No matter how long you’ve been in markets, we’re all guilty, at one point or another, of operating at a headline level. When markets are moving violently - like they are now - and we’re all trying to keep up, operating at a summary level can become even more pronounced.
But looking beyond the headlines, challenging what you think you know, and diving deeper into complex issues, will almost certainly always yield a better result.
For example, one of the dominant narratives right now is that Trump’s tariffs will lead to higher inflation. Logically, it makes sense. But the reality could look quite different according to Charlie Jamieson, Co-Founder of Jamieson Coote Bonds.
“Everybody just jumps to ‘tariffs mean higher prices, that means inflation'. Well, it's not quite that simple. It definitely means higher prices, but that does potentially mean demand destruction in some things. It really matters how elastic the thing that is being tariffed actually is", says Jamieson.He goes on to provide the example of a 100% tariff on a luxury handbag: “you probably won’t sell too many.” Conversely, a tariff on the one little part you need for a broken-down heating or air conditioning unit: " You're probably going to pay it because you're really, really need it - it’s very inelastic.”
Jamieson also points out that inflation is “a continual and sustained increase in pricing”.
“If prices go up 10% that's terrible, obviously demand will be affected, but if they don't change thereafter, it's not inflationary. It just means that yes, of course it is in the very first reading of, but it's not a continued and sustained price increase”.The final piece to this puzzle is what happened last time.
“As we saw in Trump 1.0, despite his tariffs at that time, inflation continually fell through that period”, notes Jamieson.
“Trump's thinking is that if he can bring that budgetary deficit down considerably, it will also help take out excess demand, it'll bring more efficiency to government and in doing so, he will lower inflation”.This is just one of the many narratives that Jamieson unpacks in the following Rules of Investing podcast, which covers a lot of ground about the global economy, central bank policy, interest rates, inflation, and why investors have a great opportunity right now to rethink and reposition their portfolios.
Thanks to our Sponsor AlphaSense This latest episode is brought to you by AlphaSense. See what AlphaSense can do for your investment research—visit alpha-sense.com/livewire to get started.