warming up
The dominant stock market stories of the 1980s were:
–the emergence of China as a world economic power and
–the Japanese domestic boom triggered by a rising yen.
In the 1990s, the key narrative was the formation of the EU and the creation of the euro.
During this century so far, the main stock market-moving themes have been:
–the dominance of the US as the world technological power, coupled with
–the unravelling of the EU,
–the post-Brexit collapse of the UK economy,
–the return (until very recently) under Xi of China to an updated form of Maoism and
–the shrinking of the workforce in Japan (the aging of the local population + intense unwillingness to admit foreign workers).
key changes so far in 2025
All–two, maybe three–are in the US.
The first is the plunge in the USD, which now buys about 10% less of foreign stuff than it did six months ago. This is a huge decline in the global value of our national wealth, but something that, given the large size of the land mass and the breadth and complexity of domestic products available, has been going relatively unnoticed. Maybe tunnel vision on the part of some domestic equity (not bond) investors. At some point one would expect to see the kind of foreign purchases of real estate that have marked southern Europe and an influx of tourists of the type that Japan is experiencing. In the case of the US, though, that wouldn’t be my first guess at possible outcomes.
The second change is the huge (shoot-yourself-in-the-foot, in my view) effort, newly richly funded by Congress, to shrink the size of the domestic workforce. This is the job of ICE–bands of heavily-armed masked men using physical force to seize, imprison and deport minority group individuals they suspect of being in the country illegally. I imagine that the echoes of Hitler in this process are deliberate, to make it abundantly clear that there are now very substantial penalties for entering Reagan’s “shining city” to seek work or a better life.
How so?
In general terms, GDP growth comes either from having more people working or having existing workers performing at a higher skill level. The latter comes from better tools/machinery or better education. The native-born addition to the workforce has been about +0.5% a year, but is fading as more of the Baby Boom retires. One result of this has been that over the past decade or more, three-quarters (and increasing) of domestic labor force growth has come from immigrants.
According to the Pew Institute, 4.8% of the workforce consists of unauthorized immigrants. Even if we assume that political attacks on the university system and on science teaching/research have no net negative effect on the development of work skills, we’re close enough to zero growth from the native-grown workforce that the loss of 10% of unauthorized immigrants could push the country into recession, even with an overall economic tailwind. In a less buoyant economy, the situation has the potential to deteriorate badly.
Third, there are knock-on implications as well. It’s hard to know what effect ICE activities will have on foreign tourism in the US, for example, but early indications are that it will be a significant negative. I imagine this is part boycott, part fear of you or your family being jailed, or badly injured in an ICE melee in what for you is a foreign country. To put foreign tourism in perspective, international travelers spent $180 billion in the US last year, supporting over 200,000 jobs. That spending figure is reportedly trending 10% lower yoy right now.
more tomorrow on how I’m dealing with this situation