–EAFE, the standard index of non-US developed markets is about 10 percentage points ahead of the S&P, year to date. It’s way behind the US, however, over the past six months–and since April the Russell 2000 index of smaller cap, more US-centric public companies is also (a surprise to me) keeping pace with the S&P.

–It seems to me that the most important factor being expressed in US financial markets is the state of the US dollar. The central issue, I think, is whether the administration in Washington is trying (or will cause without explicitly trying) to engineer a decline in the world value of the domestic currency, so that the country repays foreign holders of Treasury debt in, say, fifty-cent dollars.

The standard strategy in cases like this is to hold stock in companies whose costs are in the weak currency and whose revenues are to a large degree abroad, where the currency is stronger.

Among US firms, the tech industry is the most obvious winner in a situation like this. (Autos would be, too, if domestic makers had products foreigners actually wanted.) Software is especially attractive, here, since there’s no need to have extensive plant and equipment in the US. Employees can also work remotely, say in Canada–so unlike farm workers they aren’t subject to arrest and deportation.

Exporters to the US from other developed countries are in the worst position, I think, since they’re subject to tariffs as well as getting weaker local currency profits from $US sales. More generally, many non-US markets are more strongly influenced by their relatively small size and the limited universe of publicly-traded companies. For example, a generation ago, when the UK was an important equity market, that had very little to do with business in the British Isles, but rather was a testament to the global reach of the empire built during long-ago glory days.

–another important development, I think, is the recent shift in Xi’s policy in China away from Mao and toward Deng’s “I don’t care whether the cat is white or black, as long as it catches mice.” I think this makes the Chinese entrepreneur-led firms much more interesting than they were a year or two ago

–there are also considerable signs of life, I think, among mid-sized companies in Japan

–as I’m writing this around 1pm in New Jersey, the S&P is up by a bit over 3% for the month, with one more day to go. So far, no signs of the typical mutual fund year-end selling. There’s still plenty of time between now and Halloween for that to happen, but it’s looking more and more to me like the massive investor shift to ETFs may have reached the point where the seasonal dip is no longer a thing

I’m a big fan of Heather Cox Richardson, an historian turned political activist who teaches at Boston College, where I was a student back in the Stone Age).

Over the weekend, she wrote about the recent disappearance of a number of standard Federal reports on the state of the domestic economy:

–I think it’s pretty widely known that the head of the Bureau of Labor Statistics was fired after releasing a routine employment report that documented the recent significant slowdown in new hiring. I hadn’t realized, though, that a larger report on overall consumer spending which was supposed to be released last Friday, wasn’t. And an Agriculture Department report on food security, published annually for the past thirty years or so, has disappeared as well.

—Food banks are being hit by two opposing forces–immigrants are staying away for fear of being seized by ICE operatives, but there’s an overall increase in visits despite this.

I presume the tacit message in these erasures must be that the administration policies are doing what one would reasonably have predicted would happen–the American economy is slowing down by a significant amount and the cost of living is going up at the same time. More than that, they are making the many average Americans who voted the current administration in office on the promise of MAGA less well off.

For us as stock market investors rather than as citizens or as human beings, the main effect of the administration’s reduction in information flow is, I think, to slow down the activity of trading bots. Odd as it may sound, this is a good thing for you and me.

My brain tells me (a phrase I borrowed from one of my kids) that economic growth comes from having more workers and/or having workers be more productive. “Productive” comes down to making more profit per unit of work or unit of output. So if the government reduces the number of workers by arresting or intimidating them, overall national profit shrinks and the economy is less well off. If tariffs cause imported raw materials to become more expensive, unit profits decline if domestic companies can’t fully pass on costs. Or if foreigners retaliate by, say, not buying US-made stuff, overall domestic profits go down as well. And if you restrict the teaching of science in school, future workers arguably become less productive in high-profit industries–creating a trend of lower unit profits.

To some degree, the fall in the dollar by close to 15% since the inauguration may counteract some of this bad stuff, even though it does make the whole country a lot poorer in a global context.

Anyway, we know this and the bots arguably don’t–or at least haven’t yet made all-out bets this way. So we can shape portfolios that hold companies who have foreign currency revenues and dollar costs. Or we could figure that we’re kind of like Japan circa 1995, and that companies will be forced to develop robots to substitute for workers, or to shift sales efforts to areas with better growth prospects.

For the moment, though, it seems that the bet on weak dollar/weak domestic economy still has significant runway.

NVDA announced overnight that it’s buying an ~5% stake in INTC for $5 billion. The two companies will also collaborate on chip and system design. As I’m writing this, INTC shares are up by 20%+ in trading this morning, with NVDA ahead by 1%+.

