Scott and Ed dive in and break down the massive volatility in the markets this week due to Trump’s tariffs. Then Gary Stevenson, host of the Youtube channel Gary’s Economics, joins the show to break down the roots of wealth inequality. He explains what he learned from the 2008 financial crisis, offers ideas for what could help bring back a strong middle class, shares his perspective on the trade war, and gives practical advice for navigating this rapidly changing world. Vote for Prof G Markets at the Webby Awards Subscribe to the Prof G Markets newsletter Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices
Chapter 1: What are the recent market movements due to tariffs?
Anyways, get to the headlines. Let's do it.
as predicted the markets have whipsawed amid volatility this week on monday the s&p 500 slipped into bear market territory for the first time since 2022 that was the same day the index had surged seven percent after a false tweet claimed that trump was considering a 90-day pause on the tariffs and then the markets came tumbling down again by tuesday
The markets were rallying on hopes for trade deals with select countries, and then the administration confirmed an additional 50% tariff on China would go into effect. That's a threat that the president had made the day before, and the stock market fell all over again. So, Scott, things are moving extremely quickly, up and down, huge volatility.
The only thing I can say with certainty is that by the time our audience is listening to this episode, things will likely have changed again. And what do you know, things have changed. Right after we recorded this conversation, Trump announced a 90-day tariff pause on most countries except for China, and the China tariff has been raised to 125%.
And as I call in right now, I'm looking at the tickers. The NASDAQ is up almost 10%, and the S&P is up almost 8%. So this is a truly insane week for markets. And I apologize that we're not completely up to date on this episode, but this conversation that we recorded before the pause is still relevant.
It's still very important in terms of how to invest over the next four years and how to tackle these issues. So don't go anywhere, stick around for this conversation and we will get into the tariff pause and what it all means for you on Monday's episode. With that, let's go back to Scott.
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Chapter 2: How are tariffs affecting the stock and bond markets?
This volatility is great for traders. It's up, it's down. There was a rumor, CNBC leaked a rumor that the tariffs are off. It spiked, as you said. Traders will make a lot of money, but this is what the medium and long-term effects will be. We've talked about this. There will be a re-rating of the U.S. markets where rule of law and consistency are no longer necessary. features.
They're bugs because we're inconsistent and we have one-off asymmetric, non-systemic punishment and rewards based on who the president gets donations from. And over the medium and long-term, you're going to see the following. You're going to see the ratio on the PE ratio on the S&P go from 26 into the teens.
And I don't care how outstanding your firm is at growing its earnings, you cannot outrun multiple contractions. So this is volatility. But you can bet the through line, the regression line is going to be down and to the right. Your thoughts?
That 90-day pause that you talk about, this fake headline went around, and it started on Twitter. It said that Trump was going to pause these tariffs for 90 days. And what's so crazy is that within minutes, in the same way that meme stocks moved, the S&P climbed 7%. It added almost $4 trillion in value. off of a fake headline, off of a rumor.
And then suddenly the White House announced that it was fake, Trump was not considering a 90-day pause, and the stock market immediately plummeted again, and that $3.5 trillion in market value was erased again within minutes. So two initial takeaways here. One, your volatility prediction was spot on.
It'd be fun to say the market's off another 5,000 points next week. Market could go up 3,000 points. This is the only thing I'm fairly certain on is volatility.
We've never seen this level of volatility before. And two, it is remarkable just how much the investment community hates these tariffs. The fact that they were willing to go in and start panic buying. because they saw some unsubstantiated rumor on their Twitter feed, that to me is an indication of just how desperate the markets are right now.
They would do anything to believe and to be told that these tariffs aren't real, that it's all a negotiating ploy. But of course, they were denied that reality and they immediately started panic selling again just a few minutes later. I mean, the stock market has literally turned into like a meme stock market. It's unbelievable.
I do want to talk about what's happening in the bond market, though, because it shows you just how disastrous these tariffs really are. But to understand that, we need to go back to the arguments the administration made in the first place as to why these tariffs were a good idea. We covered some of those arguments on Monday. It's 4D chess. It's a negotiating tactic.
