Professor Elam

3/28/2025

Falling on His Own Sword

The NFIB recently reported the net percentage of businesses raising average selling prices rose 10 points between its January and February surveys, which was the largest one-month increase since April 2021. Those results are consistent with reports from Eighth District business leaders who tell us they expect to pass higher materials costs on to their customers.

Federal Reserve Bank of St. Louis President Alberto Musalem

The stock market has been rallying since March 13. That rally ceased Thursday, March 27, and for good reason. That day President announced his 25% tariffs on imported cars and parts would be permanent. More to follow via reciprocal tariffs next week.  As the reports of his best-ever ratings by voters seemed to buoy his second term. Realistic observers should have seen this could be a probable top for Trump. Gerard Baker at the Wall Street Journal observed that Joe Biden’s popularity peaked with his inauguration. Is history repeating?

GM dropped 7.3% and Ford lost 3.9% yesterday, Thursday. No wonder, as President Trump announced the 25% tariffs would be permanent. This is a violation of the very trade agreement he negotiated with Canada and Mexico, recall his rant against NAFTA? He says he wants everything made here and right now. In fact, companies have developed supply chains with parts made in other countries, This lowers the cost of the cars to Americans and creates jobs in Canada, Mexico, and elsewhere. Steve Jobs said Apple could not afford to make its products here due to cost and regulatory over-reach. One think tank estimates this will increase the average price of a car by $10,000. It would take years to build the new factories to bring everything back here, this cannot happen overnight. One wonders what Trump is thinking or what his advisors are afraid to say.

The all -time high for the Industrials was December 4, 2024, one month after the election euphoria for Trump. It then began falling. His inauguration was January 20. The market then peaked January 31, 2025.  None of this is coincidence. And it fits perfectly with my contention that the various indexes Peaked November-December 2024. There has not been a new high since then.

Energy XLE and energy service XES both Peaked and reversed  Thursday. The oil price has not risen above $70. Treasury yields fell today and bond prices gained. Money is flowing out of stocks into various bonds and bills.

The parallel to Herbert Hoover and the disastrous Smoot-Hawley Tariff act of 1930 is amazing.  That, along with the crashing stock market and out of business banks ushered Hoover out of office.  Trump cannot run for re-election and has no one around who will oppose him. Democrats should be delighted for themselves but not for the country.

Social mood is rapidly falling  to negative. Democrats are using four letter words to describe Trump efforts. Tomorrow is Take Down Tesla. And that for a guy who has done what Dems want, build electric cars. A Dem darling until he met Trump. Teslas are on fire across America. Bull markets are positive mood events. Bear markets are born in negative mood.