Good morning investors!
This week we saw our first glimpse of what future trade deals could look like, starting with an agreement reached between the US and the UK.
Despite the hype leading up to the announcement from our very own President, my read on the "deal" is that it's mostly fluff, with more cons than pros.
Here is a summary the White House put out:
Taking this at face value, we are looking at a deal valued at ~$11B. Meanwhile, our budget deficit is projected to reach $1,900B in 2025, about the same as it was last year.
From a consumer perspective, goods from the United Kingdom are now ~7% more expensive than they were prior to February, thanks to a 10% tariff in place on UK goods.
I believe the stock market priced this in appropriately as you'll see further on in the newsletter. For now, I remain bearish on the market until we see more clarity from the Administration on long-term trade relations.
-Brian
In Today's Issue:
🥇 Stocks Are Going Nowhere Fast
🥈 The "Voldemort" of the Economy
🥉 Bitcoin is Making a Comeback
Markets
Twirling in Place 💃🏻
Last week, the S&P 500 rose 0.21%, while the Dow Jones increased 0.38% and the tech-heavy Nasdaq increased 0.73%.
There was much volatility throughout the week as virtually each day brought new headlines to digest. We had a tariff announcement, a Federal Reserve session (more on that in the next section), and even talk of increased income tax on the wealthy (did anyone see that coming?).
The market seems like it is teetering on the precipice. Investors want to buy the dip, but they also have one foot out the rear exit. With trade talks sputtering and global tensions rising, it could be a matter of time before we see a sudden resolution, or an escalation. In which case, the market will react decisively up or down.
In the meantime, stocks are twirling in place waiting to see if the music stops...
Economy
Don't Say Its Name 🤫
On Wednesday, the Federal Reserve announced their decision to keep interest rates steady. While some (including the President) wanted rates to be cut, this move was largely expected among experienced investors for two reasons:
- Given President Trump's public outcries to cut rates, if the Federal Reserve then went on to cut rates, this could undermine their credibility as an independent institution. Are they going off of the data, or are they beholden to the President?
- The latest economic data and trade policies being thrown around are too uncertain to make a call one way or the other. The data tracked by the Fed does not indicate an immediate need for a rate cut or a rate increase.
However, during his remarks, Jerome Powell hinted at the possibility of a worst-case-scenario if we continue down our current path of high tariffs, without saying its name aloud: stagflation.
From the FOMC statement:
The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.
Higher unemployment + higher inflation is a lose-lose scenario for the Federal Reserve to deal with, and as a country we have not seen this situation since the 1980s.
In case you missed it, I made a whole video outlining my views on what could throw the US into a stagflationary environment here.
Crypto
Bitcoin Over $100K 🚀
This week, Bitcoin reclaimed a milestone for many investors that follow the cryptocurrency: $100,000 per coin. Compared to the S&P 500 which is down over 3%, crypto bros (and gals) are sitting pretty on an 11%+ gain YTD.
I get asked about my views on cryptocurrency, specifically Bitcoin, all the time, so I'll summarize here:
- Bitcoin does not produce cash flows like a company does, and therefore should not be treated as a comparable investment to buying something like stock in Apple for example.
- Bitcoin does not have utility like Gold does, which can be used for jewelry, electrical equipment, and many other applications outside of holding in storage.
- However, Bitcoin does have something going for it: it is the first cryptocurrency, and it has a limited supply.
In my view therefore, Bitcoin is much more of a collectible than it is a digital asset or currency or store of value. If you invest in Bitcoin, and you believe that in the future many people will be interested in owning a Bitcoin, then you may make money on your investment. But the only way you can make money on Bitcoin is by selling it to someone else at a higher price than you paid. And that is not much different from a Ponzi scheme. It's just a...decentralized Ponzi scheme...
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