For those of you who would prefer to listen:
The Stock Market did something that’s been rare for this year. It was up 3-consecutive sessions to start the week. Despite all the confusing and chaotic noise coming out of Washington, the Market is trying to see through the noise. To be clear, there are some serious issues yet to be resolved. But the quick and violent sell-off in March found some reprieve. It didn’t last. There’s reason to believe this rally will continue a little while longer though. But we definitely expect this choppy price action to stick around. This is a theme for 2025.
The toxicity of division in our country seems to be getting worse. Compromise and collaboration just aren’t in the political vernacular anymore. We at Bedell Frazier won’t get caught up in it and we never take sides. Our job is to study the situations and try to interpret the ongoings in the best effort to make informed decisions. We are in constant pursuit of the truth. Personal politics never factor in our decision-making. Our job is to anticipate how the Market responds. We stare squarely down the middle, not getting caught up in the emotion of what’s become the political 3rd rail. There are plenty of other outlets for that. We focus on facts and anticipate what’s next. That’s our job as investment professionals. But it’s impossible to ignore the political landscape. Most people shy away from the challenge. We run straight in, mostly trying to make sense of the nonsense; All in Market terms. That’s the way it’s always been. That won’t change.
Stocks caught a bid late last week and continued into this week on reports that the wide-reaching tariffs coming April 2nd will be narrower than initially planned.The Market activity has reflected the inconsistency of messaging from the Oval Office. The Market clearly prefers this more targeted approach compared to the across-the-board, blanketed approach. But midweek, it was announced that a 25% tariff will be slapped on all cars not made in the US. This was not quite anticipated, but it certainly wasn’t shocking. When it comes down to it, the Market really wants consistency and clarity. That’s something that doesn’t seem likely or long-lasting, anytime soon.
Of course, the situation remains fluid and the lingering uncertainty around the tariffs and likely retaliation have raised some skepticism about the widely anticipated April 2nd announcement as a clearing event. Expect more rhetoric and confusing headlines over the weekend. It’s been reported the office of the United States Trade Representative has tried to improve the messaging from the White House. This is the Federal agency that oversees trade policy. It seems like a tall order.
The threats of tariffs and potential trade wars will likely put pressure on the US Dollar. The Greenback has already fallen fairly sharply this year. As the US acts to rebalance trade, specifically through the use of tariffs, we would expect the Dollar’s share of foreign currency reserves to accelerate its decline. At the dawn of the 21st century, a mere 25 years ago, 70% of global commerce was sourced in US Dollars. Today, it’s down to 58%. As trade wars brew, and more populist policies expand, the Dollar’s role in global trade could shrink further, and perhaps faster.
The constant threat of tariffs and trade uncertainty has weighed heavily on Corporate America. There is risk to both Q1 and 2025 earnings. The Street has already cut estimates for the year. They might not be done. The Market sell-off has certainly recalibrated expectations. Earnings Season begins again in April. We’re going to learn a lot, and soon.
Major retailers say they can’t just raise more prices on its customers without losing market share and alienating American shoppers. It’s creating additional stress in the system, when supply chains were already strained. In retail, unlike manufacturing, the process of implementing price hikes is time-consuming and onerous. Typical contracts that retailers use with their merchandise suppliers are longer-term in nature and don’t account for major changes. For vendors, dealing with Walmart has always been tough because of its sheer size. Walmart generates nearly $450 Billion in sales annually. The company is taking a stand on possible tariffs. Walmart said it will scrutinize every line item of cost before it agrees to a supplier’s proposed price hike.
Suppliers don’t have much leverage with Walmart. They don’t want to risk having their brands kicked off those critical shelves. The retail titan can easily just swap into a competitor willing to take less for the prominent position that Walmart possesses. Remember the slogan, America shops at Walmart. It’s accurate.
America is the wealthiest nation in the world. In fact, it’s not even close. And America’s Economy is dominated by consumption, which accounts for 70% of GDP. These tariffs can be viewed as a cost for countries to have access to the robust American marketplace. But the eventual impact is definitely going to be felt with prices paid and varieties available. Some foreign goods are going to seek other markets. But it’s impossible to fill the void of the American consumer.
Made in America nearly evaporated towards the end of the 20th century. Cheap labor overseas brought costs down considerably. Manufacturing jobs went away. Services account for 86% of American jobs today. Manufacturing is just 8%. It was 25%, five decades ago. It’s not just the US. The same trend can be found across all mature nations. Consumers benefitted. With those cheap imports, we actually imported deflation from China the first 2 decades of the 21st century. The cost for clothes and manufactured goods dropped significantly. But we didn’t realize how dependent we became on other places. Covid has everyone rethinking everything when it comes to supplies.
Here’s the thing: America does export a great deal to the rest of the world. They’re just not tangible things like the past. Today, America exports ideas and intellectual property. It exports software, entertainment and financial services. It’s a massive surplus to the globe. These are all from much higher-paying jobs too.
