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The tariffs. The overall situation. I do not understand why Wall Street isn't yet in a freefall. Did they find good sources of bubble fuel then to keep on the h

by rapnie 1y ago

The tariffs. The overall situation. I do not understand why Wall Street isn't yet in a freefall. Did they find good sources of bubble fuel then to keep on the heat?

tommica 1y ago
Would it be possible that the tariffs are working? I'm clueless when it comes to these things, so it's a pure guess.
- leptons 1y ago
  It depends on from what angle you are looking at it. If the goal is to destabilize the US, then yes, the tariffs are working.
- idle_zealot 1y ago
  Considering that investment in local manufacturing is down, it's pretty safe to say they're not "working" in the sense of reinvigorating local industry.
- palmfacehn 1y ago
  https://www.youtube.com/watch?v=fWjpDxvqSSE https://www.youtube.com/watch?v=fWjpDxvqSSE Here's an even handed approach and overview of some of the tariff related stats. The presenter is a critic of tariffs, but concedes that the results thus far are not as simple as some here would suggest. 6:22 > This is just a matter of acknowledging the data on the graph and saying this is quite a difference from the way it was a year ago. And so, people who said this wouldn't happen, that's wrong. It did happen. There it is. And I think it's important to acknowledge that. Um, not only that, but a lot of people said, "Well, this is going to lead to the price of goods, especially automobiles, coming into the United States, is going to skyrocket." Well, so far that hasn't been the case. >In fact, prices have come down. And you can go to Google and you can look it up and there's many articles discussing the fact that the Chinese automakers have largely been eating the tariffs so far.
  - DaSHacka 1y ago
    Very interesting perspective in the video, thanks for sharing.
  - ParacelsusOfEgg 1y ago
    In the first quote the video presenter is referring to the tariff percentages from 2024 to now, not prices. He never presents any data to back up his price claims, just a couple of news articles about automakers announcemens. Everything in the video up until 20:30 is making supporting the claim that tariffs are higher now than they were in 2024 which I'd be surprised if anyone disagrees with. After 20:30 is where I think the real meat of the video is: "Um, now I know some people will say you can't win in a trade war. So even though Trump has gotten, you know, these good uh better levels than he had a year ago, it's basically attacks. It's going to lead to less efficiency and it's going to cause growth to fall and nobody wins a trade war. Now, if that's your argument, I tend to agree with you. But that's a different subject, right? If you want to say that nobody wins in a war and that's going to hurt everybody, fine. I'll go down that road. I think it's a relative game and if everybody falls but the United States falls the least, then on a relative basis, the United States has maintained its hegemony."
    - palmfacehn 1y ago
      That's the larger point here. We should be able to hold two different concepts in our minds when we describe the outcome. Yes, all things being equal tariffs and interventions create economic inefficiency. That is in my view, a rational first principle. We would prescribe actions based on that belief. *As a redundant disclaimer for HN, that belief would put me in opposition to Trump's policies. However when describing the outcome all things are not equal. We shouldn't fall into the trap of an appeal to utopia. Selling into the US presents advantages on economies of scale. Overseas dollar denominated debt drives dollar demand. These factors affect decisions for producers selling into the US market. The specific pricing data is subject to cherry picking and politicalization. Generally it is a bit strange to see the illiberal left taking exception with Trump's illiberal interventionism. You get the sense that if the interventions were rationalized by a different actor or for a different reason, the statistics would be spun in the other direction. This feels inconsistent and hypocritical. The other key point is that the tariff doom prophesies haven't yet come to pass. Perhaps the doomsaying was merely more political bloviation? It would fit with the pattern of inconsistency.
SpicyLemonZest 1y ago
The practical effects of the tariffs have been substantially more muted than most people expected. A lot of supply chain folks were genuinely expecting shelves to run empty by June or July. I would emphasize that “muted” isn’t “nonexistent”, and a lot of metrics would be down if not for AI investment. But it seems that a lot of people are still interested in buying from and selling to the US even with a crazy dictator in charge.
- bruce511 1y ago
  The shelves wont be empty, the stuff is freely available, it just costs more to the US consumer. Just because there's a giant tarif on Brazil doesn't mean Americans stop drinking coffee. And of course people are still selling to the US. From our perspective nothing has changed. It's not costing us any more than it did before. Markets remain up, bolstered partly by the AI stocks, but also because the market believes US consumers will continue to consume. Their appetite for consumption, and debt, remains unabated. Am I building a factory in the US? No. The current administration makes that very unappealing. The US society is unstable right now, policy is fluid, enforcement of laws seems weak, the labor market is (justifiably) paranoid. As a foreigner I'm not even traveling to the US anytime soon. There are other, more appealing, opportunities to explore.
