The swamp has not been drained. The wall has not been built. Mexico is not “paying”. We are not bringing back coal. North Korea is well, who knows? The list goes on. Now the global economy has been permanently altered in one week? Not likely! Over-reaction to economic headlines is standard in fearful environments. There is no strategy to deal with this. There was no strategy for Covid. Holding ownership in great companies is still a good and maybe the only way to construct the maximum financial outcome.
It seemed evident that this was going to go poorly. The idea of dodging this event or hiding is about as likely as timing the market on any given day. The world is not a different place than one month or one year ago. It has always been rife with risk and difficulty; it just feels different each time a bear market springs upon us.
Recognizing that the broad market was trading at a very high valuation is crucial. The reckless trade strategy combined with a market that was vulnerable to selling has unleashed a violent correction and the potential beginnings of a bear market. From these levels, the selling feels very panicked, which is standard and tends to wash itself out as market valuations become more reasonable.
It has been a while since I have had to remind people that during cascades of selling, people don’t just sell or give away at any price. As levels come down the current values of existing quality portfolios become more valuable and start to gain more and new upside. During these dramatic flares of negativity, these words are rarely comforting. It is only in hindsight that we will look back and be glad to own companies like Apple, Visa, and Home Depot, among many others.
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The nature of serving as president of the USA is reflected in the cliché, “President for all Americans.” For the last 10 years, there has been a distinct shift in political behavior, as the public has been subjected to the notion of appealing to the “base” of one’s own political party.
Political competition in the United States has always been aggressive, and tactics in modern presidential politics contain countless ugly moments. Generally, candidates and political movements have isolated their aggressive and extreme views through surrogates. The political era that began in 2015 is unique in that the president himself has become a caricature version of the attack dog. Venomous repetitions, such as “crooked” or “radical left-wing lunatic,” have galvanized a dynamic of “us versus them” politics. The narrative that “Americans are polarized” ignores the anger and resentment basis of this sad cult of personality.
The crucial aspects of the US presidency involve fortifying citizens’ confidence and creating an environment of optimism toward the future. A key component is incentivizing ambitious risk-taking and innovation and fostering the framework for economic growth. As the overall economic platform of the United States grows, each generation has the potential to outdo its ancestors.
Regardless of their ideological ambition, the American presidency has traditionally reflected empathy, calm, class, and decorum at its best moments. Improvised rants about the supposed transgressions of our global neighbors are counterproductive and unlikely to persist. Braggadocio and proclamations of greatness have no impact on actual outcomes. Implausible counterfactual narratives about how things should be better are about as meaningful as suggesting that the FAA should hire MIT graduates so we have “the best” air traffic controllers.
Drastic overreach of radical ideological change to the federal government, global trade, and behavior towards traditional US allies is a historical blip in this anomalous period of reckless leadership. The staying power of this type of reality TV table-flipping behavior will likely be limited.
The crucial part of US leadership is creating a stable environment for businesses to plan, invest in facilities, and make other critical decisions. When different regulatory agencies propose significant rules, there is generally a public comment period during which businesses and citizens can give feedback from the real world. Essential changes are often phased in over time to allow the business community to adjust.
Presidential announcements of tariffs, fundamentally opposed to decades of global development, are now revealed with a haunting resemblance to a low-quality television show. American industry is given the surprise reveal and expected to adapt to a new landscape. Protectionism has always been an anathema to the United States because of its incredible vibrance and productivity.
This nonsense is uneconomic and unlikely to be sustained. The initial shock will ripple through markets and likely be met with numerous moments of softening and restatement. It is likely to be litigated. It is a counterproductive measure to one of the main requirements for leadership: the creation of continuity, stability, and confidence. Persevering in the face of overreaction will be a key test for investors during this political cycle.
The bottom line is that this type of leadership is not sustainable. There is no political mandate, and the blowback from this behavior will likely arrive more quickly than anticipated.
Navigating the constant barrage of headlines requires discipline—the key to successful investing is resisting the impulse to react. Reactive behavior involves changing beliefs, strategies, and principles in response to every looming crisis. There will be no sudden moment of clarity; uncertainty is a constant, and the skies will always have their share of clouds. However, we will weather these turbulent times, and one day, we’ll look back on this period as a lesson that facilitated future potential.
