Post Obliteration Day thoughts

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Obliteration Day marks a reset—a moment that challenges some of my foundational assumptions. Below are a few scattered reflections:

  • Tariffs are likely here to stay.
  • It may take months—not weeks or days—to gain clarity on the ultimate tariff levels. This time, they’ll likely be applied by country, not by specific commodity or product.
  • A possible (unintentional?) side effect: new opportunities for U.S. exports.
  • Tariffs will push prices higher. That means inflation, and U.S. consumers will be footing some of the bill.
  • This could mean a higher sustained inflation rate—say goodbye to the “Goldilocks” 2% inflation and 4.x% long-term rates?
  • Some tariff costs will be absorbed by companies, leading to margin erosion and weaker earnings.
    → What’s the potential impact on SPY earnings?
  • If we’re settling into a world of higher inflation, will that mean permanently lower valuations—i.e., lower PE ratios?
  • Expect to hear arguments like “tariffs will pay for tax cuts.”
    → But who actually benefits? Could we see no taxes on Social Security or TIPS? Higher SALT deductions? Credits for buying American-made goods?
    → Or will the gains just flow to the top 1%?
    → Do we need to rethink tax and retirement planning assumptions?

PS: Let us use this thread to discuss policy without politics, if we could.

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Why?

For a given tariff rate increase, that is a one-time price increase.

Why are you expecting a higher sustained inflation rate?

As an example, a tariff rate that increases by 1% per year would lead to higher sustained inflation.

Are you expecting perpetually increasing tariff rates?

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If the tariffs are short-term or targeted, it will result in one-time inflation uptick. I think the tariffs are permanent, and/ or it is baked into policy (“tariffs will pay for”). It becomes structural. We need to raise base inflation expectations.

Global trade is a major deflationary force, just removing it, should add easily 1% ~2% inflation, if not higher.