  - XorNot 1y ago
    Which does manage to hit the nail on the head: people in general still don't understand what a tarriff is. They fully expect a tarriff to hit the foreign exporter somehow, when it's actually billed to the importer at point of import. The importers are the ones who place the orders. The exporters aren't impacted directly at all - it depends entirely on whether the orders stop coming in. The orders don't cost them more to fill in anyway.
    - bruce511 1y ago
      The issue for the importer is cash flow. The tarifs have to be paid on entry, ie before the coffee is sold. This suits large importers over small ones, they have the cash reserves to cope. The other issue for importers is uncertainty. The tarifs might be high this week (when my stock arrives) but it might be low next week when my competitors stock arrives, putting me at a disadvantage. So "shelves being bare" is primarily a business risk / cash flow issue. Partly handled with more frequent, smaller, orders (driving up consumer prices some more.) And yes, I agree, most American consumers don't understand that fundamentally the goal of tarifs (good and bad) is to drive up the price. To that end though the administration is being very successful.
zzleeper 1y ago
Three reasons IMO. 1. If you take out AI-related companies, SP500 is down YTD 2. Even then, because the exchange rate is down 10-15% against most countries, that mechanically increases the SP500 by 5-7.5% (because half of SP500 firm profits are from abroad) 3. Many ppl expect lots of inflation in the medium term (look at 10yr-3m spreads). Firms are basically Equity+Debt, and because inflation wipes out the value of Debt, then the value of Equity mechanically increases So, that's my pet story why the market is at an ATH (source: am an economist, can't say where, but I know lots of well-known economists)
- XorNot 1y ago
  No one sells if they think there's other suckers who'll buy later. Everyone is ultimately trying to get out as late as possible with all the money - hence "the market can remain irrational longer then you can remain solvent" being evergreen.
- dustypotato 1y ago
  This is a good analysis. I was wondering the same and you nailed it.
- grafmax 1y ago
  > Firms are basically Equity+Debt, and because inflation wipes out the value of Debt, then the value of Equity mechanically increases I don’t think this holds water as an explanation. The equity risk premium is basically zero.
- burnerthrow008 1y ago
  The only thing I would add to your point #3 is this: * Given the same profit margin, higher overall prices mean that firms will have higher profits. * The value of an equity is the discounted sum of all future profits. That is, stocks are a hedge against inflation. Investors are willing to pay "unreasonable" prices today because they expect that increased future cashflows will cause the price to become reasonable.
- ls612 1y ago
  #3 isn't quite right because a rise in inflation changes the discount rates that are applied to future cash flows in the equity valuation process. And on top of that, for risk-averse investors the fundamental uncertainty we are living in also will alter their discount rates independently of monetary effects. The first two are true enough at least under certain definitions of what an "AI-related company" is. (source: I am also an economist who specializes in financial economics and corporate finance)
jayd16 1y ago
The value of the dollar is not so great. If you look at the S&P priced in euros it paints a different picture.
rich_sasha 1y ago
Markets hit all time highs in 2007, even though the shit was already very close to the fan, and the smell was propagating. I'm not saying the bubble is about to burst, only that this is not a great indicator.
thrance 1y ago
At this point, the real economy is completely decoupled from financial markets who are perfectly happy "investing" in bubble after bubble. If the markets were at all representative of the country's actual economic health, they'd have crashed long ago.
tim333 1y ago
I was just reading an FT article mentioning the "inelastic markets hypothesis" that markets are predominantly driven by cash flows rather than rational analysis of value. People invest in index funds etc because the market goes up, the market goes up because people are buying. It's a bit of a bubble. (article https://www.ft.com/content/6f549890-c2a6-4823-a095-c8ea73f7e6bb https://www.ft.com/content/6f549890-c2a6-4823-a095-c8ea73f7e...)
rsynnott 1y ago
The dollar's down fairly severely, which does skew things a bit (US assets are priced in dollars, but most S&P500 companies would have substantial foreign income). S&P500 is down YTD in euro terms, say.
tacticalturtle 1y ago
I think there’s an expectation on the Supreme Court to overturn many of the tariffs when it takes up the case in November. There’s already a market forming in trading the right to tariff refunds.
xg15 1y ago
They're still high on AI.

