A Reality Check About Trump's Economy

Hi! How’s everyone? Today we’re going to do a quick one, because I’m doing tons of sessions and I have just a bit of writing time.

It’s time for a little reality check about the economy.

How should you understand the economy right now? The stock market’s roaring back. Isn’t that a good thing? Or, as most of you feel, but can’t quite express, maybe, isn’t there something off in your gut about all this?

Your gut is right, and I’m going to teach you why.

Today we’re going be Adults in the Room. Calm, confident, clear-minded, and wise.

What’s Really Happening to the Economy

What just happened is this.

Trump rolled tariffs “back" from an absurd figure, hundreds of percent, to…just thirty percent.

Amazing! Sounds good, right? Everyone’s celebrating, journalists, finance guys, etcetera. Look, it’s the Art of the Deal.

So why is your gut sounding the alarm? Because you already know the answer. Now, I’ve had a lot of conversations about this, so let me teach you how to think about it all with absolute simplicity and clarity.

Those are still Smoot-Hawley tariff levels. (In fact, they’re higher, but that’s OK, we can stick with the basics for now.)

And what did Smoot-Hawley do, as we all learned in high school? It helped start the Great Depression.

So your gut is telling you something very important, even if your mind couldn’t quite place it, which is OK.

I shouldn’t have to complete the logic for you, but I will anyways. Smoot-Hawley tariff levels, which helped start the Great Depression, are not a good thing. Nobody should be celebrating, and especially not buying into that, mentally, or literally.

But there are a whole lot of people acting like they are a good thing. What’s going on with that? Why are they using words like “truce” or “peace” or what have you?

Euphorias and Manias, or, Let’s Party Like it’s 1929

This is a euphoria and a mania. It happens to markets. But it is not based on reality. And reality is about to hit hard.

Think about it with me a little more. As an Adult in the Room, not a child.

The stock market is cheering and celebrating and roaring…Smoot-Hawley tariff levels.

LOL. When I put it to you that way, it sort of makes you chuckle, doesn’t it? This is like giving the arsonist who’s burning your house down free cocktails.

Sound sane to you? It shouldn’t. The financial markets should be deeply concerned, not buying into it, for heaven’s sake, because what comes next is precisely what happened back then: the economy begins to suffer, in pretty terrible ways. Profits fall, people get laid off, and things slide, fast.

So it’s a measure of how delusional, euphoric, manic, divorced from reality, markets are that they’re celebrating and cheering Smoot-Hawley tariff levels. They’re acting as if they’re drugged, which is what euphorias and manias do to us, a massive dopamine rush.

Would you celebrate the Great Depression if you were a banker or stockbroker in the 1930s? Probably not. And so today’s shouldn’t be either. I’m not saying there’s going to be another Great Depression, by the way, but I’ll come to that.

Now. Why are they engaging in this seriously irrational and bizarre behavior? What drove them into this euphoria and mania? Trump’s playing them like a fiddle.

Trump’s Reality Distortion Field, or How Euphorias Produce Crashes

Trump is a master showman, and the media at this point sort of peddles his message. So he’s created a Reality Distortion Field.

And in that Reality Distortion Field, by playing nuclear brinksmanship, beginning with the nuclear option, tariffs that’d have wiped out the world economy, then suddenly reducing them…a “mere” 30% feels like a massive relief.

Especially to all those figures in the markets who were sweating over having jobs next month or what have you. That sort of immense relief produces a euphoria and mania in the markets. But when we stop to look at the facts, they’re not exactly anything remotely good or positive, in fact, they’re about as bad as it gets in the modern context, which is, hey, this caused a depression last time guys, anyone home?

So Trump’s distorted reality in this way. Which is actually sort of funny, at least morbidly.

He’s made the markets think that Great Depression era Smoot-Hawley tariff levels are something to euphorically celebrate and cheer.

Think of how astounding that is, and go ahead and laugh out loud all over again if you want to.

Now think of how much you have that might be at risk.

Because the facts I’ve just taught you remain the facts.

Smoot-Hawley really did help ignite the Great Depression. These tariffs really are at those levels. And history really is something we can learn from.

That is how financial crashes really happen.

They are what comes after euphorias and manias.

