Prof G Markets: What to Do in the Wake of Trump’s Tariff Pause

28:27These folks are willing to endure much more pain than the American consumer. He is playing with such a weak hand right now. We'll be right back after the break. If you're enjoying the show so far, be sure to give the Prof G Markets feed a follow wherever you get your podcasts.

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30:39We're back with Prof G Markets. I'll bring us back to what the tariffs mean for our actual economy going forward, but I just want to stay on what happened in the stock market for a second. Because I think what we saw when the markets ripped back up was Trump and the MAGA base basically bragging that this was a win, that this was a great deal. Of course, that doesn't make any sense. I mean, he was literally gloating, oh, wow, we've had one of the greatest stock market rallies in history after he, of course, brought one of the greatest stock market crashes in history, too. So I think we can all agree that this was not really a win.

31:19But I also want to emphasize what a loss this actually was for so many regular Americans. You know, if you took our advice, your advice, which was to do nothing, then you were fine. And you're okay for now, generally speaking. But the trouble is, not everyone listens to this podcast and not everyone listens to you. And there were many people out there in America who actually did sell, who got super freaked out. They saw the market was down 10%. They thought it was going to keep sliding and they decided to liquidate. And I would point you to a statistic, which is that April 7th, Monday of last week, was the fifth largest trading day for 401k assets in recorded history.

32:03And you look at what happened. What were people doing with their 401ks? They sold their stocks. And the money, they either kept it in cash or they moved it into more, quote unquote, stable assets like bond funds and money market funds. And you look at what's happening to those assets, T-bills and notes. Those assets are going down too. But the reality is that, you know, these are the stories you don't hear. You don't hear about the guy in Pittsburgh or Gary, Indiana, who only has so much in his 401k and his retirement account, who actually sold at the bottom. And hundreds of thousands of Americans did this.

32:42And they're looking at their 401ks this week, and they have to digest this now. They have just registered not an unrealized loss, but a realized loss of 10 % or more because they sold. So I just want to point that out too that, you know, for many of us, it was just a wild week, right? It went up and went down and went up and went down. Looks like it's coming down again. And it looks like the long-term trend is down. But for many people, this was a flat-out loss. Just pure, unadulterated, down 10%. And no amount of the 40-chest justification or the sycophantry is going to change that. And I just want to point that out, you know?

33:23A lot of people got really, really hurt last week. Now, on investing trends in general, what we're identifying here is a massive fuck-up from the administration who went ahead with this crazy tariff idea. The bond market told them that was a bad idea. and then they pulled it at the last minute. We've been talking for a while about this global reorganization of the investment economy, where America has benefited from, generally speaking, massive inflows, perhaps unjustified, but at the very least, justified by the fact that we had a stable government that was respected by investors around the world.

34:12Our thesis has been that we might be witnessing a rotation away from that dynamic, which would massively upend global markets. Given what happened with pulling the tariffs, what do you think that does to this dynamic? What is happening now? No one gets out of this alive. I mean, there'll be a few people who bought puts or something and show their picture on Reddit or whatever. There'll be a few, you know, a few quote unquote speculators that win. But 99 percent, I mean, there's so many cohorts they're going to lose here. Let's talk about people hoping to retire. And they thought, wow, the markets have done great.

34:54They thought, OK, I can retire. Well, that's maybe not as true now. Families, if these tariffs are anything resembling what they're stating, the example I use is toys under the Christmas tree. They're just immediately going to fill it. Young people, what do you think has happened to hiring in the last week? I got to imagine so many people recruiting at colleges, high schools. You finally get an interview of said, hey, we love you. We want to bring you in, but we're putting everything on pause right now. Microsoft just announced, was scrapped a$1 billion data center project in Ohio. Stellantis paused production in Canada and Mexico, leading to 900 layoffs at U.S.