Hard to figure what’s going on. My thoughts, for what they’re worth:

–this appears to be a real infusion of cash, as opposed to Washington’s recent acquisition of securities that I see as most resembling preferred shares as compensation for money previously given or lent by the central government to INTC. This eliminates any issue of near-term potential repayment, as well as moving Washington lower down on the list of payees in a liquidation (not that that’s likely, I think). I haven’t looked at the documents from the original inflows from Washington, so I have no idea whether this was an important element of the government money restructuring or not. Still, it’s there.

–the move unites NVDA’s brains with INTC’s plant and equipment. Ultimately, this is likely to make NVDA less reliant on TSMC for chip fabrication. It means also having access to fabs whose structure NVDA can influence and which are located outside Taiwan

–the investment amounts to three weeks of NVDA operating income, so why not

–NVDA shifts from being a priority for TSMC to being the priority for INTC, suggesting to me that NVDA will be able to shape INTC fabs to some degree to meet its specific needs. Maybe more uniqueness for its chips and maybe more favorable treatment from Washington, for helping to bail out a former and potential national champion.

I own a bunch of NVDA (thanks to my son Brendan) and AVGO. I followed INTC as an analyst during its glory days of the 1980s. I’ve owned the stock off and on as a private investor since. I don’t feel any urge either to buy INTC today or to do anything with the others, though.

I’ve also watched from the sidelines as management’s serial bungling reduced INTC over the years to a shadow of its 1980s self (the first bad signal I can remember is INTC declining to make chips for AAPL, a long time ago). Anyway, I’m happy to miss the potential bottom in return for getting more evidence for how the NVDA partnership will go.

My concern has been that the Trump administration wants to return to the money policy of the 1970s, when presidents effectively controlled monetary policy. If they thought their reelection prospects were becoming iffy, the simply gave the economy a little jolt of lower interest rates (other than the heroic Gerald Ford, who became an object lesson because he lost the subsequent election aftr replacing Richard Nixon). Naturally, nobody reversed course post-election. The cumulative result of a decade of this was runaway inflation and a third-world-country-like rush to hold physical assets as a defense. The cure for this, administered by Paul Volcker, the head of a newly independent Federal Reserve, was to reverse course on rates. It took years, long Treasuries at 20%, and a deep recession to undo the horrible economic damage that came from rates being too low for too long.

We’re a half-century later. Again the president is expressing his strong desire for lower interest rates to create a more feel-good economy. The Fed, however, stands in his way. Hence, his efforts to undermine its authority.

But maybe tariffs are coming to the rescue, if that’s the right word. Their negative effect on the economy–expressed so far this year in a sharp drop in the world value of the dollar–is now showing up both in higher prices and a falloff in new employment (given the ICE campaign of fear and deportation, my guess is that the actual job situation is considerably worse than the official figures portray). So the country may actually need lower rates to offset a harmful tariff policy. Whew!! –that’s probably a too-positive word, but that’s the best I can do.

One of my uncles was the first to point out to me, early in my stock market career, that I was aspiring to become a professional gambler. I was a little surprised by this comment at first, since I thought of myself as just reshaping my (it never got off the starting line) academic career and adding to it my experience as an investigator.

I gradually realized he was 100% correct and that my guiding light should be Kenny Rogers The Gambler. Yes, there’s the importance of holding and folding, but another key element for success is not counting your money while you’re still playing.

Unfortunately, I started counting at the end of last month, and realized that if I simply make my holdings look like the S&P 500–so I would neither gain nor lose relative performance–I would lock in an unusually successful year. This started my internal hold’em/fold’em debate.

It seemed to me in January that the Trump idea of restoring manufacturing to the US by taxing imported goods would, to say the very least, get off to a messy start. Of course, there’s the example of the domestic auto industry, which, despite a half-century of protection doesn’t seem to have gained much (any?) ground against foreign competitors. …pretty much the opposite. So retailers of foreign-made goods would find the road bumpy, at least for a while.

Back then, I didn’t realize either how extensive the ICE effort to arrest and deport mainly workers of HIspanic heritage would be, given that shrinking the workforce works against the idea of returning manufacturing to the US. More bumps. …and a clear case for robotics.

A second surprise for me–this one pleasant–was that, from the outset and to date, the primary casualty of the Trump strategy has been the currency. That, however, only increases the attractiveness of companies whose costs are in dollars but have substantial revenues in foreign currency. And it decreases the allure of firms in the opposite situation.

My question for myself today is when is enough enough.

My answer, so far, is I don’t know. The biggest macro issue I see is the card in Trump’s hand that hasn’t yet been played–creating super-stimulation for the economy by having the Federal Reserve lower interest rates aggressively. The last example of this behavior in the US came in the late 1970s, when I was a stock market novice. When my wife and I bought our first house in 1981, mortgage rates were 17% and S&Ls in California were charging 26% for construction loans. The economy was in deep recession.

I’m thinking now that I’ll watch from the sidelines for a while, with my holdings pretty much unchanged. It’s possible that the typical September-October mutual fund selling won’t be big enough to move prices much. If that’s wrong, and prices shift for no good reason, I’ll probably be back in action, though.