Market Update March 2025: Politics, Markets, and Professional Speculators

Paul Winkler: All right, back here on “The Investor Coaching show.” I’m Paul Winkler.

Bears and Bulls

Yeah, so we keep hearing all kinds of conflicting information on what’s going on in Washington. Cramer was talking about this on CNBC and I have a love-hate relationship with Cramer. He’s big on individual stock picking and then all those types of things, and I think that’s a lot of really bad stuff to do. Like I said, the Kellogg School of Management did a study on his stock selections and found you’d do better selling the things that he told people to buy.

But I really like some of the information that he gives because I like the commentary that he engages in. But he had this talk about the bears.

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The idea behind it is bulls are people that think the stock market’s going to go up. 

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You got bulls and bears. Bulls think the stock market’s going to go up, the sky’s the limit, everything’s going to be great. And then you have bears that go, “Oh.” It’s like Eeyore.

“It’s another stock market downturn. You know you’re going to lose money. It’s terrible. Everything’s bad.”

Well, there was an article in Market Watch that says that even Wall Street’s most committed bears expect a stock market rebound. And I think, Why? Why would people that are bearish, thinking that markets are going to go down, why would they think that there would be any kind of an upturn?

And it’s not the only place that I heard that. It was something that actually was talked about on CNBC. Check this out.

Jim Cramer: I think you have to view this market as apolitical. I’m going to put it this way: wins versus losses, Trump. The way that Canada blinked on electricity, win Trump.

Ukraine, where he’s now back giving them the weapons, Russia’s not playing ball, win for Trump. Meaning, “Hey, listen, I’m flexible.” Wins for Trump matter.

We get the no government shutdown, win for Trump. Where are the wins for the other side, for the bears? Don’t see them.

Not CPI. Looking for something, can’t find anything. I think that we’re going to see a resumption of M&A. I think we’ll see a resumption of the IPO market, which is going to be a very big deal that helps the data center.

What Are the Wins?

PW: Yeah, so he’s talking about M&A, mortgage and acquisition. So you look at these markets and you go, “Hey, what’s going on? Are people acting like things are going to be okay?”

And so often we hear terrible news, especially after markets go down. This is something that we teach in the very first workshop that we actually do for clients. We will actually walk through history, and we go all the way back.

I wrote this workshop in the late ’90s. And one of my most fruitful days in a library ever was the day I actually collected all of this information. I went back to the 1920s and I grabbed articles from the 1920s.

I grabbed articles from the 1930s, I grabbed articles from the ’70s and ’80s and ’90s. And what I wanted to point out was how the media was spending so much time trying to predict where things were going to go.

And there would be this information back in the 1930s saying, “Hey, you got burned by the market crash. Don’t rush back into speculation. Don’t jump back in. Don’t be a fool.”

And there were articles that were in the 1970s where Business Week had “the death of equities” and you say, “Oh my goodness, the death of equities, that doesn’t sound good. Equities are dead. Don’t invest in them.”

Then you had a fivefold increase in value at the S&P 500, eightfold increase in the Europe Australia Far East Index during the 1980s. So the point that I like to make was this, and I do this over and over again, “The recession could be coming. Recession, these are reasons that the market’s going to crash.”

And then I show how the market actually goes up. “Market’s actually going to go up,” and it would actually go down.

You might make of it that you just do the opposite of what the media says. But sometimes they’re right. That’s the funny thing. Sometimes they are right and it’s just random and you’ve got a three-quarter shot that the market goes up, one-quarter shot that it goes down.

What are your odds? I mean, you look at that and go, “Man, it doesn’t make a whole lot of sense to try to predict what’s going to happen next.” But what we see here is all of this negative information after U.S. stocks went down.

And you’re seeing all kinds of positive stuff on something that most people didn’t own, which is emerging markets, value stocks, and emerging markets, small companies and international value companies, international small value, things that most investors within the sound of my voice, except if you’re a client of ours, wouldn’t have anything in, have done quite well, thanks. But the point here is he’s saying that, what is going on here?

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There have been all kinds of wins, but you don’t typically hear about it. You hear about tariffs and how terrible they are. 

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“Oh my god, tariffs are going to just be awful and it’s going to drive up inflation and prices are going to go up and it’s going to be really, really bad.” Well, that was addressed this week as well.