35:36plans in Michigan and Indiana. I got to think there are so many interviews and recruiting plans that have been paused. And typically, pause means they're not happening because they don't double up. If they canceled our recruiting for two, three months, they then don't double their recruiting the following two or three months. My brother-in-law is at business school right now. He went into class last week. The professor came into the class. He said, I just want to apologize to everyone. They said, what for? He said, I don't think any of you guys are going to get jobs next year. So this is already happening.

36:13Well, the double whammy of companies trying to figure out if AI replaces a lot of these kind of high-end information workers with total uncertainty. It's like Eisenhower said, the bad decision is wrong. No decision is worse. And I love the term, we have been thrust into this dynamic of the U.S. brand is now toxic uncertainty. We would have been much better off if he had said 10 % tariffs across the board or whatever it is, and you just stuck to it. The back and forth, the what? You dare threaten me, fine, sir? Your tariff is now 125%. Or, oh, I like you. I just had lunch with you at Mar-a-Lago.

36:55I mean, nobody knows how to plan their business. So when you don't know what to do, what do you do? You do nothing. You don't hire people. You press the pause button. And the pause button is essentially, it's a light no. But it's still a no because the number of people who need jobs, the number of people who have rent doesn't go on pause. Your landlord doesn't say, well, I'm pausing rent because I know you had a bunch of interviews lined up and you don't have them now. So I'm pausing. That doesn't happen. Your expenses continue to roll on. So whether it's people looking to retire, whether it's people just out of college looking for a job, whether it's families, whether, can you imagine how many corporations probably correctly are going to say, we're freezing all new hires and quite frankly, we're freezing salaries.

37:46There's no bonuses. Who's going to say, oh, all this uncertainty is bad, but we see an opportunity in all this and we're going to hire faster. I haven't heard any company say that. But think about how many foreign companies were planning to build plants here. And there's a ton of them. They want to build production over here who have all of a sudden said, let's just press pause. We don't know what's going on. Or I'm on the board of a company that was thinking about relocating or opening a second headquarters in New York. And they're worried that in the second layer of mendaciousness, they're like, we're not sure if we don't know the state of immigration.

38:23and we don't know if we're going to be able to staff it with some of our folks from here. So we're just doing nothing right now. The IPO market is dead. Nobody wants to go public right now. This is across every point of the economy, literally across every income class, from CEOs, they're going to see their pay go down, to the worker making minimum wage, to the college grad, to the family. Everybody gets hit here. Everybody. And as we've always said, a few more elegant ways to hurt everybody than tariffs. Just some examples of companies that are on hold or pausing or freezing, however we want to call it.

39:07The reality is they're no longer producing output or contributing to our economy like they used to. So you mentioned that Microsoft, they are now pulling back from AI spending, which of course, Trump was, you know, on the podium, gloating about what a tremendous chip investment the US is going to make. So Microsoft, which is going to be the biggest spender, they're now pulling back. Audi halting shipments to the US. They also froze 37 ,000 vehicles that were waiting at ports across America. Amazon canceling their vendor orders across Asia with no explanation. This is reported by Bloomberg. Roughly half a million dollars worth of goods were frozen.

39:50And this is a signal not that Amazon will be paying the tariffs as we expected or as hopefully as I assume Trump expected, but they're just going to halt their production entirely from China. So we're going to see a lower supply of goods in America, which, you know, econ 101 means we're going to see higher prices. Hollywood, this is going to massively affect Hollywood. China is reducing, they've said they're going to reduce their imports of American films. Last year, American films grossed$585 million in China alone. In other words, all of this nonsense is happening in the stock market, and we're all getting flustered about it, and rightly so.

40:30But meanwhile, the real economy is grinding to a halt. We're already seeing layoffs. We're seeing order cancellations. We're seeing price increases. Walmart just said that we should be bracing for price volatility, and that's Latin for price increases. So, you know, beyond Trump, beyond politics, we're seeing massive effects play out in the real economy right now. And so, Scott, what do you think we as regular people can expect? And is there anything we can do to sort of brace ourselves for this change. I do think it's powerful when you call your local representative and it sounds, you know, I'm going to write me a letter, but I do think your representative in Congress does listen and they track very closely the calls they get.

