Howard Marks recently penned some interesting views that make you think. The article is a bit long, but the following stood out for me.

https://www.oaktreecapital.com/insights/memo/nobody-knows-yet-again

There have been no large-scale trade wars in the modern era; thus, the theories are untested. Investors, businesspeople, academics, and government leaders will all give advice, but none of them is much more likely to be right than the average intelligent observer. The things on which everyone will agree are obvious, such as the likelihood of higher prices. The less obvious truths will be harder to discern.

What are some of the likely consequences of Trump’s tariffs? The list is long, and many are particularly serious:

• retaliation by other countries
• price increases and rising inflation
• destruction of demand due to price increases and declining consumer confidence
• recession and lost jobs, both in the U.S. and around the world
• supply shortages
• a massive change in the world order

Going all the way back to World War II and longer, the U.S. has been “holding the cards.” Trump believes in the strength of the U.S. and in cashing in on it. That’s what his moves on tariffs amount to: no longer “throwing the party” for the rest of the world. No longer generosity in the hope of long-term benefits, but rather transactions in which we extract fair value.

I consider the tariff developments thus far to be what soccer fans call an “own goal” – a goal scored for the other side when a player accidentally puts the ball into his own team’s net. In this way, they’re highly analogous to Brexit, and we know how that turned out. Brexit cost the British mightily in terms of GDP, morale, and alliances, and it harmed their reputation for governance and stability. All of this damage was self-inflicted.

And what about the financial markets? In the last few days there’s been a massive shift in the economic outlook and a huge stock market decline in reaction. As always, the key question surrounds the appropriateness of the response to date: has it been just right, inadequate, or excessive? It’s even harder to answer that question than usual, since there can be little confidence that the economic world of the future won’t be significantly different from – and probably worse than the one we’ve lived in up to now. On the one hand, if the tariffs remain as announced and retaliation leads to an all-out trade war, the economic consequences could be truly dire. But on the other hand, cooler heads (and highly negative political and stock-market reactions) could prevail, causing the tariffs to be rolled back to less harmful levels, perhaps even leading to gains for free trade.

ME: Loved the soccer analogy. So many unknowns truly justify Howard’s title and make for pause to ponder.