I made a trip to Costco this morning.

Two things happened that I think are worth mentioning:

1. while I was listening to the radio, the talking heads on Bloomberg were discussing the performance of the US stock market so far this year. In their view, it has been stellar. And it is true that the US stock market has been up by more than most observers, me included, had expected. As I’m writing this, the S&P 500 is ahead by 12%+ ytd and NASDAQ by by 15+.

But if we look at the rest of the world, the domestic market is a distinct laggard:

—-The Hang Seng in Hong Kong is up by 32% ytd, for example, with a currency tied to the $US, so no gain/loss vs. us there.

—-The sad-sack Nikkei is ahead by 12% in yen, before a 6% gain in that currency vs the dollar ups the total to +18%

—-The Euronext 100 is also up by 12% ytd, before a currency gain of over 13% vs the dollar.

So: Hong Kong is more than double the S&P, as is Europe–which is being held back by the post-Brexit, too USA-ish for comfort, UK. Even Japan, which has demonstrated for more than thirty years the folly of restricting immigration while the overall working population is stagnating, is doing better than we are.

Put a different way: from the perspective of a foreigner, the US has been dead money this year, because you’ve lost your shirt on the currency, while the rest of the world is partying. PS.: Mexico is ahead by 26% this year, before a 16% gain in the peso vs the dollar, and oil- and gas-rich Canada is nevertheless about in line with the S&P.

I haven’t done the work that would give me numbers I’d feel comfortable showing to the world, but my very strong feeling is that in this year’s US market, the closer you are to companies whose output is sold in the US, the worse your holdings have performed. The better case, in theory, is to have costs in the weak currency/economy and sales in the strong currency/economy. Think: software made in the US and sold abroad.

2. when I got to Costco, I was surprised–shocked, actually–at how expensive the food was. …maybe 10% higher in price than a month ago. The Costco strategy, as I see it, is to sell everything in the warehouses at no profit/loss and make its money on the yearly membership fees. If I’m reading this one tiny event–and in this one store–correctly, that Costco management has decided not to sell stuff at a loss initially and then gradually raise prices back to breakeven, I saw this morning the initial impact of the Trump tariffs on food. It’s pretty bad.

The ever louder criticism of the Democratic Party in the US is that it has a cultural program but no economic one.

The Republicans, in contrast, have an economic program. The overarching idea seems to be to use tariffs to protect domestic industry from lower-cost, more efficient competitors from abroad. In theory, this will have several positive effects: protect domestic industry from foreign competition, persuade foreign firms to relocate manufacturing to the US and–along with shrinking government services for everyday Americans–provide funds for income tax breaks for the ultra-wealthy. This last is the current iteration of Reagan’s “trickle-down” economics.

The party also seems to have a cultural program, whose public face is ICE. To generalize from ICE actions, its aim is to discourage immigration to the US, particularly by people of Hispanic heritage, and to arrest, deport and imprison foreigners working in the US. Taking a page from the 19th century South, it uses raids in public places, by masked, heavily armed agents in riot gear, to underline the propaganda message that no one is safe from them.

The most recent ICE performance is a raid on a electric car battery plant in Georgia where equipment was being installed by Korean technical workers. ICE put the workers in handcuffs and chains and carted them away for deportation. What apparently complicates the issue is that there are non Amreican technicians able to do this work and Congress has for years left the legal status of such workers in limbo. It wants the foreign investment but apparently fears local backlash from admitting foreign technicians into the country. So there’s been a “gentleman’s agreement” for years to let the work go forward without clarifying the workers’ legal status.

So, on the one hand, Trump has negotiated industrial investment of $500 billion by South Korea in the US. At the same time he’s approved the arrest and confinement of the workers who are making good on that promise.

Not a great way to run anything. My guess is that nothing like this could ever have happened in one of Trump’s real estate projects. Hence the question–is anyone running the show?

Makes me think think that the evolution of Japan over the past quarter-century might be a model to consider for predicting how the US will fare, at least over the next few years.

–-Oracle (ORCL) reported after the close yesterday. The stock, which had a market value of $600 billion+ before the earnings release, is up by over 30% in the pre-market. This says three things to me:

—I shouldn’t have dismissed ORCL as a company of a bygone era, like IBM or Cisco

—today’s Wall Street is a trading venue that reacts to news rather than what it was a generation ago, a source of leading-edge anticipatory research. Great for you and me, assuming we’re willing to read company financials and find out industry information

—AI as an economic force isn’t completely discounted in today’s stock prices.

–if I understand correctly, Commerce Secretary Lutnick wants the US to establish a sovereign wealth fund to finance domestic firms that have the potential to become national champions, with the idea, I think, that the country will not only gain from these champions prospering but the fund will also benefit from stock price appreciation.