41:18So I do think if you think that these policies don't make sense, I think reaching out to your, I mean, my representative is Lois Frankel. She's a Democrat. I'm pretty sure she's, you know, on board with how I feel. But if you haven't heard or, you know, if you wonder if your representative has not been vocal enough or is still trying to, you know, bend the knee and bow to dear leader, at some point the dam needs to burst. And the person riding shotgun, the Republican Party that's in control here, needs to say, hey, you know, you're drunk. Pull over. Stop driving the car this way. that somebody somebody has got to get a sanity check here so and then in terms of your own personal behavior i think that i mean there's a couple things to remember recognize that this is it's this is important but it's not profound and what i try to tell myself i went to the doctor yesterday and my blood pressure had been so good it's so weird ed i used to be so i used to love getting my physical and i think i told you for the first time i had high blood pressure and it freaked me out.

42:28So I took my drinks down from 12 to 16 a week till 11 to 12. But I'm trying to manage my blood pressure. And then this week I go back in and it's totally fucking spiked. That's mostly because I'm back in New York and daddy loves to go deep in the pain. But I read something, I've been reading a lot of Buddhism recently because I find it fascinating. And there's so many interesting things in there. And I read this one line that really struck out of me. And it said, when you're healthy, you have thousands of problems. When you're not healthy, you have one problem. And what I would say is to anyone out there that feels emotionally straught or like this is really taking a mental health because they look at their phone 15 times a day or they're losing money or they're worried about their job.

43:13Are you healthy? If you're healthy, you got 49 % of everything, 51 % of everything. Do the people in your life who love you and that you love, do they still love you and do you still love them? Then you're riding at about 90%. And again, I go back to the same thing that life isn't about what happens to you. It's about how you respond to what happens to you. And we're probably going to look back on this over the medium and the longterm. And this is really rough for people trying to retire because they don't have time to make more money. But over the medium and the longterm, the markets tend to be up and to the right, especially if you diversify across asset classes and what we've been saying across geographies.

43:50You're going to look back and you're probably, probably 95 % of us are going to think, I wish I hadn't reacted so emotionally. Very few of us are going to say, I underreacted, right? Because you have the media and you have algorithms all trying to say, this is a quote unquote economic. Somebody described it as economic Armageddon. I'm like, No, it's not. I remember my second week at Morgan Stanley in 1987. The Dow went from like 1400 to 900 in one day. That would be like we wake up tomorrow and the Dow's at 28 ,000. I mean, I feel like your generation doesn't really know what war is like, what combat is like when we get a real speed bump.

44:38Just to interrupt, because you look at the numbers and the swings that we've had, they are at that level. They do rival the largest crashes and crises we ever seen. Not on a percentage basis. On a percentage basis, yes. Well, over a three-day period, right? Sure. But here's the reality. It hasn't even taken us back a year yet. Okay, so we've lost, I think as we see today, we've lost seven months of gains. It's, you know, the 2008 Great Financial Recession at the lows took us back, I think it took us back several years. And the question I think everyone is wondering, and by the way, I'm not disagreeing with your point here, but the question is, are we reaching that point?

45:22Are we, is it possible that the stock market will continue to slide? Do we have a 2008 or maybe a 2000 type event on the horizon here? And I'm with you that we don't have enough data to make that call yet, and we don't really have the right to start panicking and saying that the sky is falling. But are you saying it's just not on the table? Of course it is, but it always is, but it's impossible to know. And again, I go back to the same level of advice. What do you do? You do, in my view, you do nothing. and because we said on Monday, the markets could go up 2 ,000 points and they did. And today they're down 1 ,000 points.