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Chapter 3: What is the economic impact of US tariffs on China?
And that's always what happens when you see a giant stock market sell-off. You see this flight into treasuries instead. And many in the MAGA camp were very quick to point this out. You know, they said, look, the yield's down again. What they didn't point out, though, was that yields bearish. barely came down.
You look at the 10-year yield, it went just below 4%, which is around where it was a year ago. But at that time, the S&P was at 6,000. Today, we're hovering at around 5,000. So already, it's a huge red flag, the fact that investors are fleeing the stock market and then they're not reallocating into the treasury market in the numbers that we would have expected.
But then it gets really bad because at the beginning of the week, the yield on the 10-year started to go up again, and then it breached 4%, and then it kept rising, and now at the time of this recording, it's at around 4.2%, which is higher than what it was before the tariffs.
So basically what this means is, you know, in addition to this exodus out of the American stock market, which, as I said, is usually accompanied by an entry into the U.S. Treasury market as people flock to safety, what we're seeing is an exodus out of both markets, the stock market and the debt market.
So investors have completely lost their faith in American companies and American debt, the American government. In other words, the entire world is turning itself away from America wholesale. Now we'll see if this continues, and there's a chance that by the time this airs, the yield will have come back down. But if it doesn't, and if this trend does continue,
then I believe that what we're witnessing today is probably the most important business story, certainly of the past decade, arguably of the 21st century. Because if you look at the numbers so far, you look at the three-day performance of the S&P, this is worse than COVID and as bad as 2008.
But what makes this different from those events and from any event ever in America, in American financial history, is that this was done on purpose. This was not a natural disaster. This was an intentional disaster, and we've never seen that before. So we're going to spend, I think, the next three years on this podcast trying to figure out how to navigate this.
But I just want to recognize up front this is going to be like a wild journey. Like we're going to be tackling issues that have never been tackled before. As you say, we might be witnessing this global rotation, this global reorganization away from the US. This might be the end of American exceptionalism. I don't want to jump to conclusions. I don't,
also want to recommend that you sell right now. I don't think we can make those conclusions yet, but I do want to be clear about what is on the table right now. And there is no doubt a restructuring of the world order is on the table. It hasn't happened yet, but it might. And I think our responsibility as investors is to deal with that.
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Chapter 4: How is AI influencing tariff strategies?
You just don't do that. Maybe in wartime in terms of treaties and alliances, but in terms of economics, no. You have laws that affect everybody. Otherwise, this is nothing but a line out the door of law firms agreeing to not take on his adversaries, kissing his ass. Hey, we're going to give you $50 million.
for your inaugural campaign or wink-wink, I'm thinking about buying $100 million in the Trump coin. And you don't even need to know about it. I'm just going to do it. And the next day, it comes out that whoever has lower tariffs, you watch. Apple's going to figure out a way to get out of this. Tim Cook is so elegant and smart. He'll figure out a way to get out of this. And let's talk.
Let's use Apple as an example of just how head up your ass these tariffs are. With the current plan to tariff China, iPhones are going to go from $1,300 to $2,000. And then ass clown Howard Lutnick says there are millions of people assembling little screws into iPhones. We're going to bring all of those jobs back. Right. Can't wait to be screwing screws into an iPhone.
Dave Chappelle summarized it perfectly. He said, we want to wear Nikes. We don't want to make them. We can't get people to wear hazmat suits and go work at a chip factory and glue on circuit boards for 70 or 80 bucks an hour. They'd rather do something else. We have traded off jobs that are low value add, that don't create a lot of margin, that Americans don't want and can't do economically.
So what do we have? We have an iPhone with the world's most robust supply chain that costs about 12 or 1300 bucks. With the current tariffs, it goes to 2000. Well, okay, the idea is, is that, well, maybe that'll make the iPhone produced domestically more attractive and bring back all these jobs. To produce an iPhone in the United States would cost $3,500.
