It's not a cock-up, it IS a conspiracy

THIS is the great Reset

The equity market is in meltdown, as are most commentators, but almost everything currently being written about Team Trump and its policy on Tariffs is coming from academics, economists, bankers, journalists and politicians who are all so immersed in the ‘water’ of the post Bretton Woods Neo-Liberal World Order that they can’t see that Team Trump have just broken their Goldfish Bowl.*

Currently Equity markets are in a panic as day traders are stopped out, leveraged traders face margin calls and others flip from leveraged long to leveraged short. As ever, the commentariat look for a narrative and have settled on tariffs - causing either inflation, or recession, or both.

Our take would be different; first, the equity markets are currently reacting to their own internal mechanics - there is no ‘message’ in this. ‘Trillions have been wiped off markets’ in the same way that ‘Trillions were added’ on to markets since last summer when the animal spirits got excited about the arrival of Trump 2.0.

Secondly, the old adage that the equity market predicted 9 out of the last 5 recessions (Paul Samuelson) reflects the fact that market corrections and even crashes don’t always affect the economy. This is especially true when, as now, the bond markets go up rather than down at the same time.

This adjustment in the discount rate is from the equity risk premia, not the risk free rate

Arguably the equity risk premium was too low, especially in the US and especially for Mag 7 tech stocks and, now, we would say it is too high, as technical factors create distressed selling.

The consensus economic view, as expressed in multiple Op-Eds and all over every aspect of social media (see here for our guide on how to use