46:05What you can do though, is if you do decide to sell and diversify, the good news is that you're not selling at a low here and buying in at a high. All markets are down right now. So to a certain extent, it's a bit of a free trade around diversification right now because the majority of markets have also taken a hit because see above, the definition of being stupid is hurting yourself by hurting others, and we've done both. So the markets have gone down here, but guess what? They've gone down pretty much everywhere else too. So you get to arb into diversification here kind of almost cost-free after you've figured out the tax implications, but you get a bit of a freebie here in terms of diversifying, and that is investors tend to be a little bit rear view mirror looking and that is, oh, the markets are down here.

46:56So I'm going to go into this other better market and the better market has already gone up. That's not the case here. Almost everyone has been hit pretty hard. So I'm all about not to keep calm and carry on, but I do think diversification across geographies is something everyone should be thinking about because I believe that over the next 10 years, there's a real non-zero probability that the return in the S &P in the U.S. market is zero. We'll be right back. If you're enjoying the show so far, hit follow and leave us a review on the Prof G Markets feed.

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50:06to other nations. And when you say that the U.S. has sort of given up its edge, I think what's really happened is the U.S. has given up its edge in terms of a relatively risk-free investment. There is now all of this associated risk attached to America that didn't exist before. And this is the kind of thing that affects the Chinese markets. I mean, those Chinese companies that we talk about, they do very well, but the multiple is contracted because of this government risk that everyone prices in. And now we're seeing a reversal of that trend. And if you go into Europe, I think a lot of investors are thinking, I can get relatively similar returns at lower risk, but also it's very cheap right now.

50:52You just look at the multiples compared to the US, the entire European stock market on a price to earnings basis is cheaper. So I think what we're saying, I mean, we have been saying do nothing, which I think is the right call on a weekly basis, just given the volatility we saw last week. But when else would we rotate out than now? I mean, isn't it the time? I think that's a fair point. What I would suggest is the following, is that it is very hard to read the label from inside of the bottle. You want to talk to a tax advisor. Also, this sounds superfluous. You want to talk to your partner. You want to get alignment with your partner.

51:33Hey, this is what's going on in the market. Because what you don't want to do is tell your partner in six months, you made a decision, got unlucky. You want alignment, financial alignment with your partner. I don't know if you've been watching, it's really volatile. I'm thinking diversifying in other companies, you definitely want to talk to a tax advisor. Because if you sell a stock that has huge gains or whatever, you have a taxable event, it might be an unwelcome thing you didn't see. And if you talked to a tax advisor, you might have said, well, you should have sold stuff that we could to harvest the losses or whatever it might be.

52:01Or there might be an investment vehicle where you can do tax-free exchange, whatever it might be. Unfortunately, the code, the tax code has been weaponized by the wealthy who can afford tax advisors. You really want to be thoughtful for tax. You want to speak to people. You want to do a little bit of research. You want to make informed trades. But to your point, right now, it's not a bad idea in my view. And this is what I'm doing, I am diversifying out of the U.S. And I'm trying to be thoughtful about stocks or about taxes. I'm trying to be thoughtful around which regions I go into. But China, if a company in China does a billion in revenues and is growing 10%, it trades at, or 5 % growth, it trades at 14 billion.

52:44The same exact company in the U.S. right now trades at 25 or 26 billion. I think that's going to normalize. I think it's much more likely that China goes to 20, then the U.S. goes to 35. And I think there's a much greater risk that the U.S. goes below 20 than China goes below 10. And we have had an incredible run. If you live in America and you've participated in any way in the markets by virtue of the job you have, the house you have, the stocks you have, you've done well. So the idea of taking a little bit off the table and diversifying. Right now, it's a free diversification arbitrage because everything's gotten the shit kicked out of it the last week.

53:30That is not a bad idea. And if you want to do it over the next week, I get it. I've been doing it over the last three months because I want to be thoughtful and measured about it. And my sense is the markets are now moving a bit in unison. They will disassociate from one another once things settle down. But to your point, for your own mental health, what you want to do is adopt a military decision-making strategy. And that is when they look at the results of a military operation, they don't look at the outcomes. They look at the information the officer had at that moment and did he or she make the best decision possible based on the information at the time.

