QUOTE OF THE WEEK
“Every accomplishment starts with the decision to try” – JFK
TECH CORNER
A lot has changed in the last month or so with the new administration firmly in place.
Currently inflation pressures in the U.S. are rising but remain moderate with inflation at approximately 3%, global growth at around 3%, and U.S. growth at about 2.5%. Neither too hot or too cold which could be categized as neutral.
What could trip up the apple cart? A lot.
Because of the significant potential impact on investment markets, today I will focus on tariffs.
The initial shot across the bow is a 25% tariff on Canada and Mexico. It has been suspended until March 4th. A 10% tariff on Chinese imports (on top of existing tariffs) took effect in early February. Last week Trump announced a 25% tariff on all steel and aluminum imports, along with new “reciprocal” tariffs on all imports.
China swiftly responded with tariffs on U.S. imports, and other countries are likely to follow. He has also stated he plans to set tariffs on all goods imported from Europe which of course they will reciprocate in kind. The global economy is on the verge of a trade war. History shows us that no one country wins a trade war. They all lose. Global trade declines, virtually assuring a global recession.
There are two pillars that need to fall before we go into recession. First to fall is increasing unemployment. The second pillar to fall is an increase in credit spreads which increases the cost of borrowing. With the massive layoffs starting by Musk and his Department of Government Efficiency (DOGE) the unemployment dominos are starting to fall. Remember if people are unemployed they don’t have an income so they cut their spending. Which leads to lower consumption, which leads to lower production. This leads to production company layoffs, which leads to a decline in income which leads to lower consumption. This cause and effect can lead to a recession.
Unemployment is going up and possibly dramatically with all the government layoffs. Credit spreads (the cost of borrowing money has just recently started to expand. If the direction doesn’t change the result is inevitable.