Intel (INTC) is arguably a good place to start the fund, if one does eventually emerge. But, as I see it, the recent announcement that Washington owns an equity stake in INTC is part of an ongoing rescue operation, with a touch of remembrance of past glory. At present, and again as I see it, INTC isn’t a vibrant, soundly-managed, industry-leading company. There doesn’t seem to me to be a new injection of cash in this deal, either, but rather a restructuring of loans/grants previously awarded to INTC. In addition, the shares issued to Washington look to me to function as what would normally be called preferred or preference shares, not common. If so, I see the “preference” to be a liquidation preference, which positions Washington below creditors but ahead of common shareholders in the event INTC is forced into bankruptcy–an unlikely event, I think, both generally speaking and because of the strong indications of government support. If this is correct, the shares should trade like bonds.

The Washington move also makes sense, I think, since INTC may be our last, best chance to create a domestic rival to TSMC.

–I’ve been thinking about ETFs recently, in two respects. The seasonal selloff that lasts about two weeks and occurs each year, usually between mid-September and mid-October, is driven by the activity of mutual funds preparing to close their books on their year-end on Halloween. According to Chat GPT, just over 40% of the US investor money held in stock market mutual funds + ETFs is in the latter. This compares with a third this time in 2024.

So, maybe the seasonal selloff in September-October is starting to fade away as a phenomenon. I don’t think we can argue there will be no book-closing effect this year. But it shouldn’t be a total surprise if it isn’t as bad as it used to be.

The second is that the immense popularity of etfs can’t be a good thing for the traditional brokerage industry.

employment is declining…

The Bureau of Labor Statistics compiles a monthly account of the state of employment in the US.

President Trump fired the former head of the BLS, apparently because the first report after the imposition of tariffs showed the initial negative effects on domestic growth of his economic policies. The first report under her successor came out last week. It showed further economic deterioration, which is, again, what one would expect to have seen. No firing as of this writing, though.

…at the same time…

ICE is shrinking the workforce…

This is coming both by seizing and deporting workers (mostly, it appears, people of Hispanic heritage) and discouraging new arrivals through the intentionally cruel way in which this is being done (with masked, armed men acting violently).

the odd synergy

The negative effect of tariffs on economic growth is resulting in declining employment. But ICE is simultaneously shrinking the size of the workforce, making the loss of employment opportunities less obvious. And any shantytown communities of jobless workers will be in some other country.

I have no idea whether the erasure of workers is intended to obscure the extent of any future decline in US economic activity. But I think that, intended or not, this will be the case. If so, the best stock market strategy will be, I think, continuing with the idea of having costs in $US and located in the US with a substantial chunk of revenues elsewhere.

I’ve also been thinking over the past few months that this idea has worked so well, and has also become enough of the consensus, that I should diversify my portfolio to include two other areas: Chinese “entrepreneurial” stocks, especially tech, and value stocks in the US. I’ve already done a significant amount of shifting.

I think the former is still a good idea. The latter group has, arguably, three virtues: foreign revenues, valuable brand names and you-can’t-fall-off-the-floor valuations. Plus, there’s always the possibility that a foreign acquirer, spurred on by the sharp decline in the world value of the dollar since the inauguration, might pounce. I’ve begun to think, however–maybe reading the Financial Times too much–what happens if the vote for Trump is our equivalent of the UK vote for Brexit. If so, the floor could be a couple of stories lower than I’ve thought. This is by no means my base case, but at least worth thinking about.

The two best (i.e., only reliable ones) news services for investors, in my view, are the UK’s Financial Times and its parent the NIkkei News (Nihon Keizai Shimbun). They’re analytic, professional, have knowledgeable writers and, in the case of the Nikkei, are–I think–the unofficial way in Japan of informing the market of new developments.

I’ve been binge-reading the FT over the past couple of days to catch up after being out of the loop for ten days or so. I’ve noticed for the first time a very sharp difference between news coverage inside the US and outside. This is what I see:

–in the US, we concentrate on the revenge tour nature of the administration and the selection of high-level officials based on their physical appearance and (I surmise) their not outshining the president either cognitively or in life experience/common sense. We worry about the move away from renewables back to fossil fuels, the deployment of federal troops domestically, the human and economic cost of ICE deportations…

–in the FT, the biggest issue seems to be that there’s no clear, consistent policy direction from Washington. Instead, and if we exclude deporting workers of Hispanic heritage and a strong anti-renewable energy bias, Washington policy can, and does, change into something else overnight.

The view seems to me to be that having seen Brexit on their own continent, one of the bigger economic trainwrecks of the last half-century (and the model the rest of the world may be using to view the US today), nothing really fazes Europe. The main issue is how to adapt. Sort of like Archimedes’ plea for a stable point and a lever.

There are limits to the usefulness of any given point of view. But the FT stance–it is what it is and we have to adapt–is the one I think US financial markets are taking. In the Brexit case, it sharply intensified the decline of the UK into economic irrelevance–as it lost its role as the legal arbiter of EU affairs and headquarters for foreign companies seeking EU customers.

The potential decline of the US is unlikely to be so swift or so steep. As a result, for now I think the world’s reaction to the Trump administration will continue to be to bet on continuing currency weakness and therefore on companies with foreign sales and $US costs.