54:04And this is what you want to do. You want to speak to people. You want to go to a robo-advisor. There's so much good information online. You want to talk to friends, be open about money, and get alignment with your partner such that you could look back. And even if things don't pan out as well as I think they will if you diversify or you do, you made the right decision at the time. That's how – because what people don't realize is there's returns, there's financial returns, and there's mental health returns. I really did have the suspicion that the markets were going to puke, and I thought a couple times about going deep and really shorting the market aggressively.

54:41And I didn't do it, and I would have made a lot of money. But here's the thing. I'm really diversified right now. And that's been the right decision. So I haven't gone aggressively at anyone's strategy because I've decided at this age, I'm not looking to get rich, I'm looking to not get poor. And if I talk to enough smart people, which I do, they would say, Scott, you need to just be wildly fucking diversified. Even if you leave some upside on the table, you need to be wildly diversified. You can take some big swings right now, and I'm not suggesting you do that, but you can take bigger swings than me.

55:11And by virtue of the fact you're young, you're probably gonna have to be overly concentrated in a house at some point or overly concentrated in terms of your wealth and your job, whatever it might be. But you have another 40 years to make money. If you're a little bit older and you have some assets, I absolutely think that the D word should be on your mind all day long, and that is diversification. Yes. And I also want to emphasize something you point out there, which is that this has been a months-long venture for you. It wasn't that you woke up one day and you decided, okay, I'm rotating out.

55:45This has been something you've been doing over the course of several months, which makes sense because the entire bet that we're describing here is a bet based on capital flows. We're not betting that some massive crisis event is going to trigger a reversal that's going to happen within a day. We're describing a bet that involves large institutions and large investors gently and gradually re-steering their investment into a different locale. And that is something that we're going to see play out over, let's face it, years. So if you're going to make this play, I think what you want to do is what Scott is describing here, which is drag it out.

56:26You don't have to do it all in one go. You can make it a month's long play. You could even make it a year's long play because the bet is that those returns are going to come not within a day, but within several years. Let's take a look at the week ahead. We'll see earnings from Goldman Sachs, Johnson & Johnson, Bank of America, U.S. Bank, TSMC, UnitedHealth, and Netflix, i.e. earnings season has begun. Scott, any predictions? Yeah, a few, which means three, Ed. One, Trump is going to blank. This guy plays the worst poker in the world. He's literally like a guy at a poker table who starts convulsing if he has a good hand.

57:09I mean, he is the worst poker player in the world. And President Xi looks at President Trump the way Logan Roy in succession looked at his kids and said the following, you are not serious people. The fact that we're going to stare down China is just fucking ridiculous at this point, given our lack of credibility, given our lack of willingness to endure pain. Apple is not going to see any tariffs. I can't imagine the riots if all of a sudden, you know, Gen Z has to pay 3 ,500 bucks for their iPhone. Thousands of you will decide to run for office and say, make America iPhone great again. Anyways, Tim Cook is the CEO that, or the business person that Donald Trump thinks he is.

57:53And you're just, you're just going to, he's going to figure out a way to give an exemption to all Apple products. And I also think, generally speaking, we're going to look at, we're going to be closer to normal in six months. We're going to be back to the future. This tariff situation is going to look almost identical to what it was before we started this mess. The only difference is the U.S. brand will now have a strong association of toxic indecision or toxic uncertainty. And we're going to see a pretty serious clip in that multiple contraction, which will take everything down. This is going to be a round trip where on the way home, we realized we have just been through hell and back for fucking nothing, for nothing, except a loss of reputation and a serious downgrade in the prosperity and wealth of Americans.

58:50This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel is our research associate. Dan Shallan is our intern. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Thursday on Prof G Markets.

59:24In kind reunion

59:31As the world turns And the dark lights In love

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