Good analysis, Mr. Lowenstein. Congress needs to take the wheel, and Milton Friedman was right: free markets are as essential to democracy as free elections. (And, pondering a darker thought of its corollary: tanking the market with a motive to take the nation down a mercantilism/isolationism path may be setting the table for dictatorial government.)
The wealth alluded to is and was illusory. It is the result of one of the great excesses in financial history. The market, contrary to Fama's belief, is not all knowing. In fact it is rather dumb. It in its current guise the market has been called the "Everything bubble" for near a decade. Mr. Grantham calls it the third great bubble of his lifetime. Mr. Hausman has stated a decline of 70% would not be a surprise. [These statements during the Biden term, not Trump.] As such, what has been lost is not wealth at all. Gene Ludwig recently stated the country has been in a recession since 2022. He is not the first. Mr. Lacalle, and others, would point to the accumulation of debt in support of 'growth' and question the notion of growth the market believes in.
We have, with the foundation provided by economists from a couple hundred years ago, decades ago set upon a course of "free trade". It appears many promoters of free trade didn't actually read the source material, or only chose to selectively incorporate their ideas. The assumptions in Comparative Advantage make it merely a thought experiment today. The bits left on the screening room floor, the importance of industry and defense, ignored. Certainly not a foundation. However, it is from this flawed foundation we set sail for this ideal of free trade. Men steeped in trade theory, without practical knowledge therefore, sat down at grand tables to reduce or eliminate trade barriers. Under the auspices of GATT, WTO and other acronyms, set about to negotiate over decades, trade agreements. The highly complex, legalistic and political documents are about as far away from free trade as you can possibly get. I recently had occasion to look at the tariffs in Canada. The document was over 1400 pages long.
The Clinton administration invited China into the WTO. They knew it was too early and that industries within the US would disappear as a result. Think textiles in the Carolinas. The grand thinkers thought if China tasted the fruits of free trade, they would convert to democracy. We seem to be further away from that notion of democracy than when it started. Instead we have a communist mercantilist trade competitor, that holds access to their consumer market as Lucy Van Pelt holds the football in front of Charlie Brown. Well it is the China export of SARS-COV-2 that has found the US swimming naked.
Commerce has certainly found it attractive. They have been able to offshore pollution, jobs, climate change and much more. All while taking pride in the notion their product is "Designed in California". This asset lite model has allowed for a proliferation of stock repurchases and far greater leverage. We have deindustrialized and financialized our economy, to the benefit of surpassing Wimpy from the Popeye cartoons. We can now have a burger or burrito and we don't even have to pay for it next Tuesday. We can pay over 4 easy installments by cranking up the securitization machine.
I do not disagree this has been a boon for the great and good. Not just in the US, but around the globe. If we persist in this endeavor for the sake of the great and good, we will soon be living in world that looks like a Cormac McCarthy novel.
You are far too kind. I have my thoughts, but I would defer to someone far better to respond. This is a few months ago now, but I think it does a good job of walking through scenarios. https://www.youtube.com/watch?v=s7EwfjK0FP0
To seed, build, and nurture timeless, intangible human capitals — such as resilience, trust, truth, evolution, fulfilment, quality, peace, patience, discipline, relationships and conviction — in order to elevate human judgment, deepen relationships, and restore sacred trusteeship and stewardship of long-term firm value across generations.
A refreshing take on our business world and capitalism.
A reflection on why today’s capital architectures—PE, VC, Hedge funds, SPAC, Alt funds, Rollups—mostly fail to build and nuture what time can trust.
“Built to Be Left.”
A quiet anatomy of extraction, abandonment, and the collapse of stewardship.
"Principal-Agent Risk is not a flaw in the system.
Although the world, economy, and markets are much different than in 1929, the tariff situation that unfolded in the 1929 - 1930 experience, may be similar to what is going on today.
Chronology
. Herbert Hoover was elected on a promise / platform to impose tariffs to protect the farmers in America
. He was inaugurated in March 1929 and the Smoot-Hawley tariff plan worked it's way through the House and it started expanding - not just to farm goods - but to other goods.
. By the fall of 1929 the House had passed it's version of the S-H bill
. The House was very protectionist at this time and it expanded the bill to levy extremely high tariff rates on virtually everything
. However, the Senate at this time was more free-trade there were 16 free trade senators that were basically blocking S-H in the Senate ( the House version of the S-H bill and the Senate version SH bill were different - the Senate wanted a 38% tariff rate, and the House wanted a 60% tariff rate )
. On October 21st 1929 the 16 free trade senators basically log rolled and said that they would support the plan if the House would give tariffs ( proceeds ? ) for their states for our industries
. From the passage of the bill by the Senate on Oct 21 to Oct 29, the stock market proceeded to slide significantly, yet the news media didn't connect the market decline with the passage of the bill. However, market participants all around the world are seeing the future impact of this protectionism ( the collapse of prices for America's export industries - automotive, electronics, steel - and agricultural commodities - cotton, wheat, corn, etc. ).