Businesses Raising Prices

JC: Okay, so let’s talk about the actual pricing. There’s lots of stories about how pricing is going to go up big. Isn’t the truth that even though you’ve raised prices that we’re really just back a year from where we were and it was just last year was the worst year since 2010?

Lourenco Goncalves: Yeah, it was, even at pair with the COVID year. Just to give you an idea. So we’re not talking about bringing prices up. We are talking about bringing prices back to where you have a real business.

PW: So his point there is that a lot of the pricing in his industry are coming back to where it was before, because the reality of it is, what’s a company there for? It’s there to make a profit.

Now, this is something I talked about. I hope I don’t get too nerdy on this. I really want you to get this. One of the things I talked about is owning stocks to protect against inflation.

Now, those of you who have been longtime listeners of this show, you will remember me saying this, but here’s the point I like to make: We own stocks to protect against inflation. Yet sometimes you hear people talk about the stock market and they talk about their fear of the stock market because of inflation. Now, wait a minute, that sounds like it’s contradictory.

“Stock market could go down if we have inflation, but Paul, you own stocks to protect against inflation.” Your brain, you feel like it’s going to explode. You need to put duct tape around it.

Because wait, wait, wait, wait, wait. What? You protect? But then stocks, you don’t down because of inflation.

Here’s what he’s saying. Remember that I often talk about that, when prices go up, you don’t want to be the first person to raise prices typically in your industry because your competitors will be lower priced than you and you will lose market share.

Now here’s what he is saying. Eventually, you’ve got to catch up to make your business viable. Let’s go back to the 1970s, late 1970s and early 1980s, when you had lots of inflation. Now, remember, in the 1970s, you could buy a car for about $3,000.

Now, look at today, no way on earth. If you have prices go up around you, and if you’re the first person to be raising prices, nobody’s going to buy your car in the ’70s.

But eventually, did people raise the price of cars? Yes, because go to try to find one for less than $30,000, $40,000, $50,000. Not so easy.

So that is what we’re talking about here. He’s basically saying, eventually, you do raise prices.

Now, he’s talking about tariffs. If you have costs in the form of tariffs, you may not be the first person to want to raise your price for whatever you’re selling to account for the tariff. In other words, you may suck it up in the short run as a business owner. And therefore what ends up happening is that you may take a hit to your earnings in the short run.

Hence, the reason stocks will go down for the concern that earnings will go up. You see? But eventually raise prices you will.

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I sound like Yoda. Eventually raise prices you will. You will raise your prices to actually protect yourself. 

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That’s indeed exactly what he’s saying here. And I think it’s just fascinating when you look at it that way.

The Purpose of Tariffs

You go, “Oh, yeah. Now I see why stocks protect against inflation.” Because remember, stocks typically sell, large U.S. companies anyway, for about 16 times earnings. Now, that data goes all the way back to the 1920s. Stocks have always sold for about 16 times earnings.

If back in the past a dollar of earnings was all that you needed, let’s say, let’s take a billion dollars just to make it real, so you’ve got a company that’s selling for $16 billion, it’s got a billion dollars of earnings, and now it takes $2 billion to buy what $1 billion used to buy. So you used to have $1 billion of earnings. Now it takes $2 billion to buy whatever used to take $1 billion to buy.

What is the company going to sell for if the ratio will remain the same? Instead of 16 to one, it will be 32 to two. That’s still a 16-to-one ratio. Okay, so that is what we’re talking about.

What happened? What went up? Sixteen went to 32.

What was the 16? That was the value of the whole company went to 32. So hence what we see there is the protective aspect, but it’s not a one-to-one ratio.

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It’s not bam, prices go up, earnings go up, and, bam, your price goes up. That’s not the way it works. 

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And I love it. That’s what he spelled out right there.

Now, the other thing he talked about that was interesting was the purpose of the tariffs. And you know this guy, I love his accent, but check this out.

LG: Trump would come to bring manufacturing back to the United States and then, if you produce here, you’re going to be okay. His steel tariffs are a matter of national security. There’s no country without manufacturing and no country without steel making.

JC: You don’t want Chinese steel making our tanks and houses?

LG: Of course.

JC: How would that be? You think they’d work what? Half the time? Fifty percent?

