MI2 Partners – Thoughts From The Divide: Spectacle

Another week into Trump 2.0 and you’d be forgiven for starting to tune out some of the news around the administration. After all, nothing screams kabuki more than touting “yuge” concessions from the Canadian and Mexican governments that were already in the works… Admittedly it’s two birds with one stone (that was going to be thrown anyway) for the US’s neighbors, but it does make it hard to take the threat of tariffs seriously. That being said, while some of the spectacle is certainly theater, like a bullfight it does come with horns as markets and political actors react to the latest news.
BY JON WEBB

MI2 Partners – Thoughts From The Divide: Spectacle

MI2 Partners

Feb 07, 2025

“Less substantial than what has been trumpeted”

Another week into Trump 2.0 and you’d be forgiven for starting to tune out some of the news around the administration. After all, nothing screams kabuki more than touting “yuge” concessions from the Canadian and Mexican governments that were already in the works… Admittedly it’s two birds with one stone (that was going to be thrown anyway) for the US’s neighbors, but it does make it hard to take the threat of tariffs seriously. That being said, while some of the spectacle is certainly theater, like a bullfight it does come with horns as markets and political actors react to the latest news. The USPS suspended deliveries from China and Hong Kong only to walk back the move. China is hitting back with its own tariffs on a variety of energy goods and manufactured equipment, while also pulling the lawfare card by “initiating an investigation into Google”. And the EU, responding to nothing but an ephemeral threat and perhaps memories of Trump 1.0, is posturing around “this totally unnecessary and stupid tariff war or trade war” by asserting that the EU is “a power that stands its ground” and “would have to make itself respected” should it be hit with tariffs. Mike Tyson’s words come to mind.

“Reinvented with AI inside of it”

Businesses are of course included in the “derm and strang” of the tariff whirlwind, as we noted previously on companies rushing deliveries ahead of potential barriers, and the latest earnings reports paint a less than rosy picture, take for example Amazon, whose lackluster Q1 projections earned it a quick slap overnight. However, there are signs that the consumer and spending show is not over. For example, while Amazon’s Q4 may have been ho-hum, Costco’s latest numbers from January avoided a “January slump” with same-store sales up 7.5% YoY. On the spending side, while tech companies may have had mixed earnings over the previous quarter, they are planning to unleash a wave of capital expenditures in the “push to build generative AI services”. $75 billion here, $100 billion there, and pretty soon you’re talking real money. How that’s apportioned among the various AI shovel purveyors does of course remain to be seen, as do the effects of cost-cutting competitors altering the ROI landscape, but it’s good to dream.

“Balance the need to boost growth with the inflationary risk posed by a nascent trade war”

The final spectacle this week was the dog and pony show/meeting of the Bank of England. In addition to having to deal with some rather pesky questions about wait times for gold deliveries (“Free beer tomorrow”?), the BoE opted to cut a quarter point just as its DMP survey (the rough equivalent of a regional Fed survey) showed a significant number of firms expect to cut staff, pay lower wages and raise prices in an attempt to fight decreasing profit margins resulting from increased employers’ contributions to social security. This last expectation was behind the 3.9% figure for expected year-ahead own-price inflation and the 3.0% forecast for CPI. Slowing growth and rising inflation? The BoE, with a dual mandate similar to the Fed’s, may have the enviable job of testing Blanchard’s theory of what happens when mandates conflict. Rock and a hard place? Buckle up!

https://www.gocomics.com/calvinandhobbes/1986/11/10

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