Lunch with the man who coined TACO

Okay, so should we order some tacos?

I'm gonna have three tacos.

grilled shrimp and fish.

So for a while, Taco and I were the darling of tariff policy.

Thanks very much. These look beautiful. This is very self referential. I enjoy this. You know, it's like my own tiny version of that scene in Being John Malkovich where he climbs inside of his own head and so forth.

The first, and possibly the most important is that the stock market is not the economy.

So the economy is the sum of all our buying and selling and saving and borrowing and so forth. The stock market is something much more specific. It's a price that discounts the future profits of the publicly listed corporations. And those things can come apart.

And when things are very bad or very good, the stock market and the economy tend to come together. In other words, in a great boom, everybody has a job and is feeling good and the stock market tends to be high. In a recession, everybody feels lousy, everybody's out of work and the stock market is down. It's in those in between periods that one can be tracking one direction while one goes the other.

In the short term, the market becomes very emotional because it's made of human beings who are emotional things. We kind of get good vibes, we get excited. Things are sort of tonic and bubbly and fun. Stock markets will go up even in an unrealistic way.

Yeah, we are in what they call a risk on period in markets. The vibes are good. There is a little FOMO too. A little fear of missing out. That's. There's a flavor of that right now for sure.

Quite right. In fact, just recently we had the reports from some of our largest banks, JP Morgan, Citigroup, and the news so far has been really pretty good. You know, they sort of hemmed and hawed and said we can't see the future, which of course they can't. But the hard numbers they put out suggest a pretty resilient economy. The fundamental picture to me looks okay.

Let's start with deregulation. I'm in favor of it. That is helpful and hooray for it. We didn't see a lot of it in this particular budget bill, but to the degree you deregulate a somewhat over regulated American economy, good news. Second point, the budget bill itself. It creates bigger deficits, right? And in general, for a while, deficit spending is quite good for markets. What is the government doing when it's doing deficit spending? It's taking dollars and it's shoving them into the economy. And it should come as no surprise that some of those dollars will show up in investors pockets or on corporate balance sheets. So deficit spending markets generally like it until the moment that they really, really don't like it, which comes when the debt becomes unmanageable. Interest rates start to rise, the country is either forced into austerity or has to inflate its way out of its is on a day that we don't know sometime in the future. Until then, deficit spending markets like.

Next hypothesis, My personal favorite, markets don't believe the President. Okay, this is the Trump always chickens out hypothesis that he makes all this

Yeah, indeed. So this is this quite stupid acronym I came up with.

Trump always chickens out. The idea is the guy talks big and then he doesn't follow through. And so far that's been the pattern. And the markets are basically saying, yeah, buddy, tell me another one. Right? And of course this creates a risk, right, that at some point maybe he does mean it. And you know, I can't read the guy's mind. I don't know where that point comes or if it comes. But I'll tell you this, we're in a kind of weird dynamic or paradox, I would say, between. In the relationship between markets and the president, right. Where the markets not believing the President's statements make it more likely that those statements will turn out to be true because he's not being cautioned by the markets. So he might actually go for it in the end. Right.

I would think so. I would think so. I mean, I don't know what's gonna happen on August 1, but the market is giving the guy quite a lot of leash right now.

Indeed. But I will say it's been a good bet so far. But, you know, any market trend has a beginning, a middle and an end. And the end sometimes comes up on you more quickly than you might expect.

Yeah, it's Tariff Thursday, maybe.