It’s a summer Sunday, so hopefully you aren’t spending too much time on T-Reports.
If you missed last weekend’s Fixing the Data, please read. Had a lot of interesting conversations on the topic this weekend. Anything from jobs data, to more broadly, all data collection, to worries about “fabricating” data. Since Garbage In, Garbage Out has been such a long-running theme in T-Reports, it is exciting that it is near the top of everyone’s list of issues.
In a completely different direction, if you are on vacation somewhere, check out our piece titled – Could The U.S. License Privateers to Combat Crypto Theft? A little more “out there” in terms of thought pieces, but something we find interesting and a great starting point for discussion. Wound up on the Wolf of All Streets (more of a crypto show than traditional finance media), but we had a great discussion around crypto treasury companies (access), stablecoins (the potential growth), and Ethereum as being the more institutionally palatable use case out there.
In the meantime, we think there are three main themes driving markets. Each of which has some potential positives as well as some potential downside associated with it.
Finally, outside of that construct, it is well worth thinking about what is next on the President’s to do list. He has checked off a lot of boxes already (for better or worse depending on your perspective) but there are more items on the horizon that could affect your investments.
The clear positives are:
Generating revenue (for now). Whatever you (or I) think about tariffs, they have been and will continue to generate revenue for the U.S. government. We’ve sent charts on this and it is real income to the government. It remains to be seen who will ultimately pay for it (and we think it will take quarters before that becomes evident).
There is some risk that existing tariffs, executed under certain emergency clauses, may be deemed invalid. Ultimately we are months away from this, as it will go to the Supreme Court, no matter what the next ruling is. There is a market (I’m told) for trading paid tariff duties. If they are overturned, even if the administration invokes different rules to implement them, there might be rebates available to those who paid. I think this is months away from any certainty, but it could hurt the deficit and may cause some countries to “slow play” deals they have apparently agreed to in principle.
Deals and investment. There have been a lot of commitments to investing in the U.S. via some of the trade deals. International airlines buying U.S. planes (great but weren’t they going to anyways?). Chips (ditto). U.S. military equipment (ditto). Enforceable? Who knows. The deals are interesting, but with the exception of opening up markets to top chips from the U.S. (where sales were restricted, not by demand, but by U.S. rules), not sure how much has been truly added to the economy.
The potential negatives are:
If someone with the flu sneezes on you, and you don’t have flu-like symptoms within 10 minutes, it doesn’t mean that you don’t have the flu. So many victory laps on “tariffs have been absorbed” when they’ve barely hit the economy. Importers still have inventories of non-tariffed goods and haven’t begun finalizing future deals with suppliers, let alone their customers. We live in an era where so much information is available instantaneously that we sometimes forget these things take time.
On balance, I think markets are a bit complacent on the risks of tariffs to consumption and corporate profits (I am less worried about inflation, but that is because I’m more worried about the overall economy).
The energy play seems obvious, but a little less clear is what is left for the companies directly benefiting. There is also a lot to be seen on the job front and whether the technology is truly cost effective. The cost is rising, and it is unclear what level of “decisions” will be trusted to machines.
National Production for National Security is quite a mouthful. “Drill Baby Drill” is catchy, but too limited to oil.
“Refine baby Refine” was an attempt to point out that it is the refined/processed versions of rare earths and critical minerals that are in short supply and dominated by China. This administration still seems too focused (in my opinion) on access to the rare earths and critical minerals, and is not spending enough time on ensuring that the U.S. can refine and process them. We can find sellers of the commodities, but it is the next step that is crucial and we need to do more – though we’ve seen some progress on that.
“National Production for National Security” tried to take this a step further. It is Chips. Pharma. Healthcare. Basically, any number of things that a country needs to produce (at some base level) to ensure their security.
That’s it. That’s the entire section. Deregulation. Deregulation. Deregulation.
It is something the President excels at and something we need, especially if ProSec is going to reach its full potential.
My understanding, from those who have worked with Trump before and those that “know” the current administration, is that he is well aware of the promises he made, and the expectation that he delivers. There are a few things currently out there that may impact markets.
A few competing narratives, all of which have some upside potential, with downside risk.
This was not AI generated, but hopefully still useful.