.Earlier in 1929, as the bill was moving through the House,
a lot of countries sensed the threat and started preemptive and retaliatory strikes on the U.S. And European countries started tariff Wars against other European countries. And, rather than buying agricultural commodities from the US, they started buying s from other ( it wasn't just "Spain against America" - it was Spain against France and Italy and Britain and that's exactly what ended up unfolding )
. And it wasn't just the S-H bill that had an effect on the stock market. We also know that in the fall of 1929, the Federal Reserve raised interest rates relatively dramatically - they had started in late 1928 raising it the discount rate from 3 1/2 percent to 6 percent by September of 1929 and they were deliberately trying to squelch what they considered stock market speculation
. What happened with S-H after the stock market crash ? With the Senate S-H bill and the House S-H bill still being different bills, they tried to reconcile those bills in November and December of that session of Congress. Through an attempt at conference reconciliation, the Senate and the house couldn't agree on reconciliation, and it looked like the bill was dead. - In fact, the New York Times even proclaimed that the tariff bill was dead.
. When Congress met in session again in January, they started working on the reconciliation of that bill from the prior session, and through the spring, many compromises were made in the tariff schedules in order to get to get the a reconciled form legislatively passed and signed by President Hoover in June of 1930.
In the midst of all of this, the stock market ,which had lost more than a third of its value in that one week in October, gradually started to come back. It regained most of its value from January through May, and it was only 8% below where it was at the beginning of 1929.
.The day that Hoover signed the final S-H bill in June, the market plunged again. And from July 1930 - December 1931, the market declined -56%, and didn't bottom until Sept 1932.
It is yet to be seen if enough "damage has been done" by Trump/Musk in order to stall the market's "recovery rally" into ? and produce a continuation of a "down trend".
Congress removing tariffs by a simple majority vote would be a necessary step towards not repeating the 1929-1932 experience.
Good analysis, Mr. Lowenstein. Congress needs to take the wheel, and Milton Friedman was right: free markets are as essential to democracy as free elections. (And, pondering a darker thought of its corollary: tanking the market with a motive to take the nation down a mercantilism/isolationism path may be setting the table for dictatorial government.)
We haven't had free markets in decades. This post sounds like the cries of an insider seeing their privileged status being taken away.
The wealth alluded to is and was illusory. It is the result of one of the great excesses in financial history. The market, contrary to Fama's belief, is not all knowing. In fact it is rather dumb. It in its current guise the market has been called the "Everything bubble" for near a decade. Mr. Grantham calls it the third great bubble of his lifetime. Mr. Hausman has stated a decline of 70% would not be a surprise. [These statements during the Biden term, not Trump.] As such, what has been lost is not wealth at all. Gene Ludwig recently stated the country has been in a recession since 2022. He is not the first. Mr. Lacalle, and others, would point to the accumulation of debt in support of 'growth' and question the notion of growth the market believes in.
We have, with the foundation provided by economists from a couple hundred years ago, decades ago set upon a course of "free trade". It appears many promoters of free trade didn't actually read the source material, or only chose to selectively incorporate their ideas. The assumptions in Comparative Advantage make it merely a thought experiment today. The bits left on the screening room floor, the importance of industry and defense, ignored. Certainly not a foundation. However, it is from this flawed foundation we set sail for this ideal of free trade. Men steeped in trade theory, without practical knowledge therefore, sat down at grand tables to reduce or eliminate trade barriers. Under the auspices of GATT, WTO and other acronyms, set about to negotiate over decades, trade agreements. The highly complex, legalistic and political documents are about as far away from free trade as you can possibly get. I recently had occasion to look at the tariffs in Canada. The document was over 1400 pages long.
The Clinton administration invited China into the WTO. They knew it was too early and that industries within the US would disappear as a result. Think textiles in the Carolinas. The grand thinkers thought if China tasted the fruits of free trade, they would convert to democracy. We seem to be further away from that notion of democracy than when it started. Instead we have a communist mercantilist trade competitor, that holds access to their consumer market as Lucy Van Pelt holds the football in front of Charlie Brown. Well it is the China export of SARS-COV-2 that has found the US swimming naked.
Commerce has certainly found it attractive. They have been able to offshore pollution, jobs, climate change and much more. All while taking pride in the notion their product is "Designed in California". This asset lite model has allowed for a proliferation of stock repurchases and far greater leverage. We have deindustrialized and financialized our economy, to the benefit of surpassing Wimpy from the Popeye cartoons. We can now have a burger or burrito and we don't even have to pay for it next Tuesday. We can pay over 4 easy installments by cranking up the securitization machine.