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Context is crucial for digesting the downswing of Q1 2025. Markets entered the year at an elevated level after two years of robust gains, which were due for correction. A convergence of two factors: elevated markets, particularly in high-flying technology stocks, and a very disruptive new beginning to our political realities.
Markets often retrace gains. Companies’ earnings need time to advance or, in some cases, cycle through a downswing. Portfolio growth is not linear, although long periods of rising prices can often train the investor’s mind toward overly optimistic expectations. The markets have reset back to January 2024 prices. Although this type of move is common, the feelings around the decline are (and always are) unique.
It is impossible to fully understand threats and the negative potential of scary events in real time. The current economic policy uncertainty is particularly challenging, as it seems evident that the presidency is economically irrational and churns out impetuous directives daily.
As markets fluctuate, investors often take a mental snapshot of the highest number they’ve ever seen on a statement or log-in. The “high water mark” assumption causes people to feel that they have “lost money” during downswings. This is more effectively considered fluctuation. Market declines reduce the monetary value of investments. Historically, this has not been permanent in the case of broadly diversified equity portfolios.
Observing signs of challenge and drawing dire conclusions about the future is a natural human instinct. Dramatic geopolitical and economic events are often remembered as much less threatening than they felt at the time. As this commentary consistently repeats, there are many recent historical examples, such as 9/11 or 2008. There was no clarity, and the conversations and questions were laser-focused on what, in hindsight, turned out to be the wrong thing, namely seeking safety and avoiding losses. The idea of flight to safety sounds appealing in theory. It ignores that most gains occur in the early stages of recovery, when the negative narratives are still spooking confidence.
A burgeoning branch of financial products seeks to satisfy or exploit investor fears of declining value. So-called “buffer” financial products aim to deliver market exposure while limiting the downside. Bloomberg recently published a commentary regarding the study of these investment vehicles. The unsurprising conclusion was, of course, that there is no special recipe for reward without risk. A significant part of investing is managing the fear of dire outcomes.
This commentary is constructed to share perspective and assist in building confidence for the challenging process of seeking investment success. Those who seek to create forecasts, projections, or models of future reality consistently fail. With the complexity and randomness of time, innovation in societal development offers zero predictability. The only certainties that we can seek are the struggles of the past.
For those seeking investment success, it must always be at the forefront of their minds that traders, not investors, cause much volatility and dramatic movement in markets. Investors believe it is akin to squeezing on a spring as prices decline. The core value and future potential of ownership in a quality enterprise do not evaporate. Investors strive to achieve this; traders are looking for short-term profit.
Long-forgotten proclamations of doom and histrionic declarations that the world is different from the day before fade quickly as innovation, human adaptability, and ambition push society forward over seemingly insurmountable walls of worry.
The Apprentice season 2 is unlikely to be the end of democracy. It is undoubtedly a unique and troubling anomaly to experience. This commentary has been concerned about this issue since 2016. Cascading through the federal government to deploy some right-wing vision of rapid change is unlikely to be as impactful as it seems. The daily firehose of staged executive order signings will lead to a much slower litigation process and potential mitigation of presidential overreach. The notion of a powerful presidency will likely result in each branch of the federal government exerting itself.
Towering cities, universities, hospital systems, innovative small businesses, and massive multinationals will all seek to adapt and flex in the face of whatever challenges arise. Although the current Republican Party has collapsed into a cult of personality, and the Democratic Party is adrift and at a loss for an articulate message, this is not permanent. Conditions can always get worse, but society generally experiences a regression to historical norms.
State governments, city administrations, mayors, and local communities are not all bowing to any king now or ever. These systems take time to respond to an anomalous and rapidly moving challenge. Hypothetically, we may see surprise announcements such as Michigan being a free-trade state or California looking to grant citizenship to refugees. It has constructed its version of the Statue of Liberty.” There is also likely to be new articulation by charismatic voices that we are not familiar with yet. Imagine the political messaging that begins to delineate all the reckless activity we are witnessing in the current federal leadership.
