We have a president who views countries as enemies and thinks that everyone agrees with him. We have a president who thinks that when you slap on tariffs, the only people hurt are in foreign countries. We have president with a national economic advisor who is either ignored or is unavailable. We have a president who thinks that tariffs are simple, easy and without any consequence to any company that is doing business in that country, because it should be doing business here. We have a president who is now at odds with every trading lesson we have learned and every market that had been open to us. We have a president who has a trading policy that is rash, unthinkable and almost designed to make the markets crash.
So when we see interest rates invert in front of our eyes and we get the kind of retail reports like I think we will see in May, and we recognize that it is impossible to reverse the flow of history given the incredibly tight relationship we have with Mexico -- $671 billion last year, $299 billion us to them and $371 billion them to us -- without knocking over the already creaky stock edifice, then it really doesn't matter what the price-to-earnings ratio of anything may be. That's because those ratios are going lower.
Sure, we can sort things out. We can identify who isn't hurt: Are we really going to sell Okta (OKTA) or Veeva Systems (VEEV) after their great quarters that have nothing to do with Mexico?
But because of the nature of the ETFs that bring down everything to begin with -- a process that always takes several days -- we endure a tremendous decline before we figure out who is unscathed.
Yesterday, I talked about the checklist, the different hurdles you have to get over to buy a stock. Mexico is now front and center, rivaling China, especially for the auto industry. Remember the president has more scorn for American companies that leave to do business in Mexico, especially the auto companies who defy him, than he does for Mercedes, BMW, and Toyota Motor (TM) , all of which are huge in Mexico.
To him it is a huge win: What's the real cost of these tariffs to our president? Nil, because you will be more likely to buy American cars made here than there. If that's an unintended consequence of a policy that threatened to derail the USMCA prospective deal -- let alone the current NAFTA trade law -- in order to stem illegal immigration, then to him it is a positive one.
I think it is pretty obvious that if these tariffs go to 25%, then Mexico will have a recession and you will get even more people to cross the border illegally.
That doesn't matter, too.
It's simply unthinkable.
Until it is thinkable expect the worse.
The sole break? At least the focus will be off China for a few minutes as the one-man trade wrecking crew continues.
Never forget the president does not view countries as markets. He views them as strategic enemies or friends of the U.S. Given that we haven't gotten fair trading deals from most countries on Earth, he feels free to do what he wants so he can claim he is bringing jobs back and insuring national security.
He's president.
He can do it.
But at a certain point, people will wonder wax positively for President Obama.
Or potential President Biden, including his vaunted base, which tends to work in areas that will actually be hit by this tariff.
Oh, I sell Modelo and Corona at Bar San Miguel. We use Mexican avocados. We source from distributors who use now highly tariffed Chinese kegs.
I should just close it.
