This is What We Trained For

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Jason’s Random Words

I’ve read some pretty great anecdotes this week.

Our good friend Tyler told a story about his grandfather catching the family car on fire (it’s behind a paywall; if you want to subscribe, get a discount here).

Ben Carlson shared a story about acting when the risk doesn’t matter in the worst case since you’ll be dead.

I’ve also thought back to some stories told to me over the years about people’s experiences during troubled times in the past. A good friend told me about a year ago that during the worst of the Coronavirus pandemic, he questioned whether he’d be able to pay for his kid’s education in the future. Another friend told me the story of losing his job on March 9, 2009. That was the day that the stock market hit bottom during the Great Recession.

The first two stories are about people who had developed the life experience and skills to navigate scary, uncertain times. The latter two were real-world examples of how, in the midst of uncertainty, life can be hard to navigate, even when you have the skills and experience (for the record, the first friend’s kids aren’t at risk of not being able to pay for college, and the second friend semi-retired in his early 50s).

Putting political leanings aside — I realize that’s asking a lot — my expectation is that these sweeping tariffs will wreck the economy. But that’s easy for me: I always expect a recession is just around the corner. I’m only right about 10% of the time. Sadly, I’m feeling lucky.

Needed or Needless Disruption?

But many people (and surely some of you reading this) fully support what President Donald Trump is doing, and for reasons I understand. For decades, the middle class has lost ground, and the government seems to not work for most of the people. Sometimes it takes massive disruption to the status quo to move forward in a meaningful way. Occasionally that means wrecking what’s there and starting over.

But there’s a thin line between political support and having the people turn on you. As Harry Truman (and then Ronald Reagan) said, “It's a recession when your neighbor loses his job; it's a depression when you lose yours.” For now, Trump has the will of much of the people and (more importantly to pursue his agenda) Congress. Lose the people, lose the Congress.

And as Ben Carlson described in the post linked above, we have a historical record of the prior two times in American history that sweeping tariffs were implemented; one amplified the causes of the Great Depression (which we all learned about from the great conservative speech writer Ben Stein); the previous time was two decades after the Civil War, and inflation crippled the economy then, too.

But We Don’t Know What Happens Next

I’m reluctant to expect it will be different this time, but I’m also smart and experienced and humble enough to know that I have no idea what the outcome will be. Someone else used the analogy of a horse in a hospital. Nobody knows why the horse is there. The horse doesn’t know why it’s there. Just as with a horse walking down the halls of a hospital, the likelihood of a bad outcome seems very high, but the reality is, right at this moment, it’s sentiment driving the market, not any real economic impact that’s happened yet.

But that could change very soon, with global tariffs on most of the U.S. biggest trading partners above 40% set to begin hitting consumer and business balance sheets in real time.

We will get our first real look at how the business community is measuring the risk and probability of a protracted economic downturn this week. Delta Airlines (DAL) reports earnings on Wednesday, with used car giant CarMax (KMX) reporting on Thursday, and their outlooks will give us some more data. Friday, JPMorgan Chase (JPM) CEO Jamie Dimon will give us our first unvarnished prognostication. Maybe more importantly, we will learn what JPMorgan, along with mega-bank peers like Wells Fargo (WFC) and then early next week Bank of America (BAC) are doing to prepare for the economic impact when they report the loss provisions they are taking on their balance sheets. This may be the first pure signal we will get about the economic risk measured by those whose job is literally measuring risk.

This Will End…But it’s Not the End

I’m not optimistic about the outcome of Trump’s strategy. I was tempted to title this post “Trump’s Folly” but realized that was way too polarizing, and doesn’t serve anyone but maybe some egotistical hindsight vindication if I’m right.

But I want to be clear. I believe this will cause unnecessary harm to billions of people around the world just trying to take care of their families and give their kids a better chance at success than they had. It could put millions of Americans years behind on their financial and life goals. But I’m also not blowing up my process or making massive changes because of what my brain and guts think will happen now. I’m already prepared in the real world for uncertainty. I hope you are, too.

But! Even a bad outcome for this moment in time isn’t the end. It’s just part of the journey. Because — one more anecdote, the last one, I promise — as one of the smartest, best investors I know told me in the throes of the March 2020 market crash, this is what we train for.

If you’ve been listening to me and Jeff on our podcast, reading these occasional Random Words, and hopefully opening up more 10-Ks and proxy statements in recent years, then this is literally the moment you’ve been preparing for.

I don’t give a damn what your politics are. I just hope that you’ve spent your time preparing for this downturn, and you’re not too twisted up in why it’s happening that you forget what you’re trying to do: Protect money you’ll need in the near term, and grow your wealth for the long term.

Arnold’s Wisdom

One of my favorite sayings is “we don’t rise to the occasion; we sink to the level of our training.” I am pretty sure Arnold Schwarzenegger* said that in Commando, co-written by my friend Matthew Weisman (who also co-wrote Teen Wolf, but now I’m just name-dropping).

The point: Don’t throw all your hard work out the window. Double down on your process, goals and framework. And to quote Jeff (ugh) “don’t trade, learn.”

You can do it, even — especially — right now.

Jason

*I know it wasn’t Arnold. It was Danny Glover in Predator 2 which was not co-written by my friend Matthew Weisman.