Assessing the Economic Picture
Mixed climbing requires a broad assortment of intricate tools which, if utilized timely and in the right conditions, can give the mountaineer a technical advantage on almost any terrain. This advantage can be the difference between a deadly mishap and a relatively safe and successful expedition. The constant, accurate assessment of both the terrain and its compatible tools is the climber’s charge. No less is it the financial steward’s need to prudently assess the economic trends which shape the business and investing environment where wealth building occurs. What are today’s dominant economic trends, what does history say about it, and which financial tools have been effective in these conditions?
While tariff-related threats to the economy and financial markets seem to have gained the President’s attention sufficiently to inspire him to back-walk on the issue, inducing the stock market to begin pricing-in the potential for ‘less bad’ tariff risks, the global economy is already being negatively impacted in noticeable ways by tariffs declared.
Inflationary Pressure
Major producers are slashing production and withholding exports in hopes tariffs go away soon, resulting in an inflationary bottleneck in the supply chain like last seen in the 2020 Covid crisis. It’s reported Chinese imports are on pace to plummet by a third, and expected arrivals for ships at the Port of Los Angeles for the week of May 4 are down 30% from prior year.¹ At the same time, while businesses prepare to pass cost increases on to consumers, there is ‘panic-buying’ occurring, particularly with cars, iPhones, and other goods heavily impacted by tariffs. Cox automotive estimates a coming price hike of 13% for imported vehicles, and Bloomberg has warned of a potential 42% increase in the cost of a new iPhone.² A reduction in supply and the “pulling forward” of demand are both inherently inflationary stimuli.
Recessionary Risks and Pressures
Last week Doc Eifrig pointed out the American consumer, largely responsible for the state of the U.S. economy, is now funding a noticeably higher portion of spending with debt. This week Stansberry Research reports that Mike DiBiase’s “Starbucks Indicator”, said to signal consumers are tightening their belts and eliminating expensive, discretionary treats, and a reliable indicator for the last two recessions, is flashing. Chipotle’s Q1 revelation of the first same store sales reduction since the pandemic seems to confirm the flashing “Starbucks indicator”.³ These developments are occurring in the context of the deeply inverted yield curve, the most reliable recession indicator over the past 70 years, between July 2022 and August 2024. The risks producers will lay off employees once inventories are depleted, should the tariffs persist that long, and that lenders will get cold feet committing capital in these conditions, should be on our radar but have not yet materialized. Remember that recessions are unavoidable, healthy, and that they set the stage for the next multi-year economic expansion. That said, they do require the investor’s attention.
Venturing through an ice fall is a terrifying experience for every mountaineer, but not a call to panic. Stagflation is problematic and a distinct risk today, but not a call to panic. Remember as an investor to “lean, don’t jump”. Focus on high quality businesses with solid “free cash flow”. Favor income paid today over the promise of income paid tomorrow. Own a chaos and/or inflation hedge or two. Raise cash. Have your exit plan in place and follow it. Don’t buy the dip in what may be a “dead cat bounce”, but don’t get conned out of your high-conviction, high-quality equities for fear of a recession that may be delayed.
Think about it, and may God bless our efforts to be good financial stewards, Shaun.
“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth” ~Ecclesiastes 11:2
1,2,3 The Stansberry Digest, “A Trade War Reality Check”, April 24, 2025
The opinions voiced in this material are general and are not intended to provide specific recommendations. The economic forecasts set forth in this commentary may not develop as predicted. Diversification of portfolio holdings does not necessarily protect against loss or guarantee returns.