I do not disagree this has been a boon for the great and good. Not just in the US, but around the globe. If we persist in this endeavor for the sake of the great and good, we will soon be living in world that looks like a Cormac McCarthy novel.
This is an interesting comment and am interested in what you think would be a good solution to our situation, now.
Thank you.
You are far too kind. I have my thoughts, but I would defer to someone far better to respond. This is a few months ago now, but I think it does a good job of walking through scenarios. https://www.youtube.com/watch?v=s7EwfjK0FP0
Hello there,
Huge Respect for your work!
New here. No huge reader base Yet.
But the work has waited long to be spoken.
Its truths have roots older than this platform.
My Sub-stack Purpose
To seed, build, and nurture timeless, intangible human capitals — such as resilience, trust, truth, evolution, fulfilment, quality, peace, patience, discipline, relationships and conviction — in order to elevate human judgment, deepen relationships, and restore sacred trusteeship and stewardship of long-term firm value across generations.
A refreshing take on our business world and capitalism.
A reflection on why today’s capital architectures—PE, VC, Hedge funds, SPAC, Alt funds, Rollups—mostly fail to build and nuture what time can trust.
“Built to Be Left.”
A quiet anatomy of extraction, abandonment, and the collapse of stewardship.
"Principal-Agent Risk is not a flaw in the system.
It is the system’s operating principle”
Experience first. Return if it speaks to you.
- The Silent Treasury
https://tinyurl.com/48m97w5e
Although the world, economy, and markets are much different than in 1929, the tariff situation that unfolded in the 1929 - 1930 experience, may be similar to what is going on today.
Chronology
. Herbert Hoover was elected on a promise / platform to impose tariffs to protect the farmers in America
. He was inaugurated in March 1929 and the Smoot-Hawley tariff plan worked it's way through the House and it started expanding - not just to farm goods - but to other goods.
. By the fall of 1929 the House had passed it's version of the S-H bill
. The House was very protectionist at this time and it expanded the bill to levy extremely high tariff rates on virtually everything
. However, the Senate at this time was more free-trade there were 16 free trade senators that were basically blocking S-H in the Senate ( the House version of the S-H bill and the Senate version SH bill were different - the Senate wanted a 38% tariff rate, and the House wanted a 60% tariff rate )
. On October 21st 1929 the 16 free trade senators basically log rolled and said that they would support the plan if the House would give tariffs ( proceeds ? ) for their states for our industries
. From the passage of the bill by the Senate on Oct 21 to Oct 29, the stock market proceeded to slide significantly, yet the news media didn't connect the market decline with the passage of the bill. However, market participants all around the world are seeing the future impact of this protectionism ( the collapse of prices for America's export industries - automotive, electronics, steel - and agricultural commodities - cotton, wheat, corn, etc. ).
.Earlier in 1929, as the bill was moving through the House,
a lot of countries sensed the threat and started preemptive and retaliatory strikes on the U.S. And European countries started tariff Wars against other European countries. And, rather than buying agricultural commodities from the US, they started buying s from other ( it wasn't just "Spain against America" - it was Spain against France and Italy and Britain and that's exactly what ended up unfolding )
. And it wasn't just the S-H bill that had an effect on the stock market. We also know that in the fall of 1929, the Federal Reserve raised interest rates relatively dramatically - they had started in late 1928 raising it the discount rate from 3 1/2 percent to 6 percent by September of 1929 and they were deliberately trying to squelch what they considered stock market speculation
. What happened with S-H after the stock market crash ? With the Senate S-H bill and the House S-H bill still being different bills, they tried to reconcile those bills in November and December of that session of Congress. Through an attempt at conference reconciliation, the Senate and the house couldn't agree on reconciliation, and it looked like the bill was dead. - In fact, the New York Times even proclaimed that the tariff bill was dead.
. When Congress met in session again in January, they started working on the reconciliation of that bill from the prior session, and through the spring, many compromises were made in the tariff schedules in order to get to get the a reconciled form legislatively passed and signed by President Hoover in June of 1930.
In the midst of all of this, the stock market ,which had lost more than a third of its value in that one week in October, gradually started to come back. It regained most of its value from January through May, and it was only 8% below where it was at the beginning of 1929.
.The day that Hoover signed the final S-H bill in June, the market plunged again. And from July 1930 - December 1931, the market declined -56%, and didn't bottom until Sept 1932.
It is yet to be seen if enough "damage has been done" by Trump/Musk in order to stall the market's "recovery rally" into ? and produce a continuation of a "down trend".
Congress removing tariffs by a simple majority vote would be a necessary step towards not repeating the 1929-1932 experience.
Roger,
As author of “When Genius Failed”, might you also comment on the risks of systemic failure resulting from Trump’s actions on tariffs?
I’ve shared your good piece w several others. Thank you.