Subject: Re: War, currencies and jurisdictions
Nonetheless, I agree with your general gloomy outlook for the U.S. economy. You seem to focus your outlook on trade, but America is doing much more to shoot itself in the foot. The ICE raids are most visible right now, decimating the labor force in agriculture, personal services, restaurants, hotels, etc. We can also expect a devastating economic effect from the fiscal actions of the Big Beautiful Bill. Set aside for the moment that millions of Americans will lose their health care insurance and their food assistance. The macro-economic effect will be similar to that of the Hoover administration at the start of the Great Depression. Economic dogma at the time said that fiscal constraint is the right answer to an economic downturn, which resulted in a deepening of the depression. This year, drastic cutting of government expenditures will have a similar effect, made only worse by the fact that there is no intention to actually narrow the fiscal budget deficit. Rather, the "benefits" of the budget cuts will all flow to the top 1% of income earners who tend to be hoarders rather than spenders.

On that front I'm a bit more optimistic than you. Though there are obviously some specific budget cuts being done and specific groups will suffer thereby, I don't foresee the aggregate US federal budget expenditure falling, definitely not in any material way. The budget deficit isn't going to shrink, so the net stimulative effect of federal spending won't in aggregate shrink. Similarly, though lots of individuals will be deported and specific jobs won't get done, hurting a few industries, I don't think it will amount to a very meaningful number in the aggregate labour force.

Certainly none of that is good for the overall economic backdrop, they're all drags. But for someone interested in how their portfolio will do, the things to worry about are corporate profitability (only mildly affected directly by reduced exports but heavily dependent on the broad economic situation), the US dollar (hugely dependent on the kindness of strangers to continue net portfolio=capital account inflows), bond rates (ditto), and valuation multiples (ditto). It is in the sense of that recap that I think the relationship with non-US actors is the dominant concern for investors. They have all been told to get stuffed, and four so far to prepare for involuntary annexation, so the omens are not bright on that front.

Some non-US groups matter more than others. When it comes to China, as the expression goes, the US doesn't have the cards. China could lose the US as the buyer of that 14% of their exports and survive (uncomfortably), but the US economy can not survive without Chinese imports. At least not without a depression so deep that it causes civil war. A pickup truck should not challenge a type 99A tank to a game of chicken, no matter how big the tariff wall protecting the pickup.

Bottom line, I conclude that the outlook for the US economy, US profits, and US stocks in the next 10-20 years is poor, and likely to deteriorate further.

Jim