I'm not sure about drawing trends out of today's action. i think marketeers are so befuzzled
by trumpian extremes, asserted, withdrawn, maybe reasserted, that they are ignoring the future
more than ordinarily. but when it comes to wanting low rates and over-indulging in debt,
trump has done it his entire life and he is predictable in this one matter, so i think the market
should be taking the risk of a trump run fed more seriously. Companys are still selling
front run cheap inventory to make current earnings estimates and consumers (like me) have been buying the front run goods now, and so will be buying less later. Also, a lot of the earnings reports are lower current quarter versus year ago quarter. they are beating lowered expectations
which doesn't mean that much. And there are situations like the one you recently described with Toyota where they are taking some hit to margins temporarily, but are saying that the hit is going
to be too much to bear, so they will have to pass the inflated price thru. the same thing can happen on the importer side, so the pass thru is delayed, but a bigger hit to the consumer as we go forward. why would we need or want interest rate cuts if the economy is so glorioso?
because it isn't really. Commercial real estate losses have been pushed forward and not marked to market, a giant hole in the balance sheets of most banks. even with falling prices on new homes, the housing market is still struggling. so there's a good reason to lower rates.
but trump will want immoderate rapid cuts immediately and when there comes a time when
we need restraint he will not be restrained. these changes in the tax bill impact immigrant consumption, student borrowers consumption, and poor people using snap cards to buy groceries. and the stressed balance sheets of those who lose medicaid...so there's a fair chance that the consumption we are seeing now won't be the pattern for the future.
as wth inflation during the pandemic panic, it's changes to the balance sheet of those who are not ultra wealthy that become widely systemic and whether its inflation, or stagflation, or recession coming up, we are committed to tipping that wider balance. lost federal jobs and
lost jobs in health care research, and the education system as well, fed by parts of the government being disbanded =a lot of people with disrupted incomes...
The market is chasing single-name AI alpha, not a broader macro regime. On tariffs—while my economic modeling may not be as sharp as it once was—it's worth pointing out that although tariffs are often framed as chronic inflationary poison, their effect is more like a one-off shock, akin to a Value-Added Tax (VAT) adjustment, rather than a recurring dose of monetary morphine.
Here’s why: when a tariff is imposed, the price level adjusts once to reflect the new cost structure. Importers and retailers either absorb part of the tariff burden or pass it through to consumers via higher prices. But that adjustment happens upfront—a step change in the price level, not a sustained increase in the inflation rate.
Think of it this way: if the U.S. slapped a 10% tariff on imported goods, CPI might pop in the near term. But once prices re-base and supply chains recalibrate, year-on-year comparisons normalize. Inflation—as a rate of change—doesn’t keep compounding unless new or escalating tariffs continue to hit. One-off tariffs cause a price reset, not an inflation spiral.
This is exactly how VAT systems behave. When a country bumps its VAT rate from 5% to 7%, prices jump—once. But inflation doesn’t stay hot unless the tax keeps rising. Central banks and bond markets understand this. Just look at how they’ve historically responded to VAT hikes in Japan or Europe: a brief inflation pulse, then a return to trend.
And over time, tariffs tend to get diluted. Importers find alternate sources, shift production locally, or renegotiate contracts. Retailers compete away margin. Eventually, the pass-through effect erodes. Economists call this tariff fatigue—price stickiness gives way to competitive pressure.
Tariffs can sting in the short run, but they don’t create the kind of inflationary feedback loop we associate with wage dynamics or central bank missteps. They’re a tax wedge, not an inflation engine. As long as they’re not constantly tweaked or escalated, they behave more like a one-off VAT than a structural inflation nightmare.
I'm not sure about drawing trends out of today's action. i think marketeers are so befuzzled
by trumpian extremes, asserted, withdrawn, maybe reasserted, that they are ignoring the future
more than ordinarily. but when it comes to wanting low rates and over-indulging in debt,
trump has done it his entire life and he is predictable in this one matter, so i think the market
should be taking the risk of a trump run fed more seriously. Companys are still selling
front run cheap inventory to make current earnings estimates and consumers (like me) have been buying the front run goods now, and so will be buying less later. Also, a lot of the earnings reports are lower current quarter versus year ago quarter. they are beating lowered expectations
which doesn't mean that much. And there are situations like the one you recently described with Toyota where they are taking some hit to margins temporarily, but are saying that the hit is going
to be too much to bear, so they will have to pass the inflated price thru. the same thing can happen on the importer side, so the pass thru is delayed, but a bigger hit to the consumer as we go forward. why would we need or want interest rate cuts if the economy is so glorioso?
because it isn't really. Commercial real estate losses have been pushed forward and not marked to market, a giant hole in the balance sheets of most banks. even with falling prices on new homes, the housing market is still struggling. so there's a good reason to lower rates.
but trump will want immoderate rapid cuts immediately and when there comes a time when
we need restraint he will not be restrained. these changes in the tax bill impact immigrant consumption, student borrowers consumption, and poor people using snap cards to buy groceries. and the stressed balance sheets of those who lose medicaid...so there's a fair chance that the consumption we are seeing now won't be the pattern for the future.
as wth inflation during the pandemic panic, it's changes to the balance sheet of those who are not ultra wealthy that become widely systemic and whether its inflation, or stagflation, or recession coming up, we are committed to tipping that wider balance. lost federal jobs and
lost jobs in health care research, and the education system as well, fed by parts of the government being disbanded =a lot of people with disrupted incomes...
The market is chasing single-name AI alpha, not a broader macro regime. On tariffs—while my economic modeling may not be as sharp as it once was—it's worth pointing out that although tariffs are often framed as chronic inflationary poison, their effect is more like a one-off shock, akin to a Value-Added Tax (VAT) adjustment, rather than a recurring dose of monetary morphine.
Here’s why: when a tariff is imposed, the price level adjusts once to reflect the new cost structure. Importers and retailers either absorb part of the tariff burden or pass it through to consumers via higher prices. But that adjustment happens upfront—a step change in the price level, not a sustained increase in the inflation rate.
Think of it this way: if the U.S. slapped a 10% tariff on imported goods, CPI might pop in the near term. But once prices re-base and supply chains recalibrate, year-on-year comparisons normalize. Inflation—as a rate of change—doesn’t keep compounding unless new or escalating tariffs continue to hit. One-off tariffs cause a price reset, not an inflation spiral.
This is exactly how VAT systems behave. When a country bumps its VAT rate from 5% to 7%, prices jump—once. But inflation doesn’t stay hot unless the tax keeps rising. Central banks and bond markets understand this. Just look at how they’ve historically responded to VAT hikes in Japan or Europe: a brief inflation pulse, then a return to trend.
And over time, tariffs tend to get diluted. Importers find alternate sources, shift production locally, or renegotiate contracts. Retailers compete away margin. Eventually, the pass-through effect erodes. Economists call this tariff fatigue—price stickiness gives way to competitive pressure.
Tariffs can sting in the short run, but they don’t create the kind of inflationary feedback loop we associate with wage dynamics or central bank missteps. They’re a tax wedge, not an inflation engine. As long as they’re not constantly tweaked or escalated, they behave more like a one-off VAT than a structural inflation nightmare.