Bit of an old school type post today as we will be taking a look around the macro/political situation of the world, figure out what the hell is the deal with the tariffs, talk about Stonks and crypto a little bit plus some more things.
First off, tariffs. Where we all pretend that sophmore year of high school WASN'T the last time we ever remotely had tariffs on the brain. So let's zoom out a bit, start from the very bottom and go from there. What is a tariff, exactly? It is simply a tax that a country puts on an imported good. Pretty simple. The goal is, generally, to punish imports which will, in turn, incentivize consumers to buy goods that are made in their home country. Which will eventually incentivize producers to produce goods inside the country that is imposing the tariffs, which will hopefully have all kinds of trickle down effects.
So we all know the basics. Trump imposed sweeping tariffs pretty much across the board and all hell broke loose across the financial markets. So what is going on exactly? Why would Trump do something so wildly unpopular? We've all seen this tariff move get destroyed by pretty much everyone; it's of course fresh meat on the bone for the left. The libertarian right and academic economists on both sides just automatically hate tariffs. But I think some of their thinking is short sighted and flawed, so let's take a look at both sides.
The anti-tariff crowd is against them for one simple reason; it's a tax that, in their mind, hurts the consumer. By artificially imposing higher costs on a trade partner, we force them to raise their prices which will hurt the American consumer in the end. Tariffs also stoke unnecessary tensions with other countries, who might impose tariffs of their own, starting a trade war.
In a vacuum, these people are mostly right. But nothing happens in a vacuum and the tariffs can hurt importers and even consumers slightly and STILL be the right move, IF the consequences of the tariffs have enough of an effect to off shoot the damage done to imports. For example, let's say a tariff on imported cars raises costs for importers to the tune of 20% of the sale price. The academics will tell you that this cost will simply be passed on the consumer, and cars will now be 20% higher. But if imported cars could be sold for 20% higher, than why aren't they 20% higher already? I promise you, companies are all already selling their products for as much as they possibly can. Cars made in America will have a sizeable competitive advantage, which is obviously the point of tariffs in the first place. So if, as a result of the tariffs, a lot more cars get made in America, what are the trickle down effects? You have more people employed here, obviously, which has all kinds of trickle down effects of its own. More people have more money and more work means more work. You have more raw materials needed, extracted, treated, moved, more tax revenue, more money staying in America and more foreign money coming in. So maybe the net effect is that all cars go up something like 5-10% in price, but millions of good, real, needed jobs are created. The 'grad school is my job' egg-heads love to look at that 5-10% increase in price and say 'SEE! IT'S BAD!' But they aren't considering the entire picture because the entire picture can't be exactly quantified.
The anti-tariff argument is everywhere and is easy to find, so let's dive into a pro-tariff argument. The best defense of tariffs that I have seen uses Great Britain as an example.
*Little history lesson coming up. Some of this is copied and pasted from a Substack I like. It's worth reading yourself but it's a bit long and meandering at times. I've included the major parts and cut a lot out. The TLDR version is that England had tariffs until the 1860's, once the Liberal Party came to power. They didn't like tariffs. Once they got rid of them, a ton of Englands factories disappeared, along with the working men with the know-how on how to build things. When WWII came, England had to spend nearly all of its gold to buy planes and tanks and trucks for the war, all of which would become obsolete in a couple short decades. When the War ended, England was left broke, without any gold and without factories and industry. Read on for more detail or if that's good enough, skip the next few paragraphs.*
(you can read this link too for a good in depth look at the decline of England and more on tariffs)
In the mid 1800's, England was at the height of its powers. Its factories pumped out goods sold for immense profits around the world, and its only remote threat was America, who was in a distant second place at the time. Its navies absolutely ruled the seas and its society was more prosperous than it ever was or ever would be. From 1850 to about 1900, England set the standard for what a nation could and should be.
Then came the decline. Very, very slowly. But decline it did.
"First there was the Agricultural Depression, which wreaked havoc in the countryside and hollowed out all levels of country society, from the now near-starvation laborers to the increasingly impoverished lords.
Next came the wealth taxes, death taxes, income taxes, and regulations of Churchill, Lloyd George, and Asquith of 1909-11. These further hollowed out traditional society and pushed increasing amounts of wealth and power into the hands of financiers.
Then came World War I, a war England had no reason to be in but which drained her of her best men, her wealth, and her imperial vigor nonetheless. At the end of it she had nearly a million men dead, over a million and a half wounded, and a country on the precipice of self-immolation.
By the time the Empire was at its greatest extent in the 1920s, a hollow victory given the increasing despondency and impoverishment of the population, England was somehow in a worse position than she found herself in when the war ended. Namely, Churchill’s botched attempt to return to the pre-war gold standard further obliterated England’s export industries and led to a class war of the sort the 1926 General Strike epitomized."
In the early 1850's England's politics were dominated by two parties, the Tories and the Whigs. One thing that they agreed on was being in support of tariffs. However, eventually a third party was created and rose to power in the early 1860s; the Liberal Party. A major plank in its platform was to do away with tariffs. Just a few years later, Bismark united Germany, and on Britain’s doorstep sat a budding industrial behemoth that produced steel and coal on a scale commensurate with its size.
"England went from being the leading industrial producer to one gradually edged out by other countries, namely America and Germany.