by rapnie 1y ago

The tariffs. The overall situation. I do not understand why Wall Street isn't yet in a freefall. Did they find good sources of bubble fuel then to keep on the heat?

tommica 1y ago

Would it be possible that the tariffs are working? I'm clueless when it comes to these things, so it's a pure guess.

leptons 1y ago
It depends on from what angle you are looking at it. If the goal is to destabilize the US, then yes, the tariffs are working.
idle_zealot 1y ago
Considering that investment in local manufacturing is down, it's pretty safe to say they're not "working" in the sense of reinvigorating local industry.
palmfacehn 1y ago
https://www.youtube.com/watch?v=fWjpDxvqSSE https://www.youtube.com/watch?v=fWjpDxvqSSE Here's an even handed approach and overview of some of the tariff related stats. The presenter is a critic of tariffs, but concedes that the results thus far are not as simple as some here would suggest. 6:22 > This is just a matter of acknowledging the data on the graph and saying this is quite a difference from the way it was a year ago. And so, people who said this wouldn't happen, that's wrong. It did happen. There it is. And I think it's important to acknowledge that. Um, not only that, but a lot of people said, "Well, this is going to lead to the price of goods, especially automobiles, coming into the United States, is going to skyrocket." Well, so far that hasn't been the case. >In fact, prices have come down. And you can go to Google and you can look it up and there's many articles discussing the fact that the Chinese automakers have largely been eating the tariffs so far.
- DaSHacka 1y ago
  Very interesting perspective in the video, thanks for sharing.
- ParacelsusOfEgg 1y ago
  In the first quote the video presenter is referring to the tariff percentages from 2024 to now, not prices. He never presents any data to back up his price claims, just a couple of news articles about automakers announcemens. Everything in the video up until 20:30 is making supporting the claim that tariffs are higher now than they were in 2024 which I'd be surprised if anyone disagrees with. After 20:30 is where I think the real meat of the video is: "Um, now I know some people will say you can't win in a trade war. So even though Trump has gotten, you know, these good uh better levels than he had a year ago, it's basically attacks. It's going to lead to less efficiency and it's going to cause growth to fall and nobody wins a trade war. Now, if that's your argument, I tend to agree with you. But that's a different subject, right? If you want to say that nobody wins in a war and that's going to hurt everybody, fine. I'll go down that road. I think it's a relative game and if everybody falls but the United States falls the least, then on a relative basis, the United States has maintained its hegemony."
  - palmfacehn 1y ago
    That's the larger point here. We should be able to hold two different concepts in our minds when we describe the outcome. Yes, all things being equal tariffs and interventions create economic inefficiency. That is in my view, a rational first principle. We would prescribe actions based on that belief. *As a redundant disclaimer for HN, that belief would put me in opposition to Trump's policies. However when describing the outcome all things are not equal. We shouldn't fall into the trap of an appeal to utopia. Selling into the US presents advantages on economies of scale. Overseas dollar denominated debt drives dollar demand. These factors affect decisions for producers selling into the US market. The specific pricing data is subject to cherry picking and politicalization. Generally it is a bit strange to see the illiberal left taking exception with Trump's illiberal interventionism. You get the sense that if the interventions were rationalized by a different actor or for a different reason, the statistics would be spun in the other direction. This feels inconsistent and hypocritical. The other key point is that the tariff doom prophesies haven't yet come to pass. Perhaps the doomsaying was merely more political bloviation? It would fit with the pattern of inconsistency.

SpicyLemonZest 1y ago

The practical effects of the tariffs have been substantially more muted than most people expected. A lot of supply chain folks were genuinely expecting shelves to run empty by June or July. I would emphasize that “muted” isn’t “nonexistent”, and a lot of metrics would be down if not for AI investment. But it seems that a lot of people are still interested in buying from and selling to the US even with a crazy dictator in charge.

