Will Your Life Savings Survive Donald Trump? Or, Macro Risk, Mu, Authoritarianism, and Implosion

Hi! How’s everyone? Take a deep breath, welcome back old friends, welcome new ones, and here’s a tiny Snowy hug.

Today we’re going to discuss a question I’ve been getting a lot lately in sessions (it’s amazing and humbling to meet so many of you, by the way.) And as I answer it, I’m going to teach you about 21st century finance, which is grounded in Macro Risk.

The question that I get asked over and over again these days: is the stock market delusional? There it is, struggling for breath, and attempting to climb. In the middle of all this. Trade wars, tariffs, bond market meltdowns, the dollar plummeting. What gives?

I’m going to answer that question for you in hard terms, so that you really understand it.

A Cautionary Tale, or, How Much Wealth is Going to be Destroyed

The answer goes begins like this. Yes.

The stock market is indeed delusional right now. Severely.

But that only raises another question, and another one: how much? And why?

Let’s take those one by one. We’ll use a recent case study to answer the question, in hard terms: how delusional is the stock market?

Do you know what happened on Friday? The Gap, which is one of America’s biggest companies and most iconic brands, reported its recent quarterly earnings. And it was good news. The company beat expectations, and turned in a healthy profit.

Stock should’ve soared, right?

But its management also estimated that it would take a $300 million hit from Trump’s tariffs. That’s maybe a third of its profits.

Know what happened next? 

The stock plummeted by 20%.

So. Let me recap that. Here’s one of America’s biggest companies, and its profits handily beat expectations, which should’ve sent the stock skyrocketing. Instead, it crashed.

Why?

Because apparently Wall Street and your financial advisors don’t believe in reality anymore.

You see, we all should’ve known that the tariffs would hit a company like Gap. Literally everyone should’ve guessed that. Because of course it imports most of the stuff it sells. It’s a storefront, more or less, for stuff made all over the world. And of course Trump has declared economic war on the world.

And yet nobody in finance thought about this for even a microsecond, it seems. Gap stock should’ve fallen for the last several months. It didn’t. Instead, this was a “surprise” to the markets—that tariffs were going to cost it a Very Large Number.

That is why the stock crashed.

Do you see the cautionary tale at work here?

People are not thinking clearly. They are not being Adults in the Room. They’re being delusional. Manic. They’re being seduced by Trump and gaslit by him, even as they imagine that he’s backing down, or whatever the fad du jour is. 

And they are getting burned by their own folly.

Imagine that you owned Gap shares. I don’t know, maybe you did, and maybe you do, because it’s in a lot of funds that financial advisors recommend. Poof, there goes 20% of some chunk of your money.

Just like that, gone.

This is wealth destruction. 

And it is going to happen again, and again, and again. Because of course the Gap is hardly alone. Most of America’s large companies are exposed to similar levels of risk.

Please take a moment to think this through.

Would You Hand Donald Trump a Loaded Gun?

There are a lot of people out there “buying the dip.”

That is why the stock market is doing these strange and foolish things.

The world’s smart money is staying well away from doing that. The largest and wisest pools of capital in the world aren’tbuying American stocks. So who is?

The little guy. The small fry. The individual or retail investor. They are not wise or smart enough to really understand the game they’re playing at the best of times, and at the worst of times?

Buying the dip is like handing Trump a loaded gun. He’s going to shoot. The only question is whether you’re going to get hit.

My advice is: don’t do it.

Let’s go back to the Gap. There was no way in the universe that its shares weren’t going to be affected by the tariffs. None. We’ve all known that, or should have, for months. And yet the shares didn’t fall until now. And that tells us that almost nobody is thinking clearly anymore.

There are, right now, plenty of people out there telling you to buy the dip in even Gap’s shares. I just Googled it, and lo and behold, there’s Mad Money Jim Cramer roaring about it. Buy the Dip! Rarely has more foolish advice been given.

