Opinions
Richard Fogler A Comment -- General Comments From an Expert A Commentary COMMENT May 01, 2025
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Here's his contrarian view...there is no trade war. It's just Trump mouthing off. He's said he's going to do some things, various people have responded, not much has happened, just a lot of talk. All this has seriously impacted the GDP numbers.
The business and consumer sectors are OK in the US, but the import sector was terrible. Consequently, there was a slight decline in the GDP number. While bad, it was mostly because people were pre-buying and importing prior to tariffs. Trump kills the tariffs, makes deals, all that stuff goes away.
The big thing is that the response to his "trade war" has been universally bad -- to the MAGA people, to consumers, to businesses, to investors. (If there's any other group that he missed, it's universally bad to them too.) So the expectation is that he's going to have to correct it. Trump's people have announced that the next 100 days will be about trade deals and tax breaks. No matter what happens, Trump will declare he made the best deal ever.
For some reason, Trump hated Trudeau and, apparently, likes Carney. If you look at per capita GDP for the US vs. Canada, from 1990 to 2015, the lines are right on top of each other. Absolutely identical. From 2015, they start to diverge.
Increase in per capita GDP for Canada since then has been 1.1%, not per year but total. In the US it's 52%. The difference is due to Canadian policy. This is not lost on anybody, including the new prime minister. Richard expects that economic policy and economic growth will be his #1 agenda item and that they will fix this. He's really positive on Canada because he thinks that's going to happen.
Real estate business has been horrible for the last couple of years. Only area that's been good has been industrial mostly pushed by BX, which has been buying everything in sight. Condo business in Toronto is dead. People are moving back into offices, thinks it will catch up in Toronto (which has been slow up till now).
Most REITs in Canada exist because they pay a dividend, their businesses aren't really growing or developing. He'd stay away from most.
Tariffs will hurt the US consumer. Canada has decided not to let the US consumer suffer alone, so has put tariffs on too. His training is in economics, trained by very smart people who believe in free trade. This is all ridiculous. Peter Navarro sounds like the dumbest person he's ever heard; everything he says is crazy. Trump's making a big mistake.
Everybody says that these are negotiating ploys. The stock market and individuals have shown that it's not been a positive response to Trump's tariffs. Richard feels that Trump will start announcing deals, and it's all going to go away.
For the last 75 years, since WW2, manufacturing in every industrial nation in the world has declined as a percentage of GDP, while services have increased. The US economy has been the envy of the world for the last 5 years, and Trump just turned a great economy into one with lower GDP for the first time in 7 years.
It's all backwards. Manufacturing isn't coming back to the US, because US workers get $25/hour while Chinese workers get $2-4. You don't need to be a genius to decide where to buy stuff from.
The "liberation day" global tariff regime kicking off bilateral tariffs would have been a surprise to anyone. The whittling down of the tariff regime incrementally over time is the other surprise.
If we take a step back, what's interesting is that we've gone from speculation of a really tough tariff regime being fully priced in to the other direction, where a benign outcome is fully priced in. The truth is probably somewhere in the middle, where you have to have an eye towards caution but also towards opportunity.
Reading the tea leaves and listening to the rumour mill, it seems that China's let a few imports be exempt from tariffs and the same with the US. Think of it as a "Swiss-cheesing" effect on the effect of tariffs. This is either the way it will be, or just green shoots in the entire conversation.
The market's interpreting it as green shoots, whereas it might be building up domestic resilience for the longer haul.
The best way to think of it is in stages: initial euphoria, experimentation, and then implementation. In the midst of earnings season, the hyperscalers have spoken to strong demand for AI-related workloads. They've also stood behind their capex forecasts.
So this earnings season, one of the big stories has been the big sigh of relief for those selling equipment to the big cloud companies. There is AI demand, but we don't know if we're at the stage of experimentation or implementation. Just with any technology, it will permeate our lives to a greater extent with time. You have to know that you're buying companies that are relevant to that at the right valuation. Understand that profit pools in tech can be fleeting, just as in every other sector.
Seeing a major reorienting of global trade flows. Data on container shipments is already quite choppy. But over time, there was already a "China +1" strategy happening in global trade. For example, AAPL last night was talking about how they're building more of their iPhones in India.
In general, this makes you less sensitive to one bilateral trade corridor.
He's far less constructive on defense stocks than he was a few months ago. Europe is by far the best place to be in the grand scheme of things. European defense budgets are rising significantly, in a way we haven't seen in a generation or even two.
For example, Germany used to spend less than 2% of GDP on defense. Now moving closer to 3% and greater. He's chosen to play the space through RHM.
The market will come back. He likes Canada, though we have some things to do. He likes the US too. It was a manufactured slowdown, and they can manufacture an upswing. Stock markets will follow.