Inflation Station: Will Tariffs Wreck the Nation?
Welcome to the Schmoozeletter Blog. Your source for weekly water cooler wisecracks from the world of finance. If you have an opinion different than mine or a topic you want to hear about, let me know!
Did you hear about the $1.5B crypto hack?
Was this on your radar at all? I’m curious because if $1.5B in cash had been stolen from an FDIC-insured bank account, the news would be everywhere. Every government agency would be moving heaven and earth until we had a picture of some gruff-looking operatives with a boatload of cash and a sad sack in handcuffs.
But it’s just another day in the crypto world!
Enough mumbo jumbo.
Inflation Station: Will Tariffs Wreck the Nation?
The general consensus coming into the week was that we had two big events that could move markets:
1. Nvidia earnings on Wednesday
2. Inflation data on Friday
Nvidia crushed earnings. They beat all expectations. They had another record quarter, with revenue up 12% from just one quarter ago. Most companies would take revenue growing at 12% for the whole year, and Nvidia is doing it in one-fourth of the time.
Aaaaaaaaaaaaaaaaaaaaand the stock sold off.
Inflation data came in exactly in line on Friday. The “Core PCE Price Index,” which is the Fed’s preferred inflation metric (I swear I’m not making words up), was 2.6%—exactly what they expected.
Aaaaaaaaaaaaaaaaaaaaand the market still closed red on the week.
Why are markets in turmoil? Why is your 401(k) down and your crypto wallet in shambles?
Mostly because King Trump is dishing out tariffs like Oprah used to fling cars around the studio.
And you get a tariff.
And you get a tariff.
And you get a tariff.
Mr. Market is not a fan of trade wars, actual wars, or general uncertainty. Markets and investors love predictability. There is no one more unpredictable than the current leader of the free world.
A week has barely gone by, and I can’t keep straight who we’re supposed to blame for the Russia-Ukraine war. I think the current White House stance is, “If Ukraine’s skirt wasn’t so short, they wouldn’t have been invaded by Russia.”
The biggest trending topic in the markets for the past few years is curbing inflation. At the convention this summer, Donny said:
“Under my plan, incomes will skyrocket, INFLATION WILL VANISH COMPLETELY”
The plan: impose tariffs on Canada, Mexico, China, possibly the European Union, and possibly every country. This seems a bit odd because tariffs increase inflation.
I was saying this to someone recently, and they hit me with a:
“Woah! Hot take!”
Funny. It didn’t used to be a hot take. It used to be the type of thing a freshman in college would jot on a flashcard to study for a Macroeconomics 101 exam.
But I guess now it’s a hot take.
Tough to keep track of what is or isn’t political as this administration looks to rewrite basic economic concepts.
Hmmm…
If we remove the G, is it just DP?
A little less DP from Elon and he might not have a baker’s dozen of descendants, but I digress.
Anyways, we talkin’ tariffs.
A tariff is a tax on imported goods. The United States’ company getting that sweet overseas swag pays the tariff to the U.S. government. But it doesn’t stop there.
If Kroger has to pay 25% more for their Mexican avocados, how much more do you think they will charge their U.S. customers for those avocados?
Looks like we will find out.
It’ll be a bit tough to do the inflation disappearing act while also directly increasing the cost of things. Or, dare I say, inflating them.
The good news is we’ve already made progress on inflation since the post-COVID highs.
Coming into Trump’s term, unemployment was at lows, GDP was healthy, and inflation was getting back on track. He was handed a mighty fine U.S. economy if you go by the data.
So…
Will the government layoffs increase unemployment?
Will the cut in government spending reduce GDP?
Will tariffs increase inflation?
Purely by the definitions of those words, yes.
Now, sure, all these actions individually are “bad for the economy” from a technical standpoint, but at least we’ve also given up on supporting democracy and fighting dictatorships around the world. If only FDR had been thinking of his wallet back in 1944, he could have split France’s resources with Hitler instead of sending our guys over there to save lives.
If this is America being great, I’d much prefer mediocrity.
Final Thought
“Only buy something that you'd be perfectly happy to hold if the market shut down for ten years.” – Warren Buffett
