WFA SUMMER MUSINGS
The primary thrust of this Musings is to address how CEOs should respond in this period of uncertainty. Secondarily, as it is the Summer, I can’t resist giving you some perspectives about The Hub (aka Boston!) which, in certain instances, may have applicability to where you live.
STATE of PLAY POST TRUMP’S FIRST SIX MONTHS
There are a wide range of opinions regarding President Trump’s first six months in office. I have intentionally picked three perspectives from well-respected individuals. First, former K&L Gates Chairman and Global Managing Partner, Peter Kalis, gives Mr. Trump an A overall in his weekly op ed for the Pittsburgh Post-Gazette. Peter was a lifelong Democrat before becoming a Republican. His scorecard is as follows:
The second take comes from Caleb Silver, Editor-in-Chief at Investopedia, who was interviewed by MSNBC’s Ali Velshi. They looked at “the good, bad, and ugly.”
And, finally, former President Obama’s economic senior advisor and legendary banker Steve Ratner’s cautionary view of the playing field. Steve is the infamous “chart man.” While I will not recreate his charts, here are the headline takeaways:
1. STAGFLATION IS ON THE HORIZON. The recently released Fed numbers suggest the following:
a. GDP growth slowing
b. Inflation rising
c. Unemployment rising
2. Recent college graduates facing tougher job market with some calling this the “rejection generation.”
3. 400,000 manufacturing jobs not filled indicating a challenge to “bringing manufacturing back to the USA.”
4. Much higher number of folks applying for unemployment insurance buttressing Fed view of unemployment rising versus their previous forecast a few months ago.
As I shifted through the voluminous “six month” assessments by the above and other respected voices, I came up with my own scorecard. I am calling this The Trump Temperature Tracker. I have intentionally avoided getting mired on the non-economic issues such as bringing the wars to an end, whether the salacious Epstein transcripts should be made public, mass deportations, withholding federal grants to Columbia, Harvard, and other “elite” institutions of higher learning, the infamous DOGE federal worker firings, and the list goes on and on. Instead, I am looking at the key economic metrics by which President Trump will be measured and how well he is perceived by the citizenry utilizing the highly respected and objective Gallup Organization and the University of Michigan Consumer Sentiment Survey.
I chose the five macroeconomic metrics as they align with the Trump Administration’s key promises. In a nutshell, the President is targeting long term real GDP growth of 3.5% per year, core inflation (PCE) below 2%, a significantly lower trade deficit by imposing higher tariffs, and lower unemployment by “bringing back precision manufacturing jobs.” To date, the metrics fail to meet the promise other than a higher average tariff rate. Interestingly, for the last three months the Conference Board’s Leading Economic Index® for the US is signaling a recession in Q4 ’25 & Q1 ’26. It remains unclear whether higher tariff rates, particularly across the globe at 10% and factoring in recent agreements with England, Japan, Vietnam, and the EU will result in long term positive outcomes. Bottom line: the jury is out.
On the Sentiment side, I believe these three metrics reflect the pulse of the citizenry. So far, the numbers are not promising. It will be interesting to see how the August recess period goes for the returning home politicians. The current level of sentiment indicates some dicey town halls.
CEO IMPLICATIONS
For most of my lifetime, business leaders did not need to factor into their calculus geopolitical issues. The feeling was any global foreign policy and/or military conflict would impact businesses equally (other than defense related business.) However, Trump’s trade policies have brought geopolitics to the top of the CEO agenda. While the current administration may want to “turn back” globalization, that will be extremely difficult given that supply chains today are incredibly elaborate, complex, and highly tuned over decades. Upending them would be a Herculean task and simply not feasible. So far, the brunt of the tariff onslaught has been borne by US corporations. But I predict that this will end in the third quarter unless the Administration can negotiate truly beneficial terms. Presidents and Congress are beholden to the People. Corporations are beholden to shareowners. Telling Walmart to “eat” the tariffs and Amazon not to single out the impact of tariffs can last only a few months.
