I was thinking that there might be some time to analyze Trump’s moves and see where his team is going before having to wildly speculate about Trump’s black swans. I have said before that I think he is walking into a stacked deck against him. I am also not confident in his ability to maneuver some very tricky situations. Some are in his control and some are not. Trump has a very bold vision to reset the financial landscape. But there are three key considerations that we will cover today: tariffs, AI bubbles, and immigration. Trump loves tariffs. We are the buyers of the world and Trump wants a more even trade account which means that other countries should pay for the privilege of selling to the American consumer. We have hollowed out our industrial empire because companies want to produce cheap goods and sell them at expensive prices to the American market and make a lot of money. Trump wants the government to get some of that. He thinks tariffs will allow us to do that. The alternative is the companies could build a factory here and have expensive uncompetitive workers build their products here. The consumer gets expensive products built here or cheap products built elsewhere bearing some portion of a tariff and that makes it more expensive. Trump is harkening back to a day when America was the world’s workshop and everyone wanted our products. I don’t know what they could possibly want today? A 100k pickup that no one in a developed world can afford? How will this help the trade deficit. Unknown. How will this affect the American consumer, probably higher prices or consuming less products. Bad and good. This jumped front and center over the weekend in coffee, oil, and cut flowers…
Just when it seemed like Trump was going to ease into his second term, Sunday happened and while at the golf course a trade war happened between the US and Colombia broke out. Unfortunately, the Trump easing into the trade waters like an old man into a tub lasted 6 days as Trump took his pants down showed the world his ass and said you can kiss it right here. Ever the statesman, he tweeted his Colombian response from the golf course. Juan Valdez was displeased.
Trump put sanctions on, revoked visas to, and slapped tariffs on Colombia because they wouldn’t allow two military planes to drop off deportees. Colombia has now slapped a 25% tariff on the US. This is big drama in trade, which is historically as boring as watching a WNBA game. Oops, new update. Just kidding, we took all the tariffs off less than a day later. Wow, there are some wild swings out there….
Syra Ortiz Blanes writes for the Miami Herald, “There were nearly 240,000 Colombians living in Miami-Dade and Broward Counties in 2023, according to the American Community Survey, the annual survey that the U.S. Census Bureau conducts. … Colombia is the US’s fourth-biggest source of foreign oil, topping both Saudi Arabia and Brazil, according to the Energy Information Administration. The latest data showed Colombia shipping more than 215,000 barrels of crude daily to US ports.”
So now let me get this straight. Canada, Mexico, and Colombia are three of the top 5 sources of oil imports for the United States. They have all been threatened with 25% tariffs by February 1st or in Colombia’s case now. Brazil is fourth, and already angry at our deportees hitting their shores as well, Venezuela being 3rd and Trump has already had words with them. Lance Johnson writes for Newstarget, “In a bold declaration hours after his inauguration, President Donald Trump announced his administration would cease purchasing oil from Venezuela, a nation he described as a “mess” compared to its former prosperity. The announcement marks a sharp reversal from the Biden administration’s approach, which had temporarily eased sanctions on Venezuela’s oil industry in hopes of fostering democratic reforms.
“It was a great country 20 years ago, and now it’s a mess,” Trump told reporters in the Oval Office. “We don’t have to buy their oil. We have plenty of oil for ourselves.”