That is how financial and economic history and markets tend to work in reality, and it’s a pattern you should know and always bear in mind.

Being the Adult in the Room

No matter how much reality’s distorted, we must be the Adults in the Room. Wall St isn’t going to do a very good job taking care of money if it’s being taken in by Trump’s Reality Distortion Field this easily, and this much. So we must be much, much more clear-sighted.

Facts are facts, and actions have consequences. Markets might not wish any of that were true, but that doesn’t change reality. If Smoot-Hawley then helped start that depression, what happens this time?

You see, markets might appear to be taken in by what’s effectively propaganda, now, about the economy—look, I reduced tariffs from something nobody’s ever seen, to just Smoot-Hawley levels, hooray, cheer!—but nobody else should be.

You must now carefully assess the risk here, which is what this is. The risk is that Smoot-Hawley level tariffs do this time around more or less what they did last time around. The hope is that they don’t, and that’s what the markets are existing on, hope. But that is a very, very strategy for investments. Instead, we should think carefully about risk. Weigh it and judge it. As clearly as confidently as we can. Not hope as desperately and mindlessly as we can.

I suggest that the risk here is very high indeed.

The Alternate Universe Trump Wants You to Believe We’re Living in

Maybe I’m wrong. Maybe we’re living in an alternate universe, in which history doesn’t exist anymore. Maybe unlike last time, Smoot-Hawley level tariffs will somehow produce a tidal wave of profits and growth. Sound likely to you? What does your gut say?

Let’s think about it together, too, briefly. For that to happen, the world would have to love Donald Trump so much that it began to eat the cost of the tariffs, sending its own economies into a depression. Causing huge waves of layoffs for it. Producing huge shockwaves in its societies.

Meanwhile, Americans would have to say, cheerily, “I love paying way, way more for exactly the same stuff, because Donald Trump told me to. Here, take 30% of my income every year, Donald, let me sign it right over to the treasury. And I’ll take an extra job or two just to make up the difference.”

Meanwhile, businesses would have to say, “this is a great idea. Here’s a magical way I won’t go bankrupt because my profits are down, suddenly, to negative figures and I can’t afford to pay people, my debtors, or invest in raw materials.”

Does any of that sound likely to you? Think it through. Go right ahead and challenge me if you want. Interrogate everything I am saying, because my point is to teach you.

As far as I can see, we don’t live in an alternate universe in which logic and economics work backwards. We live our universe, and in that one, Smoot-Hawley level tariffs produced the Great Depression last time, and this time, they will cause an immense wave of human misery, and economic pain of the kind that America hasn’t really seen in the modern era.

So be careful with all this. Don’t be confused. Don’t fall for the hype. The media is doing a terrible job with all this lately. No, “We decided to Smoot-Hawley ourselves” isn’t a good thing. It’s not some kind of “truce” or “peace.” It’s folly, which is going to cost a very great deal for a lot of people, as markets must deal with the fallout and consequences, once they get over their euphoria, and come back to reality.

The Trump Reality Distortion Field is working on them, and like I said, here’s one of the most crucial things you will need to know in your adult life. Markets work like this, in a classic pattern. Euphoria and mania are often followed by crash and crisis.

I’m not saying there “will” be a Black Friday tomorrow, I am just laying out some vaguely historically comparable notions of risk for you.

Here is my advice. Nobody should be cheering and celebrating the kind of things that literally caused the Great Depression. Think clearly now. You know this already. But these are difficult, head-spinning times. That’s the point of what Trump does, to frighten and destabilize you. Being the Adult in the Room means staying calm and being confident in your own choices and decisions, which are based in reason, history, logic, and facts, all of which I am always here to teach you.

Take the risk seriously. Nothing has changed for the better. Ask yourself: is a stock market really worth as much as it was before and after Smoot-Hawley tariff levels? Can it be? The answer to that is: eventually, reality must catch up with it. When it does, the reckoning will be ugly. Stay ahead of that curve. Don’t be seduced into falling behind it, under Trump’s spell.

For markets? Euphorias do not end well.

As always, reach out if you need advice or help. (And yes! I’m catching up on the email backlog. Many thanks for your patience and for being my friends :)

Lots of love,

Umair (and Snowy!)

Tip jar.