The last few days of news have pained an interesting narrative. This is not financial advice, and it’s also not timing the market, it’s just analyzing data. I’m analyzing the current state of affairs. I haven’t seen this narritve discussed on Bloomberg or CNBC, two financial news sources I pay attention to. Here’s what I see:
Canada
Canada can’t completely stop buying all US goods, but they can put a dent in it with their public sentiment toward the US. A Vancouver-based research firm found that 85% of Canadians have found a replacement for, or plan to find a replacement for US goods. Per Bloomberg, Canada purchased $349.4B in goods from the US, not counting tourism. They might be able to trim their spend with the US 10%, 20% or maybe even 30% over the next 2-3 years. Speaking with a Canadian friend, there are little Canadian flags on all kinds of goods in the grocery store, indicating that they’re not American. Canadians are booing the US National Anthem, and Singing O Canada enthusiastically, and I’ve been told the energy is electric, even in Quebec which has always had a cold to lukewarm relationship with the Canadian national anthem. Furthermore with moribund Trudeau speaking more honestly, and Trump’s anti-Canada rhetoric, the entire political landscape has changed and liberals are likely to win elections now. This is not an easy to change two-way door. It will take years for this anger in Canada to subside, and that will depend on who the Americans elect next.
Europe
After the exchange with Zalenskyy in the Oval Office yesterday, the response from Europe has been swift and crisp, albeit without money or security guarantees attached. Tesla sales have dropped by approximately half in the big five European countries, and massively in Germany and France where he’s been inserting himself in their politics. The European Union imported $370B in 2024 which will put similar pressure on the US as Canada. One can easily imagine the EU trimming American goods 10-30%.
China
I just got back from China in October and witnessed first hand how big and powerful of a country it is. I saw 35 story luxury apartments and 10 lane highways in Llasa, the capital of Tibet. Chengdu was as big and advanced as any American city. Xi’s response to the first round of tariffs were said to be “measured” while the second round were described as “necessary” They WILL counter our tarriffs. With the first round of tarrifs, Xi showed a measured response – the second time, he said “meaningfully” – you think this is going to get better or worse? I think worse, and they can absolutely play this game. Also, hope you enjoy Chinese troops in Mexico helping them with the cartels.
Corporate America
Every CEO in the fortune 1000 is terrified to spend money right now. CapEx is slowing, everybody is taking a wait and see approach to building new factories, etc. Tony James has a pretty wide view of the economy and he says the economy is weakening, and that consumers and CEOs alike are taking a wait and see approach. Meme stocks are down, crypto is down, etc. Business leaders are “reluctant to stick their heads up and start complaining” for fear of retribution from Trump.
Federal Government
My friends in the Federal government have confessed to me that morale is terrible. People are in a wait and see approach, and because of DOGE inspecting even small transactions, they’re scared to spend money. Over the next two years I predict a HUGE cliff on government spending.
Inflation & Jobs
Inflation is creeping back up, job claims too. Trump doesn’t get along with the Fed. Printing new money is a bad idea. More fiscal is a bad idea. What levers do we have left?
The Mid-terms
The mid-terms could create a major change. Trump could literally disband DOGE and tell the government to go nuts with spending. It’s in Trump’s best interest to try and turn all of this around for mid-terms, so pay close attention for the next 18 months.
Where does all of this lead? I’m pretty confident on a recession happening, I’ll put a 65% chance on it. Will it be light and controllable, or large and uncontrollable? I just don’t know, but I see a LOT more downside risk than upside risk for now. Anyway, those are my observations and analysis.