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On the night of April 4, 1968, after learning of Martin Luther King Jr.’s assassination, Robert F. Kennedy delivered a powerful speech in Indianapolis, urging the crowd to respond with “love and wisdom” rather than violence and reminding them of King’s dedication to justice and equality.
Robert F. Kennedy (the original, not his crackpot son currently running HHS) was in Indianapolis to campaign for the upcoming Indiana presidential primary when he learned of King’s assassination. Kennedy, who was scheduled to speak at an outdoor rally in an urban neighborhood, initially delivered the news of King’s death to a shocked audience, many of whom were unaware of the tragedy. Kennedy’s speech, delivered without notes, focused on the need for unity, compassion, and understanding in the face of such a devastating loss.
“What we need in the United States is not division; what we need in the United States is not hatred; what we need in the United States is not violence and lawlessness, but is love and wisdom, and compassion toward one another…For those of you who are black and are tempted to be filled with hatred and distrust at the injustice of such an act, against all white people, I can only say that I feel in my own heart the same kind of feeling”.
The speech is credited with helping to prevent widespread violence in Indianapolis, while other cities erupted in riots following King’s death. This is just one moment in modern American history where people were sure there would be existential conflict. The riots and destruction that did occur were horrendous and damaging, and American Society had to live through it and find a path forward.
As these dramatic events recede into the past, people take for granted that the American system persevered. To be a resilient investor, you must recognize that these historical events were challenging. The late 1960s forced American Society to continuously grapple with the idea that there could be a race war.
The ironic aftermath of Johnson’s presidency’s legislative efforts on civil rights resulted in waves of challenges that we still grapple with today. LBJ, who had won reelection by one of the most significant margins in modern presidential history in 1964, oversaw the dramatic decline of the Democrats and the electoral defeat by Nixon. There are likely lessons that await today’s Republican Party, with its hubris, overreach, and extreme agenda.
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Economics does not have feelings. Supply and demand are ruthless purveyors of commercial success. If a business cannot produce profitable results, it will cease. If a human does not possess a skill set demanded by employers, that individual will be required to compete in the broad category known as unskilled labor.
Throughout modern history, there has been a persistent escalation in the skill sets demanded by society’s ever-evolving complexity. These challenges are relentless in their demands and ruthless in punishing those who lack the aptitude, temperament, or luck to locate a place of economic security in modern society.
It has been said that democracy is a terrible form of governance yet superior to all other alternatives. The American economy has consistently been one of the most productive globally. The Maddison Project, also known as the Maddison Historical Statistics Project, is a data resource that collates historical economic statistics, such as GDP per capita. Viewing the most recent data from 2022, the United States produces $58,487, while China is at $19,238, and the average global citizen produces $16,677.
It is interesting to view the data by region.
East Asia $21,729
Eastern Europe $20,656
Latin America (MPD) $14,028
Middle East/North Africa $19,875
South and South East Asia $8,377
Sub Saharan Africa $3,437
Western Europe $41,323
Notably, Russian GDP per capita is a laggard at $13,817.
Another economic statistic is Gross National Income per capita. The US towers with 2023 data showing $80,450 with the global average at just $13,179; China $13,390
These numbers and many other supporting data sets delineate the simple reality that the American economic system occupies a transcendent position of influence and power. The US is estimated to have around 4.2% of the world’s population, yet we produce 15% of the global GDP. American exceptionalism is likely a convergence of structural advantages like geography layered upon a system of governance that has fostered innovation, productivity, and consistent rules-based order.
The isolated view that tariffs will benefit the American economy is unfortunate and counterproductive. Markets have initially reacted to each passing presidential proclamation. This is likely a case of selling on the rumor and buying on the actual reality. The potential for adaptation by the American economy has consistently been underestimated. For every rule that seems obstructive, there will likely be less negative impact than anticipated, along with exemptions, point-of-origin manipulation, and potential rollbacks.
