Weekly Good Reads: 5-1-1
Trump's 100 Days, "Sell American" Trade, IMF Economic Outlook, Gold and Financial Stocks, How Trade Talks Work, AI Video Generation
Welcome to a new Weekly Good Reads 5-1-1 by Marianne, a 25-year investment practitioner sharing something interesting and topical in investing, the economy, wellness, and AI/productivity.
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Sharing the quote of the week:
Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
~Warren Buffett
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Market and Data Comment
The Economist and Time came out last week regarding Trump’s first 100 days, a term that originated from Franklin D. Roosevelt's presidency when he used a 3-month (almost 100-day) session to rapidly pass a series of 15 major bills to counter the effects of the Great Depression.
What’s the verdict? The IMF, in its latest World Economic Outlook, slashed US growth by 1% to 1.8% in 2025 vs. 2024, the worst markdown for all G7 economies (and the Peterson Institute thought that it would be more like 0.1%) (see more in One Chart to Know below).
Bloomberg sees Q1 GDP, which will come out next week, at 0.4%, down from 2.4% in Q4, due to a severe drag from the trade deficit, as consumers and businesses front-loaded their purchases or inventories anticipating tariffs to raise prices. April’s employment (coming this Friday) will be closely watched.
Trosten Slok summarized the economic impact well:
For companies, new orders are falling, capex plans are declining, inventories were rising before tariffs took effect, and firms are revising down earnings expectations.
For households, consumer confidence is at record-low levels [April consumer sentiment was the fourth lowest on record at 52.2], consumers were front-loading purchases before tariffs began, and tourism is slowing, in particular international travel.
Also, 40% of all world imports in the US are things domestic manufacturers need to finish the manufacturing of a good, so reciprocal tariffs hurt domestic manufacturers, not just consumers (see Econ/Invest #2). Trump’s wish to bring back manufacturing jobs is also much harder than he thinks.
The uncertainty of Trump’s policy is hampering governments' ability to do budget planning. The IMF could not even put a central outlook in its twice-yearly survey but presented a range of growth projections.
Analysts have been marking down year-end S&P 500 targets by over 1,000 points, ranging from 5,200 to 6,150 (5,525 as of April 25) - see below, and retail giants have warned Trump that empty shelves would happen within weeks.
Dire economic warnings and market performances have caused Trump to soften his tone, saying he had no intention to fire Powell and the US will have a fair deal with China and the U.S. will finish trade deals with countries in “three to four weeks” (Peterson Institute found on average trade deals take 18 months to complete). WSJ reported the government is looking at a tariff of 50 to 65% on China, de-escalating tariff tension, while China has quietly exempted some tariffs, e.g., on semiconductors.
The Trump trade has now become the “Sell American” trade as Bloomberg wrote (see Econ/Invest #1). Evidence?US Treasuries and the US Dollar have not been the safe havens as before, and their correlation has turned negative - as yields rose, US Dollar fell, signalling all US assets are being sold. YTD, the US Dollar has fallen 8.5%, with the S&P 500 underperforming the MSCI EAFE Index by 15% in USD terms.
For this week, stocks and bonds got a relief with the S&P 500 returning 4.6%, the 10-year government bond rallying 9bp to 4.24%, and the VIX falling 4.8% to 24.8% while US high yield spread falling 34bp to 391bp.
This coming week, the slew of data releases will provide an initial glimpse of Trump’s tariffs’ economic impact. We will monitor US Q1 real GDP and employment cost index, March core PCE price index, and March personal spending on Wednesday, April ISM manufacturing index on Thursday, and April nonfarm payrolls, unemployment rate, and average hourly earnings on Friday, Q1 preliminary Euro Area GDP and April Manufacturing PMI on Wednesday, Euro Area April inflation on Friday, Bank of Japan’s monetary policy meeting on Thursday, and China’s April NBS manufacturing PMI and Caixin manufacturing PMI on Wednesday.
Big tech earnings including Microsoft, Apple, Meta, and Amazon and their management guidance this week will enlighten is how these giants weather global economic shock and what that means for their capex spending.
Economy and Investments (Links):
Markets Are Discovering the Real Trump Trade Is ‘Sell America’ (Bloomberg or Archive)
“Consider the damage to America’s reputation by this sudden pivot to highly protectionist policies,” says David Kelly, chief global strategist at JPMorgan Asset Management in New York. The resulting loss of confidence in American policy “reduces the price people are willing to pay for US assets.”
The damage isn’t just reputational: economies around the world are bracing for trade war fallout. The IMF on Tuesday cut its forecasts for global growth this year and next, and warned that the outlook could deteriorate further.
At home, Trump’s tariffs have sent consumers and business into a funk – hammering the stocks of companies likely to face weaker demand, costlier inputs and foreign retaliation. As of midday on Tuesday, the S&P 500 has tumbled 7.2% since April 2, wiping out roughly $3.6 trillion in market value.
Tariff-Induced Paralysis (John Mauldin)
“One of the issues most missed by those trying to think about the impact of tariffs on US interests is the fact that so many of our imports are not finished goods, but intermediate goods used by US manufacturers in their production of finished goods. Fully 37% of all imports from China are intermediate products, so the US manufacturer that we are told tariffs are supposed to be helping is paying more for their own inputs. 40% of all world imports in the US are things our own domestic manufacturers are buying to finish the manufacturing of a good.
