I happened to be listening to a photography YouTube this morning and noticed one by the economist Robert Reich nearby. The latter was an account of Donald Trump’s varied business ventures, from Trump Steaks to Trump Mortgage (which apparently opened its doors just as the domestic housing market was beginning its epic, multi-year collapse in 2007) to the “fraudulent” Trump University, the failed New Jersey casinos…–a staggering tale of business ignorance, ineptitude and, in my view, cruelty during a long period in which commerce in the US was generally booming. The Reich piece closed with the observation that had Trump simply put the money he inherited into an S&P index fund he would have far more than he does today.

Concerning as this may strike one, I’m not sure that the fact that Trump has so often been the dumb money is the country’s #1 worry. Rather, I think, it’s this singular lack of business acumen coupled with Trump’s fanboy attachment to white supremacists, Vladimir Putin, and industrialists backing him who need government influence to keep their empires from imploding.

Trump also appears to be in steep cognitive decline (the litany of his business failures suggests his marble bag was never brimming over), so J D Vance, someone we know little about other than his clear willingness to throw his constituents in Springfield, Ohio, under the bus for personal gain, may end up being the actual chief executive.

In other words, a big mess.

How do we protect ourselves from the considerable harm to the country that this duo appears to have in store for us?

I haven’t made up my mind, but taking off my hat as a human being and putting on my investing hat…

…if Trump is elected and is able to push his agenda–tariffs + tax cuts for his wealthy backers–through Congress, the immediate result will be a significant economic slowdown in the US. If he were successful in the (economically crazy) agenda of deporting non-citizen workers, the slump will be deeper.

…I think all this would trigger a significant rise in interest rates, as foreigners began to worry about the safety of Treasury bonds, making the economic situation worse. That would likely be accentuated to some degree by a fall in the dollar, as investors began to seek safer havens. Probably great for cryptocurrencies, as well as for Xi and Putin. For Americans other than export-oriented manufacturers, though, this would be the worst of all possible worlds.

None of this is the stuff bull markets are made of. At some point, export-oriented firms might become very interesting. On the other hand, electing a Hitler-wannabe doesn’t exactly burnish the “made in America” brand. So components might be the thing.

more tomorrow

To my mind, the defining moments of the first Trump term are:

–reduction of the corporate tax rate to a level in line with other countries’, thereby stemming the shift of domestic company operations abroad,

–Trump choking when he was needed to lead the fight against the pandemic, causing large numbers of deaths that might have been avoided, and

–his attempt to falsify the outcome when he lost the 2020 election and, when that failed, his attempted coup to overthrow the government rather than accept the results.

Not exactly a HOF outing, more like one that puts him deep in the “worst ever” conversation.

Yet, despite this, and what appears to be a severe recent falloff in his cognitive ability, polls say Trump is in a dead heat with Kamala Harris in the current presidential race with less than two weeks to go before Election Day.

There’s more ugly personal stuff–his affinity for Putin and Hitler, the falsification of business records, a sexual assault conviction and the open question of whether he has sold top secret documents he was hiding to the country’s enemies…

Trump’s economic program has two main focuses:

—deportation of workers, recent immigrants in particular, and closing the border. Important social issues aside, the economic issue is this:

GDP growth comes from having more workers and from having workers be more productive. The latter comes from investment in education and from productivity-enhancing devices, like machinery and computer hardware/software. The domestic workforce is growing by a bit above 0.5% yearly from the existing population. That rate is slowing, however, as the overall population ages. New immigrants add another 0.5% or so to that. The overall rate of growth of real GDP is maybe 1.50% or so, with 1% coming from having more workers and 0.5% from productivity gains.

Immigrants make up 18%+ of the workforce, and a much larger number in areas like healthcare. If the US simply closes the border to immigrants, with everything else the same, real GDP growth drops to 1.0%, and begins to slow from there. If the government deports 10% of the existing immigrant workforce, the economy stagnates. If we continue to deport workers, we’re in a continuing recession.

—tariffs. The main thrust of economics over the past century has been the study the Great Depression of the 1930s, in the hope of preventing a recurrence of that terrible economic slump. The overall conclusion is that while tariffs may not have been the trigger for the lengthy meltdown they were certainly a principal cause of the depth and the long duration of the economic contraction.

The most recent US experience with tariffs is the decades-long protection of the domestic auto industry from foreign competition. The principal result became a famous business school case, the plunge in GM’s domestic market share from 50% of the domestic car market to the 15% or so it has now.

Economists’ early guesses about the Trump tariffs is that they will knock 1% off domestic GDP and roughly the same amount of damage to our trading partners’ economies.

The overall result would be a slow, continuous economic contraction in the US, with less serious harm done to the rest of the world. If we go back to the McKinley tariffs of two centuries ago that Trump often cites, Congress was cleared of Republicans in the election following their disastrous implementation. Btw, the tariff increases back then were designed to reduce government income, something that has doubtless escaped the notice of the guy who bet the family fortune on the idea that people would flock to frolic on the NJ beaches in the February snow.

The first and third of this trio, NVDA and TSM, are hitting all-time highs. ASML, in contrast, has lost 30% of its value since June–the largest chunk of that fall on the company’s disappointing earnings announcement earlier this week. What’s going on?

Two decades or so ago, Intel (INTC) was the premier chipmaker in the world, designing and manufacturing the most advanced semiconductors. TSM was a close second, manufacturing chips for third-party designers–and slowly gaining on INTC. Today, INTC seems to me to be the Boeing (BA) of chipmakers–that is, a company run by marketing and finance bros that decided cost control was a better way to boost profits than being on the cutting edge of product excellence. Today, TSM is the undisputed leader in chip manufacturing. So it makes sense that, in spite of quirks in the Taiwan equity market, its stock should continue to do well.