LG: Yeah. Look, we can’t even think about that. We have to make things in the United States.

JC: Navy ships, how would they do if we have Chinese steel? Pretty good? Do we trust them?

LG: No way. Of course not. Of course not.

PW: No. Let’s just check out what he’s doing there. Cramer’s just playing. He’s just having fun with him.

And it was funny because it almost sounds like this guy is taking Cramer seriously right there. But just with that in mind, just listen to that little section again, just to hear, because I love this guy.

He’s just answering him as if he’s serious, but he’s playing with him. He’s being very sarcastic.

JC: Navy ships, how would they do if we have Chinese steel? Pretty good? Do we trust them?

LG: No way. Of course not. Of course not.

PW: Navy ships, we got to trust them if all the steel is being made outside the United States. I don’t think so.

LG: Of course not. And by the way, China is the biggest in terms of size, but others are pretty much the same. And percentage-wise, you have worse than China. Like Japan, like Korea, like the Europeans, the entitlement is over.

PW: Yeah. So his point is that a lot of the things going on right now, it’s just rightsizing it and bringing things back to where this guy believes that they ought to be.

Can We Compete?

Now, the question is, can we compete? Can we compete when other people are cheating? That’s the question. And that is really a lot of what’s being lost in the general media.

Carl Quintanilla: Can American manufacturing ever match the cost of production of a foreign producer?

LG: Without subsidies and without currency manipulation and without all the kinds of cheating that are embedded in the number that were trying to trick the income? Yes, because we’re the best. We’re the most efficient. We have the highest technology.

We use hydrogen. I came here not too long ago with Secretary Granholm to talk about hydrogen because we’re using. Not because we’re trying.

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We don’t brag about what we’re trying. We’re trying a lot of things. We only brag about what we do.

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PW: And I’ve been talking about hydrogen here for a while on the show. But the point I’d like to make here is I love what he said about just U.S. exceptionalism, I guess you would call it right there.

But here’s the thing that I talked about here on the show years and years ago, because this is something that was a big, big deal. If you go back in history, there was technology being financed by the Japanese government many years ago. And this technology, a lot of U.S. manufacturers were up in arms.

Now, this was making the news like crazy in the early days of this radio show. And the point that I made on the show was this. I said, “Watch out. Watch carefully because the governments of other countries try to subsidize industries in those countries.”

And I said, “But just mark my words that what typically happens is when you get private industry and you let them loose and let them innovate and let them do their thing based on the idea of capitalism, based on the idea that the best will win, and if you keep the government out of it, what will happen is American manufacturers will actually end up on top.”

Investing in U.S. and International Companies

They were so worried because these Japanese corporations were being subsidized by the Japanese government. What ended up happening, however, was that the U.S. innovated in technology in those areas much more rapidly than their counterparts around the world.

Now you might say, “Well, gee, then that means we just invest in U.S. companies and that’s all we do.” And I would say, no, that would be a really bad move, because eventually those international counterparts would start to use the U.S. technology and would actually implement it themselves.

Remember, don’t ever forget that it was U.S. companies that were implementing Windows technology long before the international counterparts. And as a result, U.S. companies, their productivity actually started to ramp up before the international companies were actually benefiting from that ramp up in productivity.

But ramp up, they did, those international companies, because, remember, investing isn’t about necessarily who’s the most profitable either. This is a misnomer as well. Now, people think, Hey, the economy’s better here in the United States than it is around the world. Just invest in U.S. companies.

No, no, no, no, no. Investing is about letting somebody else use your money and they have to pay to use your money.

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Just because a company is outside the U.S. doesn’t mean that they don’t have to pay every bit as much as a U.S. company does to use your money.

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So if we look back through history and we look at the returns of U.S. companies versus international companies, it’s very, very similar for big companies, slightly higher for international small companies versus U.S. small companies. Why?

Well, you could put it this way: If there’s more risk, there’s more returned historically. Now, this is the idea. When we put these portfolios together, you end up with a portfolio with less risk when you include them both.

And I’ve seen way too many fund companies focus way too much attention and investment advisors focus way too much attention only on U.S., only to miss out on a lot of things going on around the world that could reduce their volatility. Case in point, like I’ve been saying so far this year.

Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.