“Over time they’re a tax on goods,” Mr. Buffett said, responding to a question about their [tariff’s] inflationary impact, suggesting that consumers will face higher prices as a result. “I mean, the tooth fairy doesn’t pay them,” he said. – Warren Buffet in CBS Interview on March 3, 2025 (listen to entire 8 mins interview, mostly about Mr Buffet’s friendship with Washington Post former CEO Katharine Graham, here)
I read earlier this week that President Trump doesn’t look at the stock market. That’s probably a good thing, because he and his economic team are destroying risk appetite, which is sending US stocks lower along with the US Dollar. Are these policies resulting in short-term costs in exchange for long-term gains? I’m certainly not going to bite on that narrative because I do not believe it for one second. The reality – as I wrote a few days ago – is that professional investors know by now to stay silent on Mr Trump’s agenda and not to mess about by moaning about his errant economic policies. In any event as we are seeing, most of Mr Trump’s blustery threats either never get put into place or are quickly rescinded, and this is adding to market uncertainty and increasing volatility. Institutional investors appear to be sitting out this uncertain environment, and who can blame them?
Retail investors are probably the last defence, and I believe this support might be fragile, too. No one likes an environment characterised by uncertainty, and unfortunately, this is the current reality in abundance. The best idea is to follow institutional investors by sitting this meltdown out until there is better clarity on where the administration is going. If you want to strap on some risk in small size, then do just that. If you go down that road, I suggest that you add in increments on the basis that you can average down if prices continue to fall. I would also focus on stocks that you consider core, are defensive and are not too expensive (from a valuation perspective). Tread carefully though, and by all means avoid momentum stocks (like Tesla, Palantir, etc) and cryptocurrencies that are touted on various social media platforms, especially Mr Musk’s X platform, which clearly appears to be self-serving and sadly in the pocket of the Trump Administration.
The confluence of economic factors is also sending the Dollar lower, as the EUR, GBP and JPY all strengthen against the greenback. The EUR strengthened sharply last week even though the ECB lowered its benchmark policy rates a further 25bps at its monetary policy meeting on Thursday (press release here). Some of the drivers are originating in the US, with the on-again, off-again tariffs and weaker US stocks reducing demand for US Dollars as US risk assets become less attractive. However, sharply higher bond yields in Germany and throughout much of the EU are also causing investors to pile into the EUR, as the ramp up in fiscal spending in the common currency zone and throughout much of the EU is reflected in higher long-term bond yields.
At its monetary policy last week, the ECB was very cautious in providing even a sniff of forward guidance, very understandable in the context. (The ECB press conference following the ECB’s rate decision can be found here.) Europe remains in a “response mode” because of the abandonment of Ukraine by the US, along with eroding confidence that America would be there in the future to hold up its end of the transatlantic alliance in place since the end of WW II. As the president of the European Commission Ursula von der Leyen wrote in a letter to her colleagues early last week (letter here), Europe needs to reduce its dependency on the US as far as defence, and improve its own capabilities. The ramp-up in expenditures for European defence is effectively a form of fiscal stimulus, spurring growth in the common currency zone. This, in turn, could prove inflationary, a reality not lost on the ECB as Ms Lagarde clearly expressed in the press conference following the ECB decision last week. In summary, it appears that Europeans are finally ready to spend on defence and to take control of their own destiny as the US withdrawals to its borders.
The US jobs report for February released on Friday (here) reported that the US economy added 151,000 new jobs, slightly lower than consensus, and that unemployment increased slightly to 4.1%. Yields in the US Treasury bond market were steady at the short end of the curve but drifted slightly wider at the longer end. Other economic data for the US released last week – including ISM manufacturing and services data – suggested weaker manufacturing activity but on-going strong services. However, price increases in both manufacturing and services were higher than expected, reigniting concerns about persistent inflation. Mr Powell delivered a speech on Friday at the University of Chicago Booth School of Business 2025 U.S. Monetary Policy Forum in New York, saying that the Fed wasn’t prepared to shift to a more accommodative phase. He attributed this to the Fed’s view that recent economic data remains supportive of a resilient US economy, and the future will depend on how the economy responds to some of the fiscal policies of the current administration (speech here). As I have mentioned before, long term yields reflect the tug-of-war between a slowing US economy (favours lower yields) and on-going persistent inflation (favours higher yields).
You can find the tables for the indices and assets tracked by EMC at the end of this update, or click here.
MY TRADES
I had BRK.B and V shares called at the end of week before last at $500/sh and $260/sh, respectively, which look to be good trades now. I added scraps of each back late last week, well below the prices at which the shares were called as both are core positions for me. I also dipped into NVDA adding scraps twice, both near lows of recent months. NVDA is not a top 10 position for me, but I do like the company. Lastly, I took off end-of April SPY puts at 565 on the basis that I would roll them out to end-of-July. However, the market continued to decline and I will only add late July puts once there is some stability. I continue to hold late May and late June SPY puts as a partial hedge, positions that have obviously performed well during the last few weeks. I also had covered calls expire on Friday on CRWD, V, BRK.B, and APPL. The CRWD covered calls have been profitable, but this was little consolation as the shares got hammered last week following the company’s (better-than-expected) earnings but disappointing lower guidance. CRWD is a perfect example of a stock that is too richly priced, and hence, highly vulnerable to outlook revisions.
THE TABLES
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