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The USA’s macroeconomic prowess does not necessarily disperse evenly across regions of the country or the population. In 2023, California’s GPD per capita was $82,975, while it was $39,102 in Mississippi. The regional dynamics of economic productivity in America are illuminating. Nearly all the least productive states reside in a category known as “Red States.” It is plausible to consider that the political dynamics and desire for “change” are linked to this lower level of productivity.
There are many additional factors, and these relationships are inherently complex, yet one may postulate that the political angst is driven by relative economic underperformance. Imagine a scenario of political power and elections decided by productivity. With the electoral system, we are experiencing a system delivering inordinate political power to economically laggard regions.
Wealth inequality has been a cornerstone issue for the left, yet offering solutions to the lagging regions may be more effective. This brings us back to education, apprenticeship, and access to economically productive enterprises. Wealth distribution is unequal due to a variety of complex factors. This economic underperformance and its corresponding lower levels of income prime the regional psyche to embrace unconventional messaging.
The idea that things could be much better If the federal government ran differently ignores the crucial behaviors required for a better life. Suggesting you’ve been betrayed by globalists or short-changed by incompetent government policies amounts to empty sloganeering. Rarely will you see a political rally chanting about hard work, academic achievement, and acquisition of the technical skills required in 2025.
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We are living in the age of the digital provocateur. As society at large is increasingly connected through the screen of a pocket supercomputer/cellphone, we are witness to 24/7 access to the psyche of the masses. Contemplation of society’s fundamental challenges is cast aside in favor of those that can attract the most attention. Traditional rules of class and decorum do not fare well in the competitive market for clicks, likes, and other shiny objects.
The disappointing reveal as these public rabble-rousers fumble with the levers of power marks the beginning of the political downswing as buyer’s remorse proliferates. The Apprentice season 2 is likely to generate a backlash and potentially reduce the number of boot-licking GOP politicians able to be re-elected to the US Congress and Senate.
In 2019, a historic global health event dramatically impacted economic activity and a generational societal disruption. Many people suffered, and many were lost. As the policy responses unfolded, predicting the course of human adaptation, policy response, and market reaction was impossible. It was impossible to anticipate that the election of 2024 would cause people to set Teslas on fire.
In 2025, investors are confronted with a new frightening uncertainty. The notion of American global leadership and alliances has entered a new era of volatility. The anticipation of mass deportation and a lurch of American Society towards anti-immigrant government tactics has been joined by an unanticipated dark force. Just like the variants of the COVID-19 virus, American citizens are now confronted by Elon Musk. In his wisdom, it has been determined that federal government employees need to be fired en masse.
Sadly, people with coveted federal government jobs will suffer, services will be disrupted, and chaotic consequences may ensue. Most of these maneuvers are being met with litigation in judicial resistance, as we saw in Apprentice Season One. For investors, it is crucial to consider that many of these individuals may want to start businesses, become contractors, or exploit other economic opportunities that the US government previously provided. It could even be argued that you will see those who suffer now redeploy and pursue stories that involve “that was the best thing that ever could have happened” as new businesses and economic opportunities are created.
We must recognize that much of the real-time information that seems erratic and ill-conceived is unlikely to be sustained. The American system transcends. The greatness of the United States emanates from numerous robust characteristics. The balance of power is fortified by multiple layers of state and local government entities. The true dynamism of the American way is its adaptability. Through all the historical challenges we have faced so far, it is unlikely that this sequence of events will be as daunting as it may appear.
Provocateur(ism) is a burgeoning industry where monetization of clicks overrides any sense of principle. The US president is a headline diva. The mistaken conclusion that the voting public is swayed by this endless stream of social media, interviews, and staged Oval Office photo ops ignores the underperformance of political alternatives. The “success” of the strategy of nonstop talking and improvising nonsense like the idea that Canada can be our 51st state is ultimately tiresome to the voting public. Memories of unhinged press conferences during Covid with tragic utterances like, “What about bleach?” is creeping back into the public consciousness.
This presidential cycle is unbound by any sense of class or decorum. The natural rhythm of disapproval for any political movement is likely to unfold, perhaps more rapidly, as the unprecedented and counterproductive nature of the last ten years is fully revealed. Populating a presidential cabinet with hacks, crackpots, and bootlickers is unlikely to have the impact or staying power that we may fear.
