The first 100 days
Plus, RBA virtue signaling
One hundred days into the second Trump administration and US equities have already seen their worst first 100-day performance since Gerald Ford. The US Q1 national accounts confirmed Trump’s tariffs have engineered a record trade deficit and a headline contraction in activity alongside a huge inventory build as importers sought to get ahead of the new tariffs. Without the private inventory accumulation, US GDP would have contracted at an annualised rate of 2.5%.
Jason Furman argued ahead of the GDP release that what matters is ‘core GDP,’ the sum of private consumption and investment. Inventory accumulation helped core GDP to rise at annualised rate of 3%. But stocks will be run off in subsequent quarters, weighing on headline growth amid what is likely to be widespread shortages as US-China trade slowly grinds to a halt.
Trump announced some tariff relief for carmarkers this week, saying ‘We just wanted to help them enjoy this little transition, short-term.’ As Trump’s remarks imply, these measures are likely temporary. Trump went so far as to say American kids would have to settle for ‘two dolls instead of 30 dolls,’ effectively conceding there will be Soviet-style policy-induced shortages of consumer goods. According to one report, administration officials are themselves doomsday prepping. Trump even shared a video suggesting he was deliberately crashing the stock market. All these signals from the administration will weigh heavily on investor, business and consumer confidence.
Miran out of his depth
White House CEA Chair Stephen Miran met with institutional investors this week, which, according to multiple read outs, did not go well:
Some participants found Friday’s meeting counterproductive, with two people describing Miran’s comments around tariffs and markets as “incoherent” or incomplete, and one of them saying Miran was “out of his depth.” “[Miran] got questions and that’s when it fell apart,” said one person familiar with the meeting. “When you’re with an audience that knows a lot, the talking points are taken apart pretty quickly.” Another person familiar with the meeting was more encouraged by the administration’s approach to deregulation and tax cuts.
Those hanging their hats on tax cuts and deregulation are sure to be disappointed. Even if such measures are passed, pervasive policy uncertainty will undermine any positive incentives these measures might otherwise create. This was the experience of the UK, which rolled numerous investment incentives that fell flat in an environment of post-Brexit policy uncertainty. Uncertainty under the Trump administration is now close to a 20 standard deviation event based on historical measures of trade policy uncertainty.
Richard Clarida had a good piece on the history of the Plaza and Louvre Accords and how those episodes might differ from a prospective Mar-a-Lago accord. As Clarida notes, the heavy lifting under both accords was done by monetary policy, which is what we would expect in a regime of monetary policy dominance. Foreign exchange market intervention unsupported by monetary policy, or worse still, pushing in the opposite direction, is unlikely to be effective.
Speaking of Miran, I could not help but check-in on Miran co-author Nouriel Roubini's ETF, which has seen a miserable net inflow of USD 4.1 million over the last three months, bringing its AUM to a tiny USD 16.8 million.