2025 began with optimism carried over from 2024’s rally. Investors embraced AI driven momentum, and tech giants continued dominating headlines. By spring, the mood shifted dramatically. A sudden tariff shock, “Liberation Day,” in April rattled global markets; trillions of valuations were wiped out overnight. Fear surged as the markets reigning emotion, as a prolonged downturn seemed imminent. TACO ensued as tariffs were rolled back, reassuring markets, and investor confidence returned.
Equities climbed like summer temps by the time Q3 rolled around. With AI and semiconductor innovation powering much of the gains, the “Magnificent 7” remained in the spotlight. However, global markets proved robust as Europe and Asia posted their strongest gains in over a decade. The S&P was up 17.8% for 2025. See the NYT markets page for additional details.
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The scientific pursuit of understanding how the world functions (economics) is an arduous pursuit. How ambitious will people be and what will be the impacts on productivity? What business ideas will prove durable alongside others that fail? How will energy supply grow to meet increasing demand? Will innovation impact the costs and opportunities? These are just a few of the complex and often incalculable questions that economists attempt to evaluate.
Markets are the expression of a blend of the past, what is currently happening and what may happen in the future. The transactions straddle the world of the known with what is to come. Traders and investors form an estimation engine of the worth of assets as they exchange value for short term gain or middle and long run value. The aggregation of ideas and monetary value create bid and ask prices. Prices reflect this bandwidth of opinions and theories that produce a transaction.
The yearly calendar change is frequently cited as reason to take a fresh look at what narratives were previously and what changes are in store. Tax year end is an event that has some marginal impacts as portfolio managers seek to take advantage of losses against gains. The political cycle and incentives in a mid-term election year can be meaningful. Yet much of what has been attracting attention like positive market trends, AI, inflation and interest rate levels continue to be the focus. This is a form of recency bias where financial media, traders and investors may be drawn to what can be referred to as “The Church of What’s Happening Now” or TCOWHN.
TCOWHN is a mindset that things can be known and acted upon, without regard to the absolute opacity of events yet to happen. Throughout my development as an adult and a financial professional I was warned by my father about TCOWHN. He used it to inject humor and ridicule… the idea that there can be definitive confidence about business and investment ideas. I can hear him say, “go on down to the Church of What’s Happenin’ Now and see what they are talking about!”
This is an idea akin to what Philip Tetlock wrote of in “Expert Political Judgment”. The Amazon book description states, “Classifying thinking styles using Isaiah Berlin’s prototypes of the fox and the hedgehog, Tetlock contends that the fox–the thinker who knows many little things, draws from an eclectic array of traditions, and is better able to improvise in response to changing events–is more successful in predicting the future than the hedgehog, who knows one big thing, toils devotedly within one tradition, and imposes formulaic solutions on ill-defined problems.”
The inertia of what has been happening dominates market narratives and it is impossible to predict what will disrupt current themes. The idea that artificial intelligence is on track to changing society has absorbed massive investment in a race to actually make money with it.
TCOWHN parishioners are siloed in known information, and they tend to extrapolate current trends. Denial is how the shifts in crucial information are built into the TCOWHN. Terrorism was not in the church sermons in the summer of 2001. In discussion of 9/11 or 2008, there is little to no reference to the mainstream issues that were discarded in the face of new events. The virtual tie of the presidential election Bush V Gore was a significant topic that was rapidly forgotten as the aftermath of 9/11 dawned.
The wars in Afghanistan and Iraq were obviously not anticipated prior to 9/11. A groundswell of patriotic fervor was dissipated by a confused strategy to initiate an invasion in Iraq. Fears of energy market disruption due to middle east turmoil were not the issue people feared. Ironically, American domestic oil supply surged via the innovation of fracking. The US went from a prodigious importer of oil to becoming the world’s largest energy producer.