So, what are we looking at with potential tariffs, should April 2nd happen as planned? Remember those 25% tariffs directed at Canada and Mexico? They were kicked to April. Now they’re back on the table. It’s not just our neighbors that face them. Europe is looking at as much as 200% levies on many goods we buy. The United States exports $325 Billion in trade with Mexico. It imports $475 Billion. That’s a $150 Billion deficit. The US has a $235 Billion trade deficit with Europe. Caught in the middle are 2 things that the American people seem to love: Avocados and Wine.
Europe exported $5 Billion of wine to the U.S. last year. Half of it came from France. The wine business was already struggling with a slowing China and generally weak global demand for higher-end vintages. Champagne tops that list. Sales for Dom Perignon and Veuve Clicquot fell 11% last year. Total wine exports fell 4% to 16.8 Billion Euros, which equated to $17.5 Billion. The Europeans previously slapped tariffs on American Whiskey. The move is retaliatory. What’s more, China is considering increasing tariffs on French Cognac after the EU raised levies on Chinese Electric Vehicles. Trade wars are brewing everywhere.
Here’s something even more relatable: Avocados. The United States consumes over 3 Billion pounds of avocados every year. That equates to approximately 9 pounds per person. Would you believe that 90% of those avocados eaten in America are imported? They certainly can’t all come from California. Of the 10% of the American-grown avocado supply, 95% do come from the Golden State. But the vast majority of the avocados we eat every year come from Mexico. American farmers simply cannot fill a void.
It hasn’t always been this way. Avocados used to be a rare delicacy, almost exclusively found on the West Coast. Did you know that Mexican avocados weren’t allowed in the country before 1997? It took another decade for national demand to catch on. Mexican avocados weren’t widely available around the country until 2007. It changed menus from coast-to-coast. That was the same year the iPhone changed the world.
There’s a history in the reason why. Back in 1914, the United States blocked Mexican avocado imports due to an outbreak of weevils in our southern neighbor’s orchards. The blockage remained for the rest of the century. Back then, California was the largest avocado grower in America. It still is today. Throughout most of the 20th century, the green fruit’s popularity pretty much remained in the Golden State.
NAFTA changed everything for the avocado. Here’s some perspective on those 9 pounds of avocados we each eat every year. In the 1990’s, it was less than 2 pounds. Avocados are found nearly everywhere now. It’s considered a superfood in some circles. It’s decisively a super food on one day. Super Bowl Sunday is the biggest day of the year for the avocado. 104 Million pounds are consumed that day. A close second is Cinco de Mayo with 81 Million pounds. That’s a lot of guac. And all that guac, not grown in the United States, is in the line of fire for tariffs. Prepare for higher prices.
One thing that was indisputably made in America: Baseball. However, it is disputed who invented it. The popular belief was the game was created by a Civil War General named Abner Doubleday. Apparently, that’s not true. It’s believed that the actual inventor was a guy named Cartwright. Regardless, the roots of baseball run deep in America and are tied to the British games of Cricket and Rounders. American Colonists reportedly played them around the time of the Revolution. I bet Washington could hit.
“If you build it, they will come.” Those famous words proved true. The game of baseball exploded after the Civil War. Pick-up games were played from coast-to-coast. Popularity soared. American icons, named Cobb and Ruth, Robinson and Mays, became legends of the game and heroes to kids of all ages. Baseball was America’s pastime. Ballparks became shrines. As the late, great James Earl Jones so eloquently said: “The one constant through all the years, has been baseball. America has rolled by like an army of steamrollers. It’s been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game — it’s a part of our past… It reminds us of all that once was good, and it could be again.”
Baseball is a cerebral sport. It’s a game of strategy and statistics. The term inside baseball, reflects the games within the game, which largely draw from probabilities. Unlike most professional sports, there’s no clock. And it’s the defense that has the ball. It can be a very slow game, for sure. But in a split second, that can change when incredible action occurs. There are definite lulls in baseball. The slow pace and long games drove many fans away, seduced by the fast-paced action of football and other more active sports. Strikes and steroids no doubt played a role too. But it seems altogether reflective of our society which in many ways lacks patience and demonstrates short attention spans.
We live in a digital age where immediate results and instant gratification is coveted. In baseball, winning 60% of the time can mean a championship. And being successful just 30% of the time at the plate gets you to the Hall of Fame. In other words, failing 70% of the time is expected, with encouragement to go get ‘em next time. Besides, you never really fail until you give up. Perhaps we could all benefit from letting go of our digital devices for a while and spending some time outdoors in the fresh air with friends and 30,000 of our neighbors at a ballgame. Because it’s there, a rare place, where the masses can embrace, nearly united in a cause.