Chevron has long term relationships and infrastructure in the country of Venezuela. If we aren’t buying from the big five at a cheap price perhaps Trump will get serious and build a refinery for the light sweet crude that we do drill in America. This would be a welcome addition and provide not just energy independence, but functional energy independence. If we can’t get that done, looking down the list I see Iraq as the next largest supplier of crude imports, who we have a shaky history with, and then Saudi Arabia. Brazil and Saudi Arabia are both BRICS nations. I think I would get started on that refinery…
Speaking of wild swings, Marc Andreesen who runs the world’s most famous VC firm Andreesen Horowitz, says this on Twitter, “Deepseek R1 is AI’s Sputnik moment.” You might be asking what the hell are you talking about? Deepseek is the new ChatGPT of China. It is about 5% of the cost of ChatGPT and it is better. This according to reports out over the weekend. This caused Nvidia stock to drop 17% or over $500 billion on Monday. The energy producers in the AI play like Vistra energy were down more than 25%. They bounced on Tuesday but they are not back anywhere near where they were. This is a Sputnik moment indeed. Perhaps we aren’t smarter than the Chinese. We are restricting them from getting the new microchips to do AI and they built an AI model better than ours? The one where Google, Facebook, and Tesla are spending tens of billions of dollars? The magnificent 7 have Capex of over $200 billion in the last 4 quarters. That could be seriously troubling for the market valuations of these companies if there is no and has been no need to invest in that infrastructure. If the stock market sells off and the Nasdaq was down 3% on Monday, the troubles of one Don Trump get awfully big awfully fast. The stock market run has been on the back of the Magnificent 7 and if they aren’t magnificent the stock market which returned over 50% on Joe Biden’s watch might sell off that much on Don’s watch.
Lastly, one area that is more under the control of the Donald than any other is immigration. We have seen him start the deportation process triggering tariff disputes. What we haven’t seen is how far he is willing to go with regards to immigration. We have seen as of Tuesday night that he has frozen Medicaid accessibility by freezing government funds and he is offering buyouts to every federal employee. Don’t get me wrong, I think this is wonderful and if Trump goes down this road I will and I have said this, I will convert to a very big fan. However, that comes at a cost. Immigration does as well. Here is the problem with deporting 10 million illegal immigrants. This from Esha Dey at Bloomberg, “President Donald Trump’s immigration policies would likely have devastating effects on Corporate America’s growth and earnings, but investors haven’t been perturbed yet — largely because they don’t believe he’ll follow through on the full extent of his plans.
It’s a gamble that would be costly to lose, strategists and analysts say, with mass deportations likely upending industries as varied as service-heavy hospitality and leisure, and labor-intensive agriculture, food production, manufacturing and construction…The risk to his following through is immense. Trump’s full proposals would trigger shockwaves throughout the economy, according to strategists, economists and Wall Street pros. Inflation would soar and labor-intensive industries such as agriculture and construction would struggle to find workers. Returning the country’s entire population of undocumented immigrants will reduce America’s gross domestic product by 8%, an analysis from Bloomberg Economics found.
“If we are talking about a rapid deportation of 10 million people, I think it is fair to say that while the impact would not be on the same scale as the pandemic era, it could be close,” said Mark Malek, chief investment officer at Siebert. “This all could have a painful impact on employment, inflation, and the economy.”
Let’s just use the number from Bloomberg Economics, 8% reduction in GDP. The reduction in GDP in the worst month of the Great Financial Crisis was 6.1% if memory serves. This is going to be a third worse than that. We are talking about the worst recession since the Great Depression. I have long said that it is exactly that which is needed. The stock market would do what? Drop 50% like the great financial crisis or the 90% like the Great Depression? I don’t believe that Trump would allow this to happen.
How is the country going to build all of this stuff that Trump was to in-house from China and Mexico? Who is going to build it? Our labor is immigrant labor especially the blue collar labor. AI doesn’t built houses. Is he going to buy Elon’s robots to do it? That might be an option, if we are being open minded.
Now let’s say Trump does all of this deporting and cutting government spending to reduce the deficit. Do you know what happens to a government’s deficit in a recession? It widens. Unemployment, social programs, reduced tax receipts from stock market capital gains all lead to larger not smaller deficits in a recession. That is why many are calling this a debt doom loop that we have found ourself in. If the deficit widens, that makes our finances look worse and investors would need a higher interest rate to buy our bonds which makes the debt payments on the debt larger and it continues to escalate. Now, the good news is Scott Bessent. I merely jabber twice a week into the ether. Scott Bessent knows all I know and much much more. He is a legend in the trading business and he seems to think it is possible to pull off. That makes me much more optimistic than if a real estate developer from Queens was calling the financial shots alone.
Sincerely Yours,
C Thomas Printer
Also born on this date… one of the most influential thinkers amongst our founding fathers, Thomas Paine.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.