“My frequent line is that even if tariffs helped domestic manufacturers, it comes at a cost to US exporters and US consumers, who are also US economic actors. But the first part of that sentence—the concession itself—is also patently false. The very domestic manufacturers we are talking about are, almost all the time, also the very importers, incurring the additional cost.” (David Bahnsen)
How the US Trade War is Infecting the Global Economy (FT or Archive)
Even if Trump has now embarked on a path to at least partial détente, resolving the situation will not be easy. “Trade talks will probably be rough, with many US threats to leave the table,” says Schmieding [chief economist at Berenberg bank]. “In the meantime, uncertainty will reign supreme.”
Finance/Wealth (Link):
The Hows, Whys, and "Huh?"s of Investing in Financial Services Stocks (Finimize)
[T]he main way banks make money is by charging more to lend than it costs them to borrow. The difference between these two interest rates is captured in one of the most important financial ratios used to analyze banks’ suitability as an investment: net interest margin (NIM). NIM is expressed as a percentage and banks always disclose it in their financial statements, so you never have to worry about calculating it yourself.
+ Why Investors Can’t Get Enough of Gold Right Now (Bloomberg or Archive)
The metal’s blistering price rally since the start of 2024 was partly driven by huge purchases by central banks, particularly in emerging markets as they seek to reduce their dependency on the US dollar, the world’s primary reserve currency. Gold helps diversify a country’s foreign exchange reserves and guard against currency depreciation.
Wellness/Idea (Link):
A Guide to Freezing Practically Any Food (Lifehacker)
An interesting suggestion!
Milk and Liquids: As I mentioned earlier, freezing liquids in flat planks can help you stack them and conserve space, as opposed to finding spaces for blocks of liquid. However, it’s really a matter of preference. I wasn’t privy to the world of freezing milks until recently when I learned that I could freeze and thaw coconut milk. It turns out you can freeze cow milk equally as well.
This is a huge boon, since dairy milks tend to spoil rather quickly, but buying a whole gallon is usually more cost effective than the smaller sizes. Now you can buy the bigger size, pour half of it into a freezer-safe container and pop it into the freezer. Use the other half at your normal pace, and when you’re ready, thaw the other portion.
Thaw frozen milk in the fridge overnight and give it a shake to smooth it out. If you’re in a rush, you can put the icy milk block into a pot on the stove and warm it up. Then return it to the fridge in a container to use in cereal, tea, and coffee over the next five days.
One Chart You Should Not Miss: IMF’s World Economic Outlook (Real GDP Growth 2024-2026, as of April 2025)
The new tariff measures from the US have shifted the global world economic order, with a major negative impact on economic growth and a smaller decline in inflation in the next 2 years. Countries facing debt issues are especially vulnerable in an environment where trades face huge uncertainty, and financial and borrowing conditions become more restrictive.
The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity. Under the reference forecast that incorporates information as of April 4, global growth is projected to drop to 2.8 percent in 2025 and 3 percent in 2026—down from 3.3 percent for both years in the January 2025 WEO Update, corresponding to a cumulative downgrade of 0.8 percentage point, and much below the historical (2000–19) average of 3.7 percent. In the reference forecast, growth in advanced economies is projected to be 1.4 percent in 2025. Growth in the United States is expected to slow to 1.8 percent, a pace that is 0.9 percentage point lower relative to the projection in the January 2025 WEO Update, on account of greater policy uncertainty, trade tensions, and softer demand momentum, whereas growth in the euro area at 0.8 percent is expected to slow by 0.2 percentage point. In emerging market and developing economies, growth is expected to slow down to 3.7 percent in 2025 and 3.9 percent in 2026, with significant downgrades for countries affected most by recent trade measures, such as China.
Play around with their Datamapper, e.g. real GDP growth, GDP (current prices, USD and PPP), GDP per capita, etc.
One Term to Know: How Trade Talks Work (Previous vs. Now)
Trade negotiations usually involve staff from multiple federal agencies, including the Treasury, Commerce, State, and Labour Departments and the Office of the U.S. Trade Representative, and require a nuanced understanding of the cultures and politics of each trading partner, so negotiations can take years (not months).
The ongoing trade negotiations are different, and can be faster and more organized (WSJ), but it is not clear whether these will be completed as trade deals or letters of understanding:
Standardized structure: Uses a unified (but country-customizable) template with set negotiation categories (tariffs, digital trade, etc.) for all countries, replacing the previous case-by-case, customized talks.
Rolling, multi-country negotiations: Talks are now held in rotating cycles with about 18 countries at a time (six per week for 3 weeks), instead of focusing on one partner or bloc at a time.
Strict deadlines: Negotiations have clear, short deadlines (e.g., July 8), with consequences like reciprocal tariffs for countries that don’t reach agreements, unlike previous open-ended timelines.
Exclusions and separate tracks: Some major partners, like Mexico, Canada, and China, are handled separately, unlike previous frameworks that often included all key players together.
🌻Things I learned About AI/Productivity:
All the Things People are Using for AI (Visual Capitalist)
2025’s AI Video Showdown: Comparing Google Veo 2 and OpenAI Sora (Forbes)
What's undeniable is the democratizing effect these tools are having on visual storytelling. "Now we're coming to a place where everybody, anybody with an incredible imagination, whether they're in India, China, Pakistan or South Africa, or anywhere else, and access to these tools can tell incredible stories," Kadieff observes.
Generating videos from text has never been easier (check out my video created in Adobe Firefly. Prompt: A few beautiful colourful koi swimming leisurely in a pond of water lilies).
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Well written and laid out the economic principles well