POST-TARIFF PLAYBOOK: WHAT TO WATCH AND WHY I REMAIN CONSTRUCTIVE
The fallout from “Liberation Day,” combined with DOGE’s spending cuts and a fragile tech sector, paints a troubling picture. The apparent dismantling of key economic supports, especially amid fears of persistent stagflation, adds to the unease. Still, I remain optimistic — intentional disruptions are often softened before lasting damage occurs, and I believe tech is still in the early innings of a massive economic transformation.
1) Accidents happen and Liberation Day may well be one, but usually intentional (disruptive) policies are defused before the worst is realized. Trump may be willing to accept a recession, but only to a point. My guess is that governments are working hard behind the scenes to negotiate deals quite different from the tough rhetoric we see in the press.
2) On government spending, few thought the high levels of spending in recent years were sustainable, so better efficiency bodes well for future sustainable growth. CEOs from large and small companies support it. Adjustment takes time, but if short term pain becomes too great, cost savings can be rechanneled to new expenditure & investment, perhaps the "DOGE dividend".
3) Inflation remains a key risk, ostensibly worsened by tariffs, but I cautiously agree with Powell that it will be transitory — a word that is almost taboo given his track record in using it, but it makes sense. Some combination of one-off inflation adjustments and demand destruction is more likely deflationary, and unlike the 2010s, the Fed has plenty of dry powder to stimulate under this scenario.
4) As for the tech meltdown, concerns about a bursting bubble are the least of mine. Semis and hardware may see headwinds from slowing growth as fast-depreciating capex failed to realize the profits anticipated. Still, AI productivity-boosting apps are just starting to gather momentum where potential profits are very real and growing.
A couple of years ago, I listened to a young analyst pitching the productivity possibilities of AI software, but frankly, the killer app was hard to see. At the time, it mattered less because there were plenty of opportunities in the hardware space (Nvidia et al). Today, we've already seen enormous productivity gains in software development, and the momentum is only building across industries.
While the challenges presented by "Liberation Day" and multiple shifts to sustainable growth from government spending to finetuning AI, there are reasons to stay cautiously constructive, especially considering the high levels of risk already priced into the market. I welcome thoughts on these developments and any additional insights shared.