As the Bush administration strategies receded from the center of market consciousness, unbridled loan securitization was building up in the financial system globally. A real estate and economic upswing built on easy credit was unsustainable. As the tide of easy money receded, markets tanked and an uncertain road to the lender of last resort brought a bottom in March 2008. Asset values teetered as congress narrowly passed lending legislation. TARP (Troubled Asset Relief Program) in 2008 was a U.S. government initiative created by the Emergency Economic Stabilization Act (EESA) to stabilize the financial system. Authorized to spend up to $700 billion to buy distressed assets this credit was like oxygen to the financial system. The program proceeded to inject capital into banks, significantly helping major banks like Bank of America and Citigroup, and also allowed restructuring of the auto industry.
Low interest rates were a standard tactic for the Federal Reserve and rates were cut aggressively. Anticipation of over 14 years of ultra-low interest rates that were going to be implemented post 2008 was impossible. This extended low-interest rate environment produced a slow yet steady recovery that was criticized as too little and potentially insufficient. Most conversations at that time centered around safety and risk avoidance. The time of great opportunity to buy low was passing as people worried that more downswings were around the corner.
History illustrates time and again that what is already known dominates far beyond its utility. Yet what is assumed is that there is some sort of path to understanding via what is already known, to the unknowable. The future, while shaped by current trends, is formed by change. The random convergence of events, leadership decisions, societal conflict, natural disasters are not subject to speculation. The allure of predicting the unknowable transcends this reality and predictions abound, in arrogant disregard to the fact that no form of intelligence, human or techno, is likely to ever effectively model what awaits.
An effective investment process must be centered avoidance of TCOWHN along with strict humility and recognition of the random unknowable nature of every moment to come. The rate at which technology has poured into trading and research has extensively exploited the known. It is the unknown that grants the buy and hold investor a potential opportunity. No edge or magical insight exists, just the potential that a set of diverse, quality equity positions will be more valuable over time.
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Investors can only pay so much to purchase a business. It is a function of what is proven to earn combined with the buyer’s estimate of what profits could be in the future. When an investor evaluates an operating business, close attention must also be paid to management, culture, and future prospects (unknowable) for growth.
Price to earnings (P/E) ratio is the measure that indicates how expensive or possibly cheap a given offer is. When shopping for a business to purchase, $50m may be cheap and $50k may be expensive. A stock at $2 per share can be ridiculous and another at $2,000 per share can be a bargain. It is all a function of profitability. What may be earned in the future is where investors can be drawn into over payment. The current reality is often shaped by optimistic projections about how future growth, new vigorous ownership or the opening of new markets will justify paying a high price for the purchase.
The future is unknowable, yet persistent speculation is a fixture of the human condition. This is where companies and markets can become overvalued. Investors are drawn into narratives that seem plausible and the excitement drives prices to levels that cannot be supported by the economic realities. Elevated valuations are historically supported by one crucial component. Excess demand for equities gathers oxygen from credit and unwarranted lending.
Inflation has remained elevated, yet there is immense pressure on the Federal Reserve to lower rates. This crucial element of the economic landscape will be a contested and defining element for 2026 and beyond.
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Banana republic: derogatory term for a country that has an economy dependent solely on revenue from exporting a single product or commodity. As a result, such countries are typically controlled by foreign-owned companies or industries. Banana republics usually have a highly stratified socioeconomic structure, with a small ruling class that controls access to wealth and resources and are politically unstable. Historically, The United States is the antithesis of this model; as it is a diversified economy with multiple industries (tech, manufacturing, agriculture, services) and has a relatively stable political system with broad distribution of economic power.
The refrain, “that would be like a banana republic”, was historically expressed in the face of bad ideas. 2025 was the year that our federal government actually imposed tariffs on items that have no domestic production. Yet the current administration found it necessary to impose then rescind tariffs on bananas, coffee and other commodities. These items have very little potential in the American agricultural array and thus simply raised costs for consumers.
When the US imposes strategic tariffs on goods central to another nation’s economic survival, it magnifies that nation’s vulnerabilities. These countries lack alternative revenue streams, leading to further destabilization, thus reinforcing the power imbalance. These are mechanisms to exert influence over smaller economies, sometimes forcing political concessions or favorable trade agreements.