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Declaring taxes on the broader world, as if you could magically place protectionism on imports and if it could be new US federal revenue, denies economic fundamentals. The irrational and implausible notion that tariffs could create domestic benefits or broadly reduce income taxes is deluded. Deregulating the domestic economy while deploying a combination of disruption, disrespect, and antagonistic behavior towards traditional allies is incoherent and starkly in denial that the public approval of this presidency is one of the lowest of any early second term.
The Peterson Institute For International Economics wrote on 6-20-24 an essay titled, “Can Trump replace income taxes with tariffs? No, and trying would be regressive and harm economic growth.” In the article, it is pointed out that “Simply put, no. Tariffs are levied on imported goods, which totaled $3.1 trillion in 2023. The income tax is levied on incomes, which exceed $20 trillion; the US government raises about $2 trillion in individual and corporate income taxes at present. It is literally impossible for tariffs to fully replace income taxes. Tariff rates would have to be implausibly high on such a small base of imports to replace the income tax, and as tax rates rose, the base itself would shrink as imports fall, making Trump’s $2 trillion goal unattainable.”
Ultimately, bad ideas are unsustainable. We are at the beginning of a ridiculous policy bait-and-switch. Lower middle-income victims of the decline of unskilled labor opportunities over the last 30 years will be the ones most negatively impacted by the trade policies of 2025.
Phase two of this process will be all manner of exemptions and exceptions as American companies work through their representation in government, which has not changed, i.e., their senators and congresspeople pounding the table saying if you do this or that, thousands of people will lose their jobs.
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On 2-28-25, the WSJ published, “The Clean Energy Revolution Is Unstoppable.” Here, we can read about the incredible dynamics of certain types of technology that have the potential to become cheaper over time. Solar energy has displayed this characteristic. Gathering energy from the sun shares many attributes with the advancing development and impact of computer chips.
The essay notes, “For decades the International Energy Agency (IEA) and others have consistently overestimated the future costs of renewable energy and underestimated future rates of deployment, often by orders of magnitude. The underlying problem is a lack of awareness that technological change is not linear but exponential: A new technology is small for a long time, and then it suddenly takes over. In 2000, about 95% of American households had a landline telephone. Few would have forecast that by 2023, 75% of U.S. adults would have no landline, only a mobile phone. In just two decades, a massive, century-old industry virtually disappeared.”
It is distinctly probable that technological development marches forward as it always has. The reality of harnessing the sun, building a robust electrical grid for delivery, and supercharging the American economy may be much closer than anticipated.
The authors note, “promises of a fossil fuel renaissance ring hollow. U.S. oil and gas production is already at record levels, and with softening global prices, producers and investors are increasingly cautious about committing capital to expand U.S. production.”
Bloomberg recently noted “UK Solar Farms Produce Record Amount of Power as Capacity Grows… A flood of solar power production in Europe is helping to send wholesale electricity prices plunging in Europe”. Energy in Europe has not been politicized, the tech is deploying and changing the nature of growth and potential, likely as it will in the US as we emerge from this dysfunctional political environment.
Technologies that follow Wright’s Law get cheaper at a consistent rate, as the cumulative production of that technology increases. In 2023 an insightful essay by Max Roser notes, “Most technologies do not follow Wright’s Law – the prices of bicycles, fridges, or coal power plants do not decline exponentially as we produce more of them. But those which do follow Wright’s Law – like computers, solar panels, and batteries – are the ones to look out for. In their infancy, they might only be found in very niche applications, but a few decades later they are everywhere.”
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Investors must resist the instinctive reaction to look at negative news flow and assume worst-case scenarios. Less damaging or even positive developments often follow periods of disruption and surprise. The rewards of ownership are one of the most challenging things to retain during downswings. Much of the robust market upswings occur from the lowest levels of corrections or bear markets. Resisting the urge to seek cover should be recognized as avoiding market timing. It is time, not timing, that will maximize our wealth.