As one commentator put it on the late night European Bloomberg show “Its now all about tariffs and politics!”
For those of you who have been following the posts on this site you know that we believe this is the case regarding the importance of politics far more than the markets ever want to really acknowledge, though some of the top traders and investors in the world certainly trade politics all the time. But without a doubt for the next few years the key subject of this site which is precisely this intersection of politics and markets will be front and center in the market’s concerns.
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I just got back from a long winter vacation which explains why there haven’t been a lot of posts over the last month but this will be changing drastically as we now enter the New Year.
Let me just run through a few of the general subjects we will be turning to that are very important for the markets:
First, the tariffs which many in the markets still don’t really believe are coming in their full force, are a market defining element of the greatest significance. The Washington Post recently ran what turned out to be fake news claiming that Trump was reconsidering parts of his tariff scheme which moved the dollar substantially and perhaps gave a few forex traders a very good day. No, it’s still full speed ahead with Trump’s tariff plans which anyone who has been following all of this at a higher strategic level could have easily predicted. As I said in an earlier post, Trump needs these tariffs as part of his plans to finance his tax cuts. Some businesses–Asian groceries, for example—will obviously be seriously effected by these changes, but so will many less obvious businesses that still depend on an import defined business strategy which was very dominant over the last quarter century and more. For businesses based on this now soon to be superseded model it will be very difficult indeed to maintain margins faced with 10, 25, or 60 per cent tariffs on products sold or to pass these increased costs on to already inflation suffering consumers in certain sectors. Those in these kinds of spaces with good advisers are already trying to prepare for such changes as best they can and have been for a while, others businesses less in the know perhaps hardly at all..
Second, the Middle East conflict is potentially as hot as ever. Supposedly according to some reporting from the region Israel is preparing for a possible strike on Iran’s nuclear sites, building its own bunker busting weapons, and expecting Trump to be far more sympathetic to such a preemptive attack. Accounts to this effect may be right or wrong, but those who assume that the current oil price valuations reflect an accurate appraisal of risk in this region would be wrong although perhaps the markets are at least beginning to price this risk in slightly.
Third, Biden just shut down by Presidential declaration a huge swath of offshore US oil reserves to future exploration. Whether this declaration will hold–Trump has already vowed to reverse it—is at this point not clear as it will end up in the courts. At least for now the definite winner however are places like Brazil where offshore oil is open for business and new equatorial margin oil may be approved this coming year by the Ibama Brazilian regulators. I remain extremely bullish on PBR and you get an incredibly high dividend while you wait but may have to contend with the stocks extreme market volatility. At least for now the dividend seems secure and the amount of dividends including the special dividend given over the last few months has been impressive. The new leadership of the company has turned out to be superb. It continues to be a riskier stock, but one with an interesting risk reward situation.
Fourth, if any one doubted that the old world order is giving way to a new global organization as a result of Trump’s election all one has to do is look at all the old order globalist leaders who are going down to political defeat. From Sholz in Germany to Trudeau in Canada to Macron in France we are witnessing a sea change after what was what is called by political scientists a turning point election in the US. I will have much more to say on what this means for specific markets around the world in upcoming posts. Viewed from a macro perspective these changes are extremely important and still not understood enough by the markets. Along with this you are seeing key market players repositioning themselves in crucial ways. From Elon Musk who has been all in on these changes to Zuckerberg who just added Dana White to his board and changed his oversight rules, to Bezos who is reorienting his media empire, to countless others a wave of change is coming. Soon you will see this also effecting the broader cultural space and even high culture though one expects the museum and curatorial class still hasn’t a clue.
Fifth, extreme market volatility may become more of the rule in the US going forward given the high level of political and economic change the new regime is seeking. The illegal immigrant deportations Trump has planned will effect the economies especially of the leftist urban areas in profound ways we will continue to discuss here soon. The potential of DOGE to fundamentally change the Washington inside the beltway reality also should not be underestimated along with Trumps many more radical appointments which have already in some cases as we will discuss later effected specific market valuations. If you sell, for example, certain snacks or cereals, Kennedys appointment may indeed effect your business model. If you employ illegal immigrants as part of your workforce and this includes probably even some fairly large businesses you have a huge problem and face a very different landscape going forward from that of the last regime.
Sixth, we have written extensively in earlier posts about the contradiction between AI and the clean energy agenda as a political organizing principle. I would only make the following points here: the elite are already, as I predicted, moving away from the clean energy narrative and this will only accelerate over the next few years as nuclear energy begins to be more favored but can not be quickly rolled out. The importance of fossil fuels will continue to increase as they remain integral to the AI model of very high energy needs for the data centers. In addition AI may not work exactly as some in the market expect. Is is a potential game changer in increasing productivity? Yes, perhaps, but there are still serious issues in having enough real data to train the machines and things like quantum computing may take much longer to achieve than is generally expected by the markets. Also as a general control mechanism, as I have written about extensively in earlier posts, it may not work as expected given human nature and how power actually works in practice.
Seventh, and I have written about this before, the more left leaning socialist inclined politicians believe strongly in historical determinism. As such their actions in power are fairly predictable from the vantage point of a more Kojevian, E.U., Marxist-Hegelian vantage point and one can define the effects on markets of politics by such actors in a fairly straight-forward manner. Tump does not. He believes in the great man theory of history where the future is unwritten. If you believe in historical determinism you don’t become a billionaire or make the biggest political comeback in American history and overcome everything Trump has overcome. All of which is to say that going forward market participants had better follow political events much more closely. Its going to take much more hard work to understand what’s going on and a different kind of work especially in the areas of macro-politics this site considers.
Eighth, in addition to these and other key areas we will also be in future posts continuing to comment on some of the extreme exuberance in the markets, some quite reasonable and other aspects quite irrational and we will continue to fill in the extensive but crucial details of a more useful group psychology model missing from Shiller’s important Noble prize winning irrational exuberance model and Soros’s powerful market reflexivity models.
Ninth, as I’ve argued in earlier posts the inflation issue is not going away. In many ways Trump has been handed an economy with many serious economic issues. Those in the know will tell you this is one reason he needs to get his tax extension and agenda through Congress as quickly as possible and why key figures such as Larry Kudlow and many others are arguing for getting one big reconciliation package done sooner not later. Much of where this economy goes over the next year will ultimately depend on such things as whether or not the new regime can get its policy changes through the political intrigue and hurdles of Congress. Also many issues like inflation and consumer confidence may be very volatile going forward and economics may follow politics in these cases. Many market participants tend to fade political news and under normal circumstances this may make sense in certain situations but in this case such a general strategy may be a very big and risky mistake.
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