and investors cheered after the new US Administration look office on expectations of higher growth, tax cuts and deregulation. However the mood has changed as one day on and one day off Tariff policies have created huge uncertainty. Many CEOs and investors are critical of the President but are reluctant to say so in public. People are circumspect and reticent to criticise. Mr Market is a volatile fellow and he does not care much about anything. As one JP Morgan analyst put it. The market cannot be bullied or deported. The following Wall Street Journal outlines the issue.
Rapturous applause and a sea of phones in the air greeted President Trump as he walked on stage and declared, “The golden age of America has officially begun.”
He was barely a month into office when the Saudi-backed investor conference in Miami captured the optimism. “The Nasdaq is up nearly 10% in just a few months,” Trump said, ticking through a list of economic indicators. “The Dow Jones Industrial Average is up 2,200 points.” On the same day, Feb. 19, the S&P 500 hit an all-time high.
But as Trump unleashed an on-one-day, off-the-next tariff fight with America’s largest trading partners, those gains unravelled. In just a few weeks, the S&P lost $4 trillion in value driven by his whipsaw trade policy, receding optimism about an artificial-intelligence boom and souring consumer sentiment caused by threats of higher prices and weaker growth. A measure of consumer sentiment fell in March for the fourth straight month to the lowest level since January 2021.
Markets in the past week have recovered some losses, but Trump is preparing his next shock: an April 2 “liberation day” suite of reciprocal tariffs he said will be applied on any trading partner that charges tariffs or imposes other trade barriers on U.S. products.
CEOs and lobbyists seeking clarity and fretting over what they see as a haphazard approach have inundated Trump’s team with calls, according to people in the administration. Some of these people said the White House has been receptive to hearing from businesses about their concerns, but they said it’s unclear if arguments for a more temperate and targeted approach have persuaded Trump.
Among other factors, investors were caught flat-footed by Trump’s animus toward Canada, which wasn’t a part of last year’s election campaign. Global markets were then roiled by the fallout from the Oval Office meeting between Trump and Ukrainian President Volodymyr Zelensky, which descended into a shouting match.
The spectacle led Germany to approve a once-unimaginable €1 trillion defence-spending deal—with contracts to go to European makers—in the blink of an eye. The package has sent up yields on German sovereign debt and could reduce appetite on the Continent for U.S. Treasurys.
“At the end of last year, the attitude was, ‘Full on, this is going to be an exceptionally pro-growth agenda and it will be executed in a clear way.’ All of that has gone in reverse,” said Ed Al-Hussainy, global interest-rate strategist at Columbia Threadneedle Investments.
On the campaign trail, Trump repeatedly praised the use of tariffs, calling it the “most beautiful word in the dictionary.” But Wall Street investors and big businesses believed he would ultimately dial back rhetoric, focusing more on boosting growth and using targeted tariffs against China and to support critical industries—something that would hew more closely to his first term.
Now, CEOs who cheered Trump’s tax and regulatory cuts have grown increasingly pessimistic, though many remain reticent to speak out because of fears of public criticism from the administration.
Officials at the Federal Reserve, who last year were heartened by a broad-based easing in price pressures, now expect tariffs to push prices up this year while weakening growth.
Even the president, famous for ploughing through bad news, has refused to rule out a recession as he describes a transition period in his quest to upend global trade alliances and reinvigorate domestic manufacturing. “Everything could happen,” Trump acknowledged last week on Fox News.
“The underlying fundamentals of the economy are pretty darn good,” said Stephen Miran, chair of the White House Council of Economic Advisers, in an interview last week. He said Trump’s policies of tax and regulatory cuts would begin to show dividends, and he maintained tariffs can work. “We are focused on creating the best, strongest economy in American history and the president’s golden age. It’ll take a little more time to get there.”
The president has already slapped tariffs of 20% on goods from China, 25% on imports from Mexico and Canada that aren’t covered by an existing trade agreement, and 25% duties on steel and aluminium. Additional tariffs on copper and lumber are planned.
A market selloff accelerated over the next two weeks as Trump and his advisers signalled they were prepared to accept short-term pain to remake a global trading system that has contributed to steady declines in the prices of consumer goods over the past three decades.
“If you look at China, they have a 100-year perspective,” Trump said in an interview on March 9 on Fox News. By the next day, all of the gains in the three major stock indexes since Trump’s election had been erased.
Lofty stock prices and steady income growth have been critical engines of the economic expansion in the past few years. A market rout could make the U.S. economy wheeze if it leads high-income consumers to pull back spending.
Investors shuddered earlier this month when the Trump administration dialled up tariff threats and then signalled complacency about recession risks. “Here’s the interesting thing about the stock market: it cannot be indicted, arrested or deported; it cannot be intimidated, threatened or bullied,” wrote JPMorgan’s Michael Cembalest in a report on March 12 that was forwarded across Wall Street trading desks.
From the McKinsey Report on Private Equity (PE ). PE has underperformed S&P 500 over 1-year, 3-year, and 5-year time horizons.
27/03/2025