NVDA dipped on its latest earnings report, when the company said it was having problems–apparently since fixed–with the design of its newest AI chip. Yes, trees don’t grow to the sky, but despite its near tripling year-to-date, it also seems sensible to me that the stock keeps on performing. At some point we’ll have to deal with the possibility that customers like GOOG, MSFT or META will begin to satisfy some of their needs with AI chips they design themselves, but this is more something to be aware of than an actual “today” issue.

Two things appear to me to have hurt ASML. One is sanctions on sales to China. The second is internal problems at INTC and possibly Samsung that have apparently delayed orders. We can see the INTC issues pretty clearly, I think. On the one hand, Washington wants INTC to remain/become a national champion, home-grown maker of advanced semiconductors. On the other, the internal issues with INTC seem to be bigger–and more deeply entrenched–than I had realized. Government funding may also be not yet in the company’s hands.

Why didn’t ASML give some hint to the market that analyst estimates were too high? That’s what would have happened in the US. My short answer is I have no idea. A longer but equally unsatisfying one is that Europe is full of relatively small national markets, each with its own quirks. Other than the UK, I’ve made the effort to learn them.

I got my introduction to investing outside the US in the mid-1980s, when I more or less stumbled into the field after I’d been an analyst for six years.

The shift was very lucky for me, because that was an incredible time to be involved in non-US markets. The formation of the EU had created a rush for domestic firms there to build scale and become more international. China under Deng was abandoning central planning in favor of “socialism with Chinese characteristics,” i.e., capitalism. Japan was also undergoing a radical transformation as the endaka (high yen) era began to empower a whole raft of non-samurai-based domestic demand-oriented firms.

Strategists for US brokerage firms generally argued at the time that the best way for domestic investors to participate was through US-based, US-listed multinationals. That may have been a good way (and it avoided having to hire/train/supervise/pay analysts focusing on non-US markets), but it was certainly far from the best.

In contrast, the past decade–actually most of the 21st century so far–hasn’t been kind to non-US economies. With the descendants of the anti-woman, anti-foreigner samurai back in charge in Japan, that country has scarcely recovered from the big recession of the early 1990s. In China, Xi has returned the country to central planning and begun to “reeducate” the entrepreneurs who made that economy boom in the joys of the party line. The UK decided to leave the EU to stem the inflow of foreigners. Curiously, it was apparently surprised that this lost it privileged access to the largest market for its exports and that foreign firms who’d come to the UK for access to the EU packed up and left (what were they thinking?).

Almost by default, then, the stock market oomph in the world for much of this century so far has been with US-based multinationals.

Is that about to change? Here’s why I worry it may:

I was reading this morning that FEMA workers have been pulled away from the job in North Carolina because armed militias are searching for them–apparently motived by Trump/Vance fabrications about the inadequacy of government response to hurricane damage there. The KKK and more gun-toting militias have turned up in Springfield, Ohio, which Vance represents in Congress, as well. This in response to Trump/Vance false claims that recently-arrived Haitian workers (who are giving that town a real economic shot in the arm) are eating the pet animals owned by long-time residents.

There’s a considerable chance that these two, in spite of their intentional cruelty and Trump’s apparently accelerating cognitive decline, will end up in the White House in January. This alone is enough, I think, to sooner or later knock a couple of points off the market PE. It isn’t just the duo’s general creepiness or their apparent allegiance to Thiel and Musk, though. The Trump economic plan, if plan is the right word, is to travel at full speed down the road that caused the Great Depression. Two whole generations of economists, to say nothing of Joseph Wharton, must be turning over in their graves.

tariffs

The Financial Times and the Nikkei News are what I regard as the most reliable sources of financial news. The NIkkei is arguably less useful because it focuses on Japan and on other Asian markets where only the (my view) brave/foolish/uninformed participate. The FT view on Trump’s economic plans:

“Trump’s tariffs are. in sum, a grotesque idea: they will help the less competitive sectors of the economy, while harming the more competitive parts; they will damage many of his own supporters; and they will inflict grave harm on international trade, the world economy and international relations. Yes, there is a case for targeted industrial interventions. But Trump’s tariffs are precisely the opposite of this.”

You’d think Trump would have learned something from the fiasco of his soybean tariffs, but no.

intentional cruelty

I’ve spent much of the past seven years documenting the town of Hazleton, PA. It’s story is, I think, very similar to that of Springfield, Ohio. Hazleton lies on top of a mountain of coal. That made it wealthy during the nineteenth century and the first half of the twentieth. Textiles replaced coal after flooding in 1951 delivered a coup de grace to the underground mines–until that industry moved into the South and from there abroad.

Today, Hazleton is enjoying renewed prosperity as the home of massive warehouse complexes, many serving e-commerce, that are an integral part of the supply chain serving the Northeast. A wave of new residents, many of them from the Dominican Republic, by way of Patterson, NJ and NYC, provide much of the staffing. They’ve also reinvigorated the downtown and the local housing market.

Not content to enjoy the budding renaissance, however, then mayor, Republican Lou Barletta, and the town council passed a number of highly discriminatory ordnances intended to discourage Dominican immigrants from settling there. The ACLU contested the new laws, winning at every level until the Supreme Court declined to consider the town fathers’ appeal to it. Legal fees punched a big hole in town finances.

The Springfield situation appears to have much more benign …until Trump and Vance promulgated the highly improbable story that they had to know as false that Haitians were stealing and eating both local pets and waterfowl from the local park. But that was enough to trigger bomb threats and hate speech from the duos followers. Seems like intentional cruelty to me. In Trump’s case, it may mostly be his cognitive deterioration, but in the case of Vance, he’s also attacking the constituents he’s representing in the senate.