bruce511 1y ago
The shelves wont be empty, the stuff is freely available, it just costs more to the US consumer. Just because there's a giant tarif on Brazil doesn't mean Americans stop drinking coffee. And of course people are still selling to the US. From our perspective nothing has changed. It's not costing us any more than it did before. Markets remain up, bolstered partly by the AI stocks, but also because the market believes US consumers will continue to consume. Their appetite for consumption, and debt, remains unabated. Am I building a factory in the US? No. The current administration makes that very unappealing. The US society is unstable right now, policy is fluid, enforcement of laws seems weak, the labor market is (justifiably) paranoid. As a foreigner I'm not even traveling to the US anytime soon. There are other, more appealing, opportunities to explore.
- XorNot 1y ago
  Which does manage to hit the nail on the head: people in general still don't understand what a tarriff is. They fully expect a tarriff to hit the foreign exporter somehow, when it's actually billed to the importer at point of import. The importers are the ones who place the orders. The exporters aren't impacted directly at all - it depends entirely on whether the orders stop coming in. The orders don't cost them more to fill in anyway.
  - bruce511 1y ago
    The issue for the importer is cash flow. The tarifs have to be paid on entry, ie before the coffee is sold. This suits large importers over small ones, they have the cash reserves to cope. The other issue for importers is uncertainty. The tarifs might be high this week (when my stock arrives) but it might be low next week when my competitors stock arrives, putting me at a disadvantage. So "shelves being bare" is primarily a business risk / cash flow issue. Partly handled with more frequent, smaller, orders (driving up consumer prices some more.) And yes, I agree, most American consumers don't understand that fundamentally the goal of tarifs (good and bad) is to drive up the price. To that end though the administration is being very successful.

zzleeper 1y ago

Three reasons IMO. 1. If you take out AI-related companies, SP500 is down YTD 2. Even then, because the exchange rate is down 10-15% against most countries, that mechanically increases the SP500 by 5-7.5% (because half of SP500 firm profits are from abroad) 3. Many ppl expect lots of inflation in the medium term (look at 10yr-3m spreads). Firms are basically Equity+Debt, and because inflation wipes out the value of Debt, then the value of Equity mechanically increases So, that's my pet story why the market is at an ATH (source: am an economist, can't say where, but I know lots of well-known economists)

XorNot 1y ago
No one sells if they think there's other suckers who'll buy later. Everyone is ultimately trying to get out as late as possible with all the money - hence "the market can remain irrational longer then you can remain solvent" being evergreen.
dustypotato 1y ago
This is a good analysis. I was wondering the same and you nailed it.
grafmax 1y ago
> Firms are basically Equity+Debt, and because inflation wipes out the value of Debt, then the value of Equity mechanically increases I don’t think this holds water as an explanation. The equity risk premium is basically zero.
burnerthrow008 1y ago
The only thing I would add to your point #3 is this: * Given the same profit margin, higher overall prices mean that firms will have higher profits. * The value of an equity is the discounted sum of all future profits. That is, stocks are a hedge against inflation. Investors are willing to pay "unreasonable" prices today because they expect that increased future cashflows will cause the price to become reasonable.
ls612 1y ago
#3 isn't quite right because a rise in inflation changes the discount rates that are applied to future cash flows in the equity valuation process. And on top of that, for risk-averse investors the fundamental uncertainty we are living in also will alter their discount rates independently of monetary effects. The first two are true enough at least under certain definitions of what an "AI-related company" is. (source: I am also an economist who specializes in financial economics and corporate finance)

jayd16 1y ago

The value of the dollar is not so great. If you look at the S&P priced in euros it paints a different picture.

rich_sasha 1y ago

Markets hit all time highs in 2007, even though the shit was already very close to the fan, and the smell was propagating. I'm not saying the bubble is about to burst, only that this is not a great indicator.

thrance 1y ago

At this point, the real economy is completely decoupled from financial markets who are perfectly happy "investing" in bubble after bubble. If the markets were at all representative of the country's actual economic health, they'd have crashed long ago.

tim333 1y ago

I was just reading an FT article mentioning the "inelastic markets hypothesis" that markets are predominantly driven by cash flows rather than rational analysis of value. People invest in index funds etc because the market goes up, the market goes up because people are buying. It's a bit of a bubble. (article https://www.ft.com/content/6f549890-c2a6-4823-a095-c8ea73f7e6bb https://www.ft.com/content/6f549890-c2a6-4823-a095-c8ea73f7e...)

rsynnott 1y ago

The dollar's down fairly severely, which does skew things a bit (US assets are priced in dollars, but most S&P500 companies would have substantial foreign income). S&P500 is down YTD in euro terms, say.

tacticalturtle 1y ago

I think there’s an expectation on the Supreme Court to overturn many of the tariffs when it takes up the case in November. There’s already a market forming in trading the right to tariff refunds.

xg15 1y ago

They're still high on AI.