So you take the iPhone from $1,300 to $3,500, you're going to cut Apple's revenue on the iPhone probably in half. But let's be conservative and say it cuts it by $40 billion. They traded a multiple of sales of eight. So you're going to take a third of a trillion dollars off of the market cap. You're going to dramatically decrease the amount of labor.
They're going to put in place reciprocal tariffs. All the shit we sell into their Estee Lauder cosmetics, North Face jackets, All the things we sell into there will become less appealing to their consumers and they'll start buying more European products or Mexican products. So what do we have?
We not only have a reduction in prosperity, we have an asymmetric reduction in prosperity because the shit we're selling into them is much higher margin than the shit they're selling into us.
Yeah, my friend Rick Stengel put it perfectly. He was like, you know, I have a perpetual trade deficit with my barber. Trump thinks that the solution to that is to put a 50% tariff on haircuts. I like that. One topic you brought up when we were discussing this earlier in the week was this idea that people have been floating around that Trump might have used chat GPT to come up with this policy.
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Chapter 5: What are the potential future scenarios for the US economy?
Coming up on Today Explained, the best minds. The White House advisor who's gone ham on tariffs defends his position. Weekday afternoons. Today Explained helps you make sense of the mess.
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The regular season's in the rearview, and now it's time for the games that matter the most. This is Kenny Beecham, and playoff basketball is finally here. On Small Ball, we're diving deeper to every series, every crunch time finish, every coaching adjustment that can make or break a championship run. Who's building for a 16-win marathon? Which superstar will submit their legacy?
And which role player is about to become a household name? With so many fascinating first-round matchups, will the West be the bloodbath we anticipate? Will the East be as predictable as we think? Can the Celtics defend their title? Can Steph Curry, LeBron James, Kawhi Leonard push the young teams at the top?
I'll be bringing the expertise to pass and the genuine opinion you need for the most exciting time of the NBA calendar. Small Ball is your essential companion for the NBA postseason. Join me, Kenny Beecham, for new episodes of Small Ball throughout the playoffs. Don't miss Small Ball with Kenny Beecham. New episodes drop in through the playoffs.
Available on YouTube and wherever you get your podcasts.
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Chapter 6: How does US branding affect global economic perception?
But I'm going to try to encourage people to protect their class, to protect their community, to protect their society. And that does mean you have to be prepared to work together
About 80% of our listeners are male, and a lot of them are young people who I think feel they're smart, maybe certification, they work hard, but they feel really frustrated by some of the dynamics you've outlined. In America, for the first time in our history, a 30-year-old isn't doing as well as his or her parents were at 30. And it's just very upsetting for them.
We have the most anxious, depressed, obese generation in history. what advice would you give to your younger self or to some of the young people listening to this podcast?
The message that I think I would like most to deliver to young men in America and the UK is I want them to understand that we have really significantly reduced social mobility.
The reason I want them to understand that is because I think we still send a message to young men that success is about how hard you work and what you put in, when the reality is, and I know people might not like to hear this, the truth is success is like 85, 90% who your dad is now. I'm sorry to say that, but that's the truth.
The reason I want people to know that is not because I want them to give up and not work hard, But because the reality is, if you come from a poor background, it is very, very difficult to even be able to buy a home and afford a family.
And I want people to know that because I want young men to go out there, work their hardest and recognise that if they are able to buy a house and support a family from a poor, ordinary background, they are doing really well. They are doing really, really, really well. Because I think this message...
that tells young people you are what you make, you get out what you put in, and then gives all the money and all the wealth to people from rich families who then go and post it on Instagram, is making our young men feel like absolute shit. It's making our young men feel like, and we're lying to them. Listen. The truth is we've kind of broken society now.
And if you come from a poor background, it's almost impossible for you to ever be rich. But it is possible for you to have a family, protect that family, support that family and live a dignified life where you are proud of yourself and what you achieve. So what I want young people to realise is yes, Social mobility has been destroyed.
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