I keep thinking about attending the annual Microsoft (MSFT) analyst meeting in early 2000. I’d held a large position in the stock for the previous decade and was trying to figure out what to do with it, given its fabulous run during the 1990s and its relatively high valuation.

Bill Gates and Steve Ballmer were both there. At one point, some analyst asked Gates a smarmy question–what do you regard as your greatest accomplishment at MSFT–to which Gates replied that what pleased him the most was the ability controlling MSFT gave him to give jobs to his friends. Wow! Later on, Ballmer answered a question about future earnings growth potential with a harangue about how hard it was to get a company of MSFT’s large size to grow at the then rate of +5% yearly. This for a stock trading at maybe 60x eps. I called my trading desk and sold everything.

When Ballmer was finally forced out of the company in 2014–not before acquiring Nokia for $7billion+ (since written off entirely)–NASDAQ was trading at about the high it had reached during the Internet frenzy of 1999-2000. MSFT was trading at about 40% of its 2000 high.

I bought a bunch of MSFT was Ballmer was leaving. It’s up almost 40x since then vs. a gain of a bit less than 4x for NASDAQ.

Why my fascination with an event from a quarter century ago? I’m not 100% sure. Certainly Trump, a very successful reality show star, is no Bill Gates. I can think of two reasons my mind is pushing this idea to its forefront. One is that the administration in Washington seems to be filled with Ballmers, i.e., very wealthy men whose success comes to a great degree from being the friends of financial or industrial titans. The second, and more important, is the idea that as investors we have to play the hand we’ve been dealt, not the fist full of aces we might wish we had.

I’ve been noticing, for example, that the stocks of some near-death-experience domestic retailers are actually going up on reporting their earnings. So maybe some brand name + distribution network value-ish stocks are not as unattractive as I’ve been thinking. Or, given the increased risk in holding US stocks due to Trump’s tariff threats maybe Japan or even Hong Kong don’t look so bad (I’ve been buying small amounts in the latter market recently).

a different take on concept vs. valuation

The stock market rarely stands still. It’s either going up or going down. Given the sharp recent drop, however–and especially when comparing the weak performance of the US market in comparison with foreign bourses–(my) experience says that we’ve stopped going down for now. If so, this has less to do with ideas about what the economic future may hold than on the belief that stocks are now “cheap” vs. their own recent past as well as vs. foreign alternatives.

What happens from this point will depend, I think, about how the passage of time will reveal/flesh out the likely near-term future for the US economy.

The cultural portents aren’t good. Over the weekend, a highly decorated African American war hero’s Medal of Honor was denigrated as a DEI award and his website taken down. Stories of random ICE detentions abound, as are suggestions that the administration is ignoring court orders to cease deportations of residents it describes as military invaders.

If we confine ourselves to economic matters, two factors stand out to me:

–in a Paul Krugman interview of an economist whose specialty is interpreting the arcana of federal government economic reports, the interviewee, Neil Dutta, argues that the outlook is weaker than the consensus realizes

–in the same interview Krugman also notes that the Treasury Secretary is essentially clueless about the effect of tariffs on inflation (Scott Bessent, a former hedge fund manager, says there are none). Hard to figure out what President Trump is thinking about, either, or what he believes about tariffs other than that they’re a panacdea.

So maybe we’re not as secure as we should be in thinking that a rebound–at least a partial one– is in the offing. Personally, this is one of the few times I genuinely don’t know. So I’m remaining (for me, anyway) defensive.

The Wall Street consensus, at least right now and as I read it, is that there will be a considerable slowdown in domestic economic growth as a result of the oddball ( my description, although I wouldn’t argue with lunatic) economic policies of the Trump administration. Tariffs are the most visible, of these, although shrinking the workforce by deporting immigrants may end up being more consequential. Real growth will be cut in half in Wall Street’s view, from around +2% to around +1%. No recession in sight, however.

To my mind, this diagnosis has two implications:

–a stock selloff from the lofty heights achieved in the final two years of the Biden administration, as economically harmful policies are put in their place. Arguably (but I’m almost always too optimistic/early), we’re pretty much past the realization that this is happening. And,

–an investor move away from stocks heavily dependent on the course of the US economy. This can happen in two ways: buying stocks in foreign markets; and/or buying US-listed stocks, but ones where the bulk of their business is outside the US. We’re seeing both.

Both moves involve risk, however.

—The former means entering arenas where the rules of the game may be superficially similar to the US but nevertheless deeply different in the way things proceed on the field. Kind of like trying to play checkers when everyone else is playing Go. The second has the issue that the US portion of the overall business will likely suffer. Kind of like going to Texas and thinking you’re not going to get the measles.

—One way of seeing the potential risk in the second, owning US-listed stocks, is comparison with the past few decades in China.

When Xi replaced Deng, he perceived his mission to be to return to the principles of Mao, and away from the Western-style capitalism (“Socialism with Chinese Characteristics”) Deng had favored. That would restore the dominance of the Communist Party, something that, pre-Deng, had been the guiding principle in Chinese politics since the end of WWII. This switch resulted in what a neutral observer would have expected: a gigantic economic trainwreck, one similar to the one Deng faced when he took power–and so bad that to stop the bleeding Xi has been forced to relegitimize the Deng-era entrepreneurs he had earlier arrested or exiled.

On this template, the US would stand at the beginning of our own Xi era, with the domestic goal being the restoration of an idealized version of nineteenth-century capitalism. Unlike the case in China, however, this is something the majority of Americans have voted for in the recent presidential election. The big imponderable in having exposure to the US market is how long it will take the electorate to figure this out and vote for something different.

NASDAQ is down by about 15% from its highs of less than a month ago, as is the Russell 2000. The S&P is off by a bit more than 10%.

Most often, in my experience, the trigger for a downturn like this is some specific event. The cause, however, is typically that stocks are unusually expensive, given the consensus view about interest rates and profit prospects. In the plain vanilla case like this, what stops the decline is investor perception that the market has dropped enough that valuations are no longer stretched.

In the current downturn, however, it may well be that the cause is not overvaluation, although this was a central issue a while ago, but rather the policy statements and actions of the administration. For example, the Biden efforts to reestablish the US as a center for semiconductor manufacture are being dismantled, while a high official is saying that it’s a goal to return t-shirt manufacturing from Bangladesh to the US. As a family descended from longshoremen and garment workers, I’m not sure any of us think of these as laudable goals. As one of my uncles would have put it, we struggled our whole lives to get out of that situation.

More later.

Press reports say President Trump has already used $18 million of government money for his weekend golfing trips to Florida during his first two months back in office. If he continues at the same rate, this would mean $400+ million during his second term in office. Assuming the total cost of a government professional is $75,000 per year, the first 1400 or so government officials DOGE has fired simply offset the cost of this vacation travel.

Strange example for someone aspiring to lead the country to set. Revealing, though.