Fasten your seatbelts. It’s gonna be a bumpy night.
— All About Eve
Our introductory quote – timeless across the ages but particularly timely at present – is uttered by the Margo Channing (played by magnificent Bette Davis), in anticipation of her stone-cold kitty clawing of Eve Harrington (Anne Baxter, whose maternal grandfather was no less than Frank Lloyd Wright) in the 1950 classic “All About Eve”. The former is a glamorous but aging Broadway star, the latter her protegee/usurper. It’s an entertaining, if a bit hokey and dated piece of filmmaking, which, its despite (or perhaps because of) its rich inventory of clichés, I have seen no fewer than twenty times.
I believe I will dial it up again soon. Because we are experiencing a MARGO Renaissance. And why not? We’ve presumably had our fill of all that MAGA/MAHA (and whatever else) jazz, so it’s time for a new variant. And, as a public service, I’ve come up with one of my own: MARGO.
Because make no mistake: America, from the perspective of the health and well-being of the Capital Economy has, in the blink of an eye, become incrementally risky.
Heck, I even sourced our signature hat:
A few words about this lid. First, while the lady shredder depicted here is certainly not Taylor Swift (looks more like Marcia Brady), because she plays for the other team.
I also note that the topper I selected is not a baseball cap, but rather a knit woolen number – the emerging end of winter notwithstanding. I think this is appropriate if for no other reason than it provides extra protection, in this time of insanity, against our brains leaking out of our ears.
Finally, be advised that my production/distribution partner is an outfit called Hat Public, located (where else?) in windy, fire-infested Santa Ana, CA, just across the plaza from the local Olive Garden.
I was unable to identify the location of its manufacturing center, other than to have confirmed it is not in this country. Rendering it a certainty that those wishing to join me in this patriotic purchase will be compelled to pay an unfortunate extra levy for the privilege.
Because yes, my loves, the tariffs have arrived, a circumstance about which I have been bleating for many weeks. But – NGL – they have hit more impactfully, more bigly than ever I imagined.
At present, the topic is more ubiquitous than the virus was five years ago, but, wearying though it is, I must devote more pixels to it. So, here goes.
I believe the primary cause of the alarming market selloff is policy unpredictability. The new, restrictive trade regime was coming. We all knew that, and there was, back in those golden days of a few weeks ago, plausible arguments that what was envisioned was priced in, that the attendant market damage was substantially over. This is not what happened. Instead, rather than a surgical attempt to improve our trade standing with some key business partner jurisdictions, T- Bone walloped everybody. Simply put, as the new sheriff in town, he laid down his new set of laws, peppering in helpful phrases about not caring if consumers must pay more for vital items, and insistences that under no circumstances would he change his policy stances.
It also bears mention that the edicts came down, with trademark legal dubiousness, under the 1921 Emergency Tariff Act, signed by the Warren G. (frickin) Harding, precisely 18 months after the unsatisfying conclusion of the War to End All Wars, with a decimated Europe still reeling from the carnage. I don’t think that the same framework prevails now, but Trump does, and that, for now at any rate, is all that matters.
Rational minds must thus question what other tricks, imposed by diktat, he has up his sleeve. And, given this uncertainty, these same minds react by doing what they can to reduce their exposure to the whole system. Moreover, and as I have repeatedly pointed out, this applies not only to the financial markets but to the economic activity which underlies them. Any read of current events would naturally impel economic agents to spend less, to invest less, and to generally pull back on their activity. And this, my friends, ain’t good.
The whole sequence looks more like power play than policy. A more ham-fisted approach to international relations – this side of Germany circa 1939-1945, it would be difficult to identify. There are reasonable arguments that the U.S. was entitled to better terms than it currently receives from its trading partners, but this isn’t the way to achieve them. There were no negotiations with any country. No discussions with Congress or other empowered domestic entities. The highly touted Cabinet has been reduced to clownish sycophants. My boy Bessent, something of a backbencher as the news broke, came out swinging on Sunday, but I suspect he is secretly appalled. Nobody on Capitol Hill with any stake in the matter is raising a beef.
When one considers the dramatic shift in the protocols of global trade effected by one individual – within in this context of relative silence, I feel that the intended (and received) message is that the President is seeking to impose his singular will on not only the country, but the world.
What could possibly go wrong?
The main risks – including to the markets – are political. The game plan, insofar as I understand it, is to take some economic pain here, bring our competitors to heel and emerge stronger in result. We’ll just reshore everything. Create new businesses, cities, empires.
