The unprecedented policy volatilty of a conflict-prone Trump Administration is likely to freeze long-term business decision making, raising downside risks to AI-dependent US capital spending.
This uncertainty shock is permanent, not transitory. And is likely to have a meaningful impact on the real economy. Business decision makers need certainty to make capex and hiring decisions. The absence of certainty will inhibit those decisions.
Let me back up your analysis (and prognosis) with regard to the accelerator effect:
From bottom up experience of working more than thirty years in corporate finance on the banking side, I can attest to the accelerator effect being real and pervasive. It is present in any industry, and at all times.
Also, I can can attest to its bi-directional dynamic:
Certainty, and be it just a perceived one, fosters willingness to act. Companies invest. Even if the outlook is negative, but deemed certain, business leaders are searching for opportunities to improve their competitive edge. They are still willing to invest, usually on a smaller scale, but they move forward.
On the other hand, uncertainty almost always fosters hesitancy. This is less of a psychological phenomenon, and rather due to rational calculus: Keep scarce capital in reserve in order to deploy it, as and when visibility of return on investment improves.
I witnessed this pattern in day-to-day action with hundreds of companies.
In concluding, the sarcastic in me can envisage a (low probability) optimistic scenario versus your (high probability) prognosis: If the Trump administration's furor turns out to be "much ado about nothing" as a result of their amateurism leading essentially nowhere, then businesses will look through that, and certainty may be established again.
Thanks for the feedback. My basic point is that the trust factor underpinning American exceptionalism has been broken. Even if the policy blunders are contained, businesses and once grateful allies will have a new and corrosive concern to ponder in their decision making process. That will inhibit real economic actions -/ like capex and hiring— that require more certainty and confidence that a transactional, heavy handed America is now prepared to offer.
Couldn’t agree more with the “uncertainty” paradigm. While the Krasnov (Trump’s KGB / FSA handle) administration bounces like steel balls in a Pachinko parlor and Elon Musk sends a kid named Big Balls into the federal payments system this uncertainty has skyrocketed and it will take a long time for this clown car to show it has a clue what it is doing. The business leaders of the US are hard nosed realists not old retired country hicks gaslighting over coffee at the local diner.
They have to see a clear path so not to burn capital and this cavalcade of circus performers is not to be trusted and bet on. People are policy and these people are not on anyone’s top 1,000 list to head these critical agencies. Firing the people that guard, maintain and protect the US nuclear arsenal because Muck had no idea what they did is the prototype of systematic incompetence. When Rick Perry was named head of the energy department in Krasnov 1.0 he was shocked that his portfolio contained the largest nuclear weapon arsenal in the world along with all the US labs. Yeah, OMG!
Business leaders and money managers are a critical guardrail for crazy. Krasnov is incompetent but he does watch the stock market. Business leaders and money managers are the first responders who control the puppet strings drive Krasnov.
The market swoons hard and all of a sudden the 25% tariffs are delayed.
What business leader in his right mind cares about doing business in or with Russia. Russia is a pathetic country and if China was smart they would forget about Taiwan and invade eastern Russia for their resources.
Sadly Krasnov is the Manchurian Candidate, our Gerhardy Schroeder. Stay safe American business.
Uncertainty = distrust. Trump has broken the trust on economic, trade, and foreign policies. Reversing the reversal won’t restore trust — it will just further exacerbate the credibility problem (s). This uncertainly shock is permanent
Buckle up folks this cavalcade of drink teenagers driving our economy all over the road are heading straight into the shutdown wall next week and no one has the wheel or the brakes. Keystone Kops anyone? Laurel and Hardy “Who’s on First” comes to mind.
This uncertainty shock is permanent, not transitory. And is likely to have a meaningful impact on the real economy. Business decision makers need certainty to make capex and hiring decisions. The absence of certainty will inhibit those decisions.
Dear Stephen (if I may),
Let me back up your analysis (and prognosis) with regard to the accelerator effect:
From bottom up experience of working more than thirty years in corporate finance on the banking side, I can attest to the accelerator effect being real and pervasive. It is present in any industry, and at all times.
Also, I can can attest to its bi-directional dynamic:
Certainty, and be it just a perceived one, fosters willingness to act. Companies invest. Even if the outlook is negative, but deemed certain, business leaders are searching for opportunities to improve their competitive edge. They are still willing to invest, usually on a smaller scale, but they move forward.
On the other hand, uncertainty almost always fosters hesitancy. This is less of a psychological phenomenon, and rather due to rational calculus: Keep scarce capital in reserve in order to deploy it, as and when visibility of return on investment improves.
I witnessed this pattern in day-to-day action with hundreds of companies.
In concluding, the sarcastic in me can envisage a (low probability) optimistic scenario versus your (high probability) prognosis: If the Trump administration's furor turns out to be "much ado about nothing" as a result of their amateurism leading essentially nowhere, then businesses will look through that, and certainty may be established again.
Best (from a reader in Germany), Sven
Thanks for the feedback. My basic point is that the trust factor underpinning American exceptionalism has been broken. Even if the policy blunders are contained, businesses and once grateful allies will have a new and corrosive concern to ponder in their decision making process. That will inhibit real economic actions -/ like capex and hiring— that require more certainty and confidence that a transactional, heavy handed America is now prepared to offer.
Couldn’t agree more with the “uncertainty” paradigm. While the Krasnov (Trump’s KGB / FSA handle) administration bounces like steel balls in a Pachinko parlor and Elon Musk sends a kid named Big Balls into the federal payments system this uncertainty has skyrocketed and it will take a long time for this clown car to show it has a clue what it is doing. The business leaders of the US are hard nosed realists not old retired country hicks gaslighting over coffee at the local diner.
They have to see a clear path so not to burn capital and this cavalcade of circus performers is not to be trusted and bet on. People are policy and these people are not on anyone’s top 1,000 list to head these critical agencies. Firing the people that guard, maintain and protect the US nuclear arsenal because Muck had no idea what they did is the prototype of systematic incompetence. When Rick Perry was named head of the energy department in Krasnov 1.0 he was shocked that his portfolio contained the largest nuclear weapon arsenal in the world along with all the US labs. Yeah, OMG!
Business leaders and money managers are a critical guardrail for crazy. Krasnov is incompetent but he does watch the stock market. Business leaders and money managers are the first responders who control the puppet strings drive Krasnov.
The market swoons hard and all of a sudden the 25% tariffs are delayed.
What business leader in his right mind cares about doing business in or with Russia. Russia is a pathetic country and if China was smart they would forget about Taiwan and invade eastern Russia for their resources.
Sadly Krasnov is the Manchurian Candidate, our Gerhardy Schroeder. Stay safe American business.
Uncertainty = distrust. Trump has broken the trust on economic, trade, and foreign policies. Reversing the reversal won’t restore trust — it will just further exacerbate the credibility problem (s). This uncertainly shock is permanent
Buckle up folks this cavalcade of drink teenagers driving our economy all over the road are heading straight into the shutdown wall next week and no one has the wheel or the brakes. Keystone Kops anyone? Laurel and Hardy “Who’s on First” comes to mind.
Spot on it is!
Spot on!