Thus, tariffs exist in the geopolitical environment not only as economic tools, but as instruments of leverage. For nations with diversified economies, tariffs are negotiable nuisances; for those trapped in a monoculture dependence, they can be existential threats.
The origin of federal trade policy is political traveler named Peter Navarro. Along with the current leader of the free world, the economy has weathered an erratic course of trade duty proclamations, rollbacks, and shifting rationale. Mr. Navarro has not been out making much commentary lately, but El Presidente has been rambling about all sorts of material including the farcical notion that tariffs could replace the income tax.
At this point it is obvious that much is what is said at the federal level is simply the ramblings of an erratic and impulsive presidency. The markets have posted significant gains in the face of policy that has repudiated decades of American efforts to access markets globally.
It is mind boggling that anyone would spout such nonsense on tariffs as a substitute for the current federal income tax. This type of talk is difficult to filter through all the noise, distraction and irrelevant utterings that are unprecedented in the American presidency. Mathematics reveals the truth in the face of this ridiculous notion that taxing trade could be a funding mechanism of the current federal budget.
Wharton business school tracks federal fiscal realities. A quick stop to this resource indicates projected federal tax revenue for 2025 to be around $5.2T. This highest American tariffs in generations in 2025 are reported to have produced around $195B or less than 5% of federal income tax revenue.
In a recent essay, Zach Beauchamp coined the description, “haphazardism” to describe the erratic, irrational and counter-productive nature of Mr. Youknowwho. The resilience of this leadership is that however nonsensical, it is based on the idea that provocative behavior leads to attention, fundraising, and a strange form of political swagger.
On 12-31-25 it was announced that 30-50% tariffs would be delayed on Furniture and Kitchen cabinets until 2027 (or if wakes up and want to change his mind). Maybe someone pointed out that this was a bad idea in an election year. It is inconceivable that business could make investments in anticipation that domestic production of these items could be profitable.
An American principle that goes back over 60 years is that rules and regulations would allow continuity and reliability for industry and labor to make the massive investments required for success. The transformation of the federal government under the guise of a strong executive leader has destabilized generations of experience in American economic endeavor. It will be an arduous process for the investment landscape to reconstitute its confidence in the reliability of rulemaking and the risks of erratic daily change.
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Warren Buffet is famous for lifetime market wisdom, as exhibited here in an excerpt from the 1987 annual Berkshire shareholder letter: “Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.
Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest on him.
Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.
But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”
Ben’s Mr. Market allegory may seem out-of-date in today’s investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?
The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.
Following Ben’s teachings, Charlie and I let our marketable equities tell us by their operating results – not by their daily, or even yearly, price quotations – whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: “In the short run, the market is a voting machine but in the long run it is a weighing machine.” The speed at which a business’s success is recognized, furthermore, is not that important as long as the company’s intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.”
Buffet was articulating that markets are ultimately shaped by reality. Not by hype or empty slogans. Political trends are also ultimately weighed by the public. The American voting machine rendered a reality show that is testing our co-equal branches of government. The consequences of recent actions, ranging from the uneconomic notion of tariffs to unprecedented immigration policy, unhinged health policy, and conspicuous levels of corruption will ultimately be measured by results, not hype. The voting machine of our political system will now recognize the consequences, evaluate new faces, personalities and messages and move on without much regard for the current disfunction. Sadly, citizens, business and investors will have to face the economic consequences long after the reality show is cancelled.
Buffet has gifted society with an astounding amount of wisdom of a life still strong at age 95. 2025 has been designated as his last year to be the steward of one of the most successful economic and investment entities in modern history, Berkshire Hathaway. His annual letters are famous for their honesty and insight into how we must consider our decisions as investors and human beings.
The challenge continues for this commentary to advance what we can communicate that is beneficial. We look forward to many more years to be here, delineating the world in ways that provoke better thinking and decision making. It has been an honor for over 32 years to know each and every one of you. We are as energized as ever to continue for the decades to come. Always remember that together we can remain patient and courageous in the face of all the new challenges yet to be revealed.