The good news is, Baseball is back. This week brought Opening Day. It’s a new start. Every team is equal with the promise of many victories and great success ahead. Of course, not every team experiences success. But the positive energy and optimism at the beginning of the season is palpable. It can be felt across all stakeholders; Players, employees, fans. It captures the essence of life. Win or lose, it’s your team. You might not always like them. But you always love them.
American Presidents go to ballgames too. William Howard Taft was the first President to attend Opening Day. The year was 1910, in our nation’s capital. He threw out the first pitch when the Washington Senators played the Philadelphia Athletics. Since then, 11 sitting Presidents have tossed out the season’s ceremonial first pitch. One standout was Harry S. Truman. He threw out the first pitch in 7 consecutive years. What’s more, Truman was ambidextrous. The 33rd President threw out balls with both his right and left hand in 1950. I bet you didn’t know that.
Hotdogs are synonymous with baseball. German immigrants brought the favored food to America, dawning the name frankfurter. It’s ostensibly named after Frankfurt, Germany. People sold them on the street, as a quick and cheap way for American workers to eat. Hotdogs started showing up at ballparks across the country towards the end of the 19th century. When and where is still hotly debated. Some say they debuted in St. Louis, when the Browns baseball team owner started selling them. Others give the credit to a concessioner named Harry M. Stevens who first sold hotdogs at baseball games in New York. The dog craze caught on. Today, 21 Million hotdogs are consumed at ballparks across the country every year. They’re as American as apple pie.
The San Francisco Giants opened the 2025 season in Cincinnati. The Cincinnati Reds are considered America’s first professional baseball club. The Cincinnati Red Stockings were formed in 1866, a year after the Civil War ended. The 1869 Red Stockings fielded its first all-salaried squad, which made them the first professional team. East Coast teams responded quickly. Paid professional baseball took off in cities across the country. Teams started charging for admission to the games. Fans gladly paid the price. Baseball became an American experience.
Did you know that the Reds always open the season at home? It’s true. Back in the late 19th century, Cincinnati was the southernmost city to have a team. The weather was more temperate and predictable. Late March can still be cold around the country. Groundskeeping was still in its infancy. Fields were often a mess in the early Spring. Ballparks certainly didn’t have the equipment or manpower found today. The Cincinnati tradition stood. The Reds are the only team in Major League Baseball that start every season at home.
The Oakland Athletics no longer play in Oakland. In fact, the city has been completely erased from the name. You can see how charming the ownership has been to its loyal fans. Don’t get too excited yet Sacramento or Las Vegas. Your cities are nowhere to be found in their brand either. This Bay Area baseball team is merely the Athletics. I guess a single name worked for Madonna, Cher, Sting and Liberace. They’ve earned that notoriety and fame. Ditching Oakland does not earn loyal fans. You can clearly see where I am on this subject.
Moneyball was a story of numbers and efficiency that was missing in professional baseball. Michael Lewis told a compelling story of how the Oakland A’s turned the game upside down, reaching success as an underdog while the titans of the diamond spent Billions. Moneyball changed the game, at least for a while. But it didn’t take long for copycats to embrace the way. Now we’re back to the Big City Titans aggressively spending on talent and effectively buying championships. There’s no salary cap in baseball and big market teams generate significantly more broadcast revenue than small markets. The rest of the league is like a farm team that sells its best players to the highest bidders or lose them out in free agency. It’s reversed back to the 1950s and ’60s when those Athletics, then in Kansas City, fed rising superstars named Maris, Terry and Boyer off to go on and win titles as Yankees.
So, from now through October, from coast-to-coast, the Boys of Summer are back in the ballpark. Hopefully you’ll get a chance to smell the grass and hear the crowd with a dog and a beverage, watching your favorite players hit the ball and touch them all; That moment in the sun. Enjoy it while you can. In 6 months, the season will be gone, and you can tell that one goodbye
Back to the Market:
In this turbulent Market environment, we at Bedell Frazier have been playing “small ball”. We do this in a high-risk environment. It’s our version of Moneyball. It consists of a whole lot of defense. After back-to-back stellar years, Big Tech has been in a slump. Leadership has rotated. We’ve been securing large positions in dividend payers and writing covered calls. Those Boring Blue Chips keep working. Bonds are working too. Gold has been a home run. We are emphasizing cheaper valuations and short-duration, as we navigate the uncertainties. We will continue to be in and out of hedges as opportunities present themselves. There’s a lot of curveballs out there. We anticipate the news flow to remain confusing and chaotic. We see the volatile price action continuing too. We’re all over it and have your backs.
And for those of you who wish our leaders would come together and lead together, acting more like adults; Immature behavior is unfortunately nothing new. Here are some wise words from my favorite philosopher Yogi Berra: “Little League baseball is a very good thing because it keeps the parents off the streets”.
Thanks for staying with me. I know it was a long one. This was one of those weeks where I just couldn’t stop typing.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
