Let us stop for a moment to consider all that is going on with the new administration’s new economic trade policies at ~100 days.
There is a new tariff policy that is (by design) threatening the pre-existing global trade order. This has led to what looks like the early stages of capital flight, as both the dollar and US Treasuries have been sold off. The implications of this are significant. That is before we get to other issues with economic long-term ramifications.1
I have no idea how these policies will play out. My current (wishful) thinking is that this will not be worse than COVID-19 or the Great Financial Crisis (GFC), but less fun than 2023 and 2024 SPX gains of 25%. Maybe that idea will be proven wrong.
Let’s get more granular:
Most of the time, we have a fairly good understanding of the basic building blocks of our world. We all have a routine we go through, getting up each day, getting dressed, going to work or school or whatever, occupies the vast majority of our time. We assume a high probability that today will look like yesterday or tomorrow.
Sometimes, a minor curveball gets thrown our way. You’re driving to an appointment and a road is closed because a storm knocked a tree over or a water main pipe burst. It takes our brains a moment or two to contextualize the disruption, calculate an alternative route, and head on our way. That’s an easy problem to recognize and fix. It is also relatively simple. There are (usually) multiple routes between any two random points, and the map in your brain can easily manage it.
Most problems are like that. Where we run into problems is when there is either only one possible solution, or so many variables as to the potential solutions are nearly infinite.
Centre Island is a lovely neighborhood 6 minutes drive from my house. It has literally one road in and out. Sure, you can swim, paddle board or jetski to and from, but not with the entire fam. If that road is out, you are going to have major issues.
At the other end of the spectrum are things like global trade — large complex interrelated economies, driven by everything from policy to consumer sentiment, geography, innovation, employment, inflation, natural resources, etc. This is why I keep discussing why forecasting market prices or macroeconomic data is so challenging: There are simply too many variables, each dependent and reflective of even more variables, to pretend we truly know what comes next.
Forecasting the NCAA college basket playoffs is much easier than trying to accurately predict the global economy. It did take a decade, but someone kinda won Warren Buffett’s $1 million NCAA Tournament bracket challenge.2 To be fair, they “only” picked 31 of the 32 first-round games correctly. The odds of predicting a perfect bracket are mind boggling:
With the NCAA, there are only 64 teams you need to track. There are 195 Countries, 3450 publicly traded U.S. companies, over 50,000 non-U.S. publicly traded firms, millions of CEOs/CFOs, tens of millions of private companies, billions of consumers — all making independent, yet highly interrelated decisions every single day.
Project that out 365 days — what are the odds of getting that correct?
I always try to remember this, especially when I see a pundit telling me what is going to happen next…
You have to be able to pull yourself out of the day-to-day noise and remember why you are putting capital at risk in the markets. The daily news flow, upgrades and downgrades, corporate guidance, and back and forth is not the reason why.
Or as John C. Bogle liked to say, “The stock market is a giant distraction from the business of investing.”
Previously:
What Are the Best & Worst-Case Tariff Scenarios? (April 15, 2025)
The Consequences of Chaos (April 7, 2025)
7 Increasing Probabilities of Error (February 24, 2025)
Tune Out the Noise (February 20, 2025)
__________
1. e.g., Executive orders on deportation, fighting Universities, threatening law firms, due process, Greenland, and the one that matters a great deal to the financial markets, who is the Federal Reserve Chairman….
2. “In 2014, he launched a $1 billion challenge to any Berkshire Hathaway employee who could correctly predict every single game in the NCAA Tournament. The odds of that are … extremely long. No one was able to claim the prize. Over time, the contest rules shifted. In 2016, the challenge was reportedly amended, offering $1 million to any employee who could predict the first 48 games correctly. Still, no one managed to claim the grand prize. The rules relaxed even further in 2025, as employees had to correctly predict 30 of the first 32 games in order to take home the grand prize, according to the Wall Street Journal.”
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