My advice is simple. Where we end up at the end of the year is a jump ball. The Trump Temperature Tracker coupled with the views of the three pundits suggests that we live in a period of uncertainty and “wait and see.” At this stage I recommend the following:
1. AS FINANCIAL STEWARDS, DO YOUR BEST TO EXTRACT REASONABLE CONESSIONS FROM YOUR SUPPLIERS, BUT DO NOT EAT THE TARIFFS
2. BE TRANSPARENT WITH YOUR CUSTOMERS ABOUT THE TARIFF IMPACT ON YOUR PRICES
3. EXERCISE CONTRAINST AND SMART CONFRONTATION WITH FEDERAL OFFICIALS, BUT DO NOT CAVE TO UNJUSTIFIABLE REQUESTS
4. ONLY “BRING MANUFACTURING HOME” WHEN SUCH INVESTMENT WILL EXCEED THE COST OF CAPITAL AND THE TALENT REQUIRED IS AVAILABLE. WITH 400,000 MANUFACTURING JOBS NOT FILLED TODAY, THIS IS A MAJOR CHALLENGE.
5. WAIT AND SEE WHAT THE THIRD QUARTER BRINGS US IN HARD DATA BEFORE PIVOTING (likely to occur in late Oct./early Nov.)
6. USE THIS TIME OF MARKET EXUBERANCY TO SHED UNDERPERFORMING ASSETS
7. BE READY TO PIVOT ONE WAY OR ANOTHER BY EMPLOYING SCENARIO PLANNING TO HELP GENERATE OPTIONS. HOWEVER, DO NOT CONFUSE OPTIONALITY WITH AGILITY. OPTIONALITY CAN BE EXPENSIVE AND IS OFTEN THE WINDOW DRESSING OF INDECISION. AGILITY REQUIRES CASH ON HAND AND THE ABILITY TO MAKE DECISIONS QUICKLY FROM THE BEST SET OF OPTIONS.
Like Scottie Sheffler at the British Open, it is to your advantage to be unemotional, patient, quietly prepared to meet any challenge, and surgical in pivoting to the most value creating path. Attempting to “jump the line” is unwise. President Trump is a master at overcoming gravity. If there was an annual P.T. Barnum award, he would be a perennial winner. He is now on a far more ambitious campaign in his second go around as President that will likely yield a bi-modal outcome… either greater prosperity or a recession. It makes no sense to put too many chips on the table.
Two important dictions to keep in mind:
1. If consumers are happy, they make discretionary purchases. If not, they don’t.
2. The Federal Reserve has the last vote. The President and Congress set fiscal policy. The Fed responds with monetary policy. Fed Chair Powell is not going to be fired no matter how much the Fed building refurbishment costs. He and the FOMC will not allow inflation to return. They got burned the last time. It will be interesting to see at their upcoming September meeting whether the Fed decides to hold because inflation is on the rise and well above the 2% target or reduces the rate based on the sluggish new job report and the immense political pressure being put on the Fed by President Trump.
BOSTONIAN IDIOSYNCRASIES
Bikers, joggers, roller-bladers, motorized scooters, one wheelers, & electronic bikes
In a word, INSANITY.
I live on Beacon Hill in Boston, quite near our beautiful Esplanade, known for the Boston Pops playing on the 4th of July. There are terrific walking and biking paths usually segregated so we do not run into one another. The paths are clearly marked to prohibit motorized anything … from electric bikes, to scooters, to unicycles, to gosh knows what other contraptions. Nonetheless, all of these means of transportation are rampant in places where they should not be. I usually try to ride my mechanical bike at sunrise to avoid the crazies. However, it is getting more and more difficult. Very few play by the rules.
Bottom line: Boston has no clue how to monitor or regulate these pathways on the Esplanade much less the bike lanes on the streets. I have had the opportunity to visit a number of cities around the country where unfortunately I believe the same level of confusion exists. The urban planners need to go to Amsterdam and learn about bike & pedestrian manners and protocol. We are light years behind on infrastructure and rules of the road. This is going to be a long-term evolution. BTW, the worst are the roller-bladers trying to be Bobby Orr on a breakaway!
Our Sports
Red Sox: Post Rafael Devers’ departure, the team is on a roll with much better pitching than expected. Should make the playoffs.
Bruins: Trading away Marchand … OOOOPS! Rebuilding year.
Patriots: Vrabel is awesome. The Krafts are the best professional team ownership in our lifetime. The Maye-Diggs pairing looks promising – probably not a Brady-Moss repeat. Possibly playoff bound.
Celtics: Hail to selling at the top. Who knows what this year brings without Tatum.
Have a great rest of your Summer!!
Onwards,
Bill