Then came World War II. With its industries hollowed out, England was unable to produce the implements of war. Planes, tanks, trucks, AA guns had to be bought from mostly America, and it had to be paid for in gold. So England pretty much emptied its gold reserves and shipped it off to America, as ships filled with war equipment made in America went the other direction.
In the past, England would have been able to produce its own weapons and thus keep its gold and other assets in the country as the wealth of the nation. Such is what it did during the 7 Years’ War, the War of American Independence, and the Napoleonic Wars. So, though those fights proved expensive, they weren’t the ruination of the country. Its assets were intact.
Not so with the world wars, particularly the Second World War. By then, decades of Liberal-minded policy meant that English industry, once the envy of the world, had been opened up to the world and thus ruined by it. As such, the factories, mills, and works on which it once would have been able to rely weren’t there, and thus every drop of wealth left was packed on a ship and sent to America. Now it resides in Fort Knox, where America holds everything from sovereigns and Brittannias to pieces of eight and doubloons, the accumulated treasure of centuries shipped here for obsolete tanks, trucks, and planes the country that had once accumulated that gold had made itself unable to produce.
That became a public problem when World War II came: those car factories that would have existed had they been protected by tariffs would have built the planes and vehicles necessary for the war effort. But because of Ford and Churchill, they no longer existed. They went out of business, were sold off, and the employees that would have worked there and known how to make such things non-existent. So instead of producing what it needed, England bought what it needed from America and bankrupted itself in the process.
Thus ended the empire. Left broke, unable to produce what it needed, swamped by foreign goods, without productive industry to tax to pay off its debt, and in the throes of class war created by the tough economic environment of free trade (a problem McKinley saved America from with tariffs), England was a basket case in 1945 and remains one today. The empire dribbled away, the wealth never returned, and now what was once an industrial power that ruled a quarter of the world is a service economy full of real estate owned mainly by Arabs and the Chinese"
*End of history lesson*
So that's a pretty good defense of tariffs, in my opinion. If you look at trade in a vacuum, that is, only looking at trade and not considering anything else, tariffs do seem like a terrible idea. And I think that is the way a lot of economists think; almost like it's a term paper to turn in. It's the academic-ization of everything. They point to the US doing a little bit worse overall in trade and conclude that they were right. But you have to see the whole picture, obviously. The idea behind tariffs is that we more than make up for what we lose in trade by making our country a lot stronger overall by producing and creating things here. That's how I see that side of the argument, at least. Again, we'll see.
It's obvious why a hedge fund or a Wal Mart would hate tariffs, but I think the regular American Joe is a bit misguided in their contempt for them. It's kind of a big wealth transfer, for once this time going from the top down. The stock market lost something like $8 trillion in value as a result of the tariffs being announced, but more (good, real) work being done in America means more money to the hollowed out middle class. That's where that stock market money will mostly end up. Less investment in a horror-factory in China with slave labor and anti-suicide nets, more investment in a new factory in Ohio. Less of an absolute race to the bottom where whichever country can pay its 'workers' the least and invest the least amount in its infrastructure while still churning out a barely sellable product wins. Also, the climate people should love this. Instead of a tiny plastic container of fruit being picked in Brazil, packaged in Argentina and then sold in New Jersey, now it all gets made in America. Think of the reduction in plane, ship, train and truck rides.
I'm obviously no tariff expert, but neither are you. The old libertarian in me hates any new tax on principle, but I have been slowly shedding my libertarian skin for the past 5 years or so now. I'm willing to see how it all plays out. Trump has earned that, at least.
Speaking of the stock market, this feels like a great dip buying opportunity. I've been adding on to my positions pretty much as much as possible the past few days. I do think it'll probably keep going lower for a little while, but who knows. There does seem to be some indecision in the market. Everything has the floor fall out of it and then pumps the next day. The general sentiment is that institutions are selling and retail is buying which is never a great feeling. I think that if you've been thinking about entering the market, watching from the sidelines, now is a good time to get in. Be greedy when others are fearful. Even if the tariffs are a disaster, they won't last forever. Not even close.
Crypto has actually held up generally well, considering. Bitcoin dominance continues to be the big story this cycle. The BTC/ETH ration is .019 right now! That means ETH is historically cheap compared to BTC. So you can get some good discounts on alt-coins right now if that's your thing.
Really hard to tell where we are right now in the BTC cycle. It doesn't feel at all like we topped out at $108ish K, but it's also hard to feel like a 3x bull market is right around the corner. If this last top was the top, we might be looking at a much different BTC market going forward. Less volatile with less insane blow off tops, but also not so brutal lows. I'm pretty zen about it all now though, I just stick to my plan, DCA, and buy more on big red days.
Random stuff
-White Lotus wrapped up season 3 a couple days ago and what a disappointment! This season sucked in general but the finale was really bad. That's a great show in general though and I'll be watching season 4. I think they should do a snowy/ski resort next time.
-I've been reading a lot lately, even a couple modern, really good sports betting books, so I might do another books review/list.
That's about it for today, check back soon, I'll have some sports betting stuff up next.
BTC price: $77k
BTC marketcap: $1.53T
Overall marketcap: $2.44T
BTC dominance: 62.6%(!)
Total cryptos on coin marketcap: 13.42M
