It’s An Especially Important Week – Top 3 Takeaways – April 21st, 2025 - Driven By Braman Motorcars
Takeaway #1: It’s a particularly important week
Tariffs, trade wars, Fed war, a stock market bear market these are all things that are current realities. They’re also the kinds of things that don’t usually become part of the mainstream conversation in this country. But that’s clearly not the case today as 73% of Americans have now made at least one purchase they weren’t planning to make due to their perception of what the impact of tariffs will be. Are you one of them? That number is almost identical to the percentage of people who are currently worried about entering a recession, 72%. If we’re looking at the bright side of this perhaps it’s that more Americans will take an interest and become more financially literate. After all... Roughly 60% of Americans are economically illiterate, depending on how it’s defined (e.g., inability to understand basic economic concepts like GDP, inflation, or free markets). So, about that whole situation, are we headed for a recession? Do you have a coin? Are you ready to flip it? The three most reliable financial firms in predicting recession risk are essentially at parity on that question as we enter this week. Morgan Stanley forecasts recession risk at 40%, Goldman Sachs is at 45% with JPMorgan Chase the most bearish of the bunch at a 60% chance. That’s why this is a particularly important week. My read on the economy is somewhat similar to what the big three firms are projecting economically. Right now, the U.S. economy is on a seesaw where the weight is just about perfectly balanced on both ends. But in the case of the U.S., we’ve got one big burly person on our end with most of the rest of the world setting a series of young children on their end. On Friday I mentioned my big concern was...
Takeaway #2: The rapidly declining value of the US Dollar
What I said on Friday is even more important today because the US Dollar has sunk some more since then, and the decline has accelerated at a rate that’s unsustainable. It’s like this. The Dollar in your pocket is now worth 9% less than it was the day that Donald Trump was sworn in as president of the United States. That’s inherently inflationary independent of a potential increase in prices of goods going forward due to tariffs. That’s why this week is a critical week. As I mentioned following Liberation Day, the average car dealer had over 90-days of inventory at the time the automotive tariffs hit and the average retailer had over 30-days of stuff to sell you at the time the tariffs hit. That means that essentially no Americans have had to pay for the impact of any tariffs yet. We’re about two weeks away before that will begin to change. If the Dollar were strong, we could probably manage without a big increase in recession risk. But with a rapidly declining weak Dollar I have a hard time seeing a happy ending to this. So, what’s going on, that’s continuing to sink the US Dollar? China’s throwing a one-two punch at us (or at least stacking more kids on the seesaw) to attempt to sink the Dollar and it’s working. President Trump likes to talk about who holds the cards in negotiations. The U.S. does hold the most and the highest cards in any hand at any time. But just as a Royal Flush will win any poker game, we do have one major vulnerability. The United States doesn’t currently hold a Royal Flush. Can you guess what the vulnerability it is?
Takeaway #3: Debt
If we lived within our means things would be different but we don’t and that’s a challenge with what President Trump’s attempting to do. Even if you don’t know much about trade and the world economy you probably know or have heard for decades that China is the largest holder of U.S. debt. That’s no longer true. They’re number 2. China has been massively delivering from U.S. assets. Rather than buying U.S. Treasury debt they’re buying gold instead. Because the U.S. spends too much money, literally more than the country takes in every single day, the U.S. has to pay higher interest rates to find new buyers to replace the money the Chinese used to be putting into the system. That puts pressure on the Dollar making it weaker. Here’s the next piece of that puzzle that’s particularly problematic. Less trade = weaker Dollar too. I’m going to take you one step deeper into the economics of trade but hopefully in an easily understandable way. If you’re a Chinese trader your currency is the Yuan. If you’re a German trader your currency is the Euro. When trade takes place with the United States for imports – the companies from these foreign countries are paid in U.S. Dollars. The way that trade usually works is like this. The importers will exchange Dollars for their native currencies to pay their employees – but often will keep the balance of those funds in Dollars to avoid currency exchange fees and, based upon the country, potentially additional taxes on top of the fees. Also, much of that money often ends up invested in U.S. assets. Last week, according to my estimates, there was only a quarter of the usual trade into the United States taking place. What remains unclear is how much of that was due to the rush of orders into the United States before the impact of tariffs and how much is due to the tariffs themselves. But all of that additional demand for US Dollars from importers failed to take place, and that’s adding to the weakness of the Dollar. That’s the one-two punch effect of what’s driving the current currency trade. This week is an especially important week for President Trump and his administration to make major headway with trade deals in advance of the real-world impact of these policies being felt. It’s time for the Art of the Deal to result in great deals for Americans.