But I believe that neither the economic nor the prevailing political calculus, renders this outcome very likely. Particularly in the wake of the inevitable tariff counterattacks that have taken place, hundreds of thousands of businesses, millions in the workforce (and very few among them rolling in the chips at present) are at enormous hazard. Unless this goes perfectly, companies will disappear, jobs will be lost, and prices will go higher.
I am convinced that the political pressure on a swath of Trump-aligned members of the House is palpable and will soon be untenable. And this against a backdrop of not only a razor-thin 4-seat Republican majority, but also the pressing need, if nothing else, to extend the 2017 tax cuts.
This coalition could splinter at any moment, and if it does, we’re looking at a construct under which not only will these incremental tariffs translate into a gargantuan tax increase (much of it going to non-U.S. jurisdictions), but the 2017 tax cuts will expire, taking, among other things, the corporate rate from its current (still elevated) 21% up to 35%.
Meantime, the markets get slaughtered, so they better at least get that tax deal done.
So, we’re already looking at the Naz in Bear Market configuration with the Gallant 500 hot on its heels. Investors are scared, as evidenced not only by the valuation slaughter but also by Vixen VIX raising her lovely if capricious heels to elevations not witnessed since it looked like covid would kill us all.
And it all seems to me like such an avoidable shame, coming as it did against the backdrop of a financial economy poised to explode. We entered the year with huge tailwinds, with promise of further market stoking based upon decreased taxes, diminished regulation, the unchaining of the Energy Sector, technology-driven productivity windfalls, the unleashing of a deal calendar with an immense backlog, and other bennies I won’t mention.
But now the investment world is awash in uncertainty, captive to the idiosyncrasies of a single individual who is showing increasing signs of detachment from the realities that plague the rest of us.
And yes, I have a few risk management suggestions I’m willing to share:
• Though we may be close, it’s not wise to act as though we’ve seen the lows.
• With the globe awash in all that new liquidity about which I’ve been complaining, it’s likely that large, solvent capital pools will soon find that in a world where there are insufficient quantities of investible assets to own, the prices available at present – or anything lower – are too compelling to pass up.
• The result might be that a couple of hundred bloated investment enterprises gain full control of the markets. But who cares? The prospect of grabbing a few of their crumbs is beyond tantalizing.
• This buying will NOT, however create anything that resembles a V-Bottom. Assuming nothing worse happens, no sustained rally can in my judgment take place until the volatility comes out of the market.
• Therefore, while there’s likely to be some form of a melt up within the next few sessions, I take this as more of a sign that the rout has NOT run its course, and that further downside price movement can be anticipated.
• So, unless you’re an authentic fat cat, I’d avoid chasing the next upticks. Much better to buy on a low vol recovery – even if it means failing to catch the bottom.
• The short side of the market – always orders of magnitude riskier than its opposite number – is particularly treacherous at present. Hedge if you must, but don’t risk speculating on further contraction.
• It is imperative to protect the flower of your portfolios. Sell everything else, but hold on to those names (unless, of course, additional analysis convinces you that tariffs have toe-tagged them). If this provides insufficient levels of liquidity/capital preservation, then trim (but don’t dump) the good stuff. And know this: nothing kills an institutional investment platform more dead than selling out its best positions at their lows.
I have written this piece in anger about the nonsense embedded in this topic. That anger is now abating. A bit. Of course, we must remain calm. And should.
Perhaps most encouragingly, we can count on the politicians to save themselves. Because they always do. In the wake of the tariffs, Congress is accelerating the passage of the above-mentioned tax bill. I’m sure they feel the heat already. As does, I believe, the Trumpster his-self. More likely than not, he’ll roll over a few countries like he did Vietnam, declare victory and continue with his crusades – many of them less dangerous than the stunts he’s pulled in this young month.
Because, while he is not MARGO, he created MARGO, albeit with infinitely less elegance than the Miss Davis. The latter told us it would be a bumpy night, and, 75 years later, her prophesy came true.
It ended up OK for her. And for her bestie (Celeste Holm). And for the wooden statues that passed for the male characters in the film.
That bitch Eve got what she wanted, too. But (without laying a complete spoiler on y’all) as she did her victory dance, she heard footsteps on the exact same path that she travelled to the top.
And as for Warren Gamaliel Harding, his scandal plagued Presidency only lasted for 2.5 years. Then he got sick and died. A little over a half decade later, we were hit with a market crash and then the Great Depression.
Such are the wages of reckless behavior. Those who bear witness to these episodes are well-advised to keep their heads down, and carry on quietly, hoping and expecting better times as the moon sets on these bumpy Eves that still haunt our existence.
TIMSHEL