All of this is real.

The tariffs are going to shrink the economy.

Stock markets do not do well in shrinking economies.

We can pretend they will, but all that does is make the price higher and steeper.

That is how you get to crashes.

So what kind of crashes are we talking about?

How Much Does Macro Risk Cost?

Now we’re going to do some very gentle, very simple math together. It’s important that you do it with me, because I need to teach you, and you need to learn, about how finance really works now, unless you like losing money.

Gap shares crashed by 20%. Because of Macro Risk. They didn’t crash, for example, because Gap got its summer colors or styles wrong—that’s Micro Risk. They crashed because Trump declared trade war on the world, and that’s not about anything a company really has much control over, and that is Macro Risk. It’s “bigger” in that sense than you, me, companies, even capitalism itself.

Now. Because Gap shares crashed by 20%, we can begin to formally estimate Macro Risk. We couldn’t do that until things like this began to happen. What we could say was what we knew: the risk was real, and it was going to affect prices and values pretty severely. But exactly how much remained a question, to a degree.

But now the answer to that question is becoming much clearer.

Gap estimated that the tariffs would cost it something 30%-40% of its profits. Let’s call it 40% to make the math a little easier. The share price crashed by 20%, remember? 20% is half of 40%. That means that for every dollar the tariffs cost, the shares dropped by fifty cents, if you like. In other words, the Macro Risk for Gap in terms of share price is half the hit to profits.

Now let’s imagine that Gap’s estimate turns out to be off. The tariffs cost it more. How much more will the share price fall? If the cost is closer to 50% of its profits, then Gap’s share price should fall by 25%. See how this works and how simple it is?

This is how Macro Risk works.

And you should see it clearly now. It’s not a surprise that Gap estimated tariffs would cost it 30-40% of its profits. That’s what the tariff rate more or less is, in its industry. That’s not even math, that’s just, I don’t know, obviosity. Yes, tariffs cost money. How much? As much as they are.

The only real shocker is that again, nobody “saw this coming.” How long have we been replaying this particular tune? Nobody saw it coming, Trump won’t be elected, nobody saw it coming, it’s not fascism, nobody saw it coming, they won’t declare economic war on the world, nobody saw it coming. At some point, if you’re not getting the picture here, try to focus. The theme couldn’t be clearer.

Everybody should see this coming by now. You should. Your financial advisors should. Wall Street should. Everybody. The problem is that we’re still playing a game of denial, or stupidity, or both, and when they’re indistinguishable, that is when people lost a lot of money, fast.

The Market is Failing to Price Macro Risk

What just happened to the Gap is going to happen over and over and over again. It’s not as if every other company in the economy isn’t going to be hit. Of course they will.

But the market isn’t pricing this risk correctly. In fact, it’s not pricing it in at all. Before the Gap’s shares crashed? They were just chugging along. As if there were no trade war at all. No lunatic in the White House. No authoritarian collapse. Look guys, everything’s fine. It wasn’t.

Let me say that again.

We now are beginning to know the extent of Macro Risk, how much it costs. But the market isn’t pricing it in at all. Not a penny of it. It is valuing stocks at exactly the same levels as if this were before inauguration. 

Do you see how dangerous and foolish that is? This isn’t the world before Trump got re-elected. It is the world after that. It is one in the middle of a trade war, in which America’s being dumped by friends and allies, and in which capital’s fleeing. So how can the market value stocks at the same level as before inauguration?

Because people are willing to see their money burn. They are making a foolish choice. You shouldn’t be among them. Unless you really, really believe that somehow stocks can be worth as much or more as they were before Trump took power and set loose this chaos. I don’t see how that can possibly be true, but it’s your choice. 

Risk always has a cost. And a price. 

How high will it be?

Mu, or The Cost of Macro Risk

Now let me introduce you to a concept you should be thinking about as you make financial decisions.

I’ll call it “Mu,” which is just a way of saying, “the cost of Macro Risk.”

How much did Gap’s Macro Risk turn out to cost? Not zero percent. Twenty percent.

So we could say that Gap’s Mu is 0.2, or 20%. Of it’s share price.

Now, every company, every stock, every asset in the economy, in fact, from bonds to dollars and beyond, will have a Mu of its own.

Let’s think about dollars. How much is their Mu? They’re down 10% or so since inauguration, and we should all know they’re heading lower, because of course, Trump’s Mar-a-Lago Plan has four steps, and the goal is to eviscerate the dollar as the world’s reserve currency.

So the dollar’s Mu is already 10%. In the end? Maybe it’ll be 30%. 40%. We don’t know yet, but we can say: it’s at least10%.

Now let’s think of an investment portfolio made of stocks like the Gap which are in dollars to begin with. That has a Mu of 30%. See how fast this is all adding up?

Now let’s think about the broader stock market. What happened to the Gap will happen over and over again. Apple shares are down by 20%ish, maybe more. So Apple’s Mu is somewhere around the Gap’s. And that’s hardly a coincidence—both companies rely on an import based business model, and the tariff rate is at least 30% in their case.

But that’s most companies in the economy. And so the Mu of the stock market as a whole is likely to be somewhere in the region of 20%, maybe higher. That is the price of Macro Risk across all stocks.

And that implies that a correction is coming, on the order of a crash. We all know it, and we can all feel it. There’s the sense of dancing before a very steep abyss. Mu gives us an estimate of how large that crash could be. 

Of course, stock markets can also do even more irrational and foolish things. They might just hang in there, despite it all. As many of you have found out in sessions, it’s very, very hard to get your money out of American assets. You’re captive to the system. And the system breeds the despair and greed of late, fail-stage capitalism, imploding into capitalism. If you’re on the edge, like most Americans are, making a quick buck in the market is a drug.

So the market just might hang in there regardless, as long as it can. And it might even hang on beyond that, because for most Americans, divesting from stocks completely is nigh on impossible. That’s OK. It’ll ameliorate the problem and the outcome, but it won’t stop it.

The point is very simple. It’s not for you to jump to quick, easy conclusions. The stock market’s gonna fall, everyone, hide under the mattresses! It’s for you to learn how the economy and finance actually work. Then you will be able to think clearly. Here, I’ve tried to teach you about risk, costs, and prices. They are inescapable in the end.

Pretending they don’t exist only makes them worse, which is a phenomenon common to negative events, and in plain English, we just call that “stupidity.”

Learning, on the other hand, means forming a judgment something like this. We all should’ve known Macro Risk was real, from tariffs and trade wars. Now, we even have information about how much it costs in real-world terms, which is crash-level crises. That is the cost of risk. The amount of risk is that cost, multiplied by the likelihood we estimate that these events will continue. Do you think Trump can rein it in? I don’t. Does anyone sensible think that? 

So the amount of risk in your portfolio isn’t zero. It’s not negligible, conservative, or anything else. 

It’s way, way higher than most people think, because it’s way higher than Wall Street thinks, than your finance guy thinks, than their formulas compute, and they are not thinking about it clearly or well at all, because they don’t know how to, since the topic I just taught you about, Macro Risk, is new, and mostly, they’re in denial about it, since they love Trump so much they’re happy to hand him a loaded gun, over and over again. That risk is spreading across the entirety of American assets, and therefore, across everyone in America’s investment portfolio.

You shouldn’t just sort of sit there and blindly take that risk. That is folly. You should be making judgments about how to mitigate and eliminate it.

Got all that? Don’t get burned. This isn’t a game. It isn’t academic or abstract. This is your life. Take charge of it. Understand the choices before you and make wise ones. I tried to be gentle and clear in teaching you all this, and I know it’s a little complex, so I hope it helped.

As always, if you need advice, just reach out. 

Lots of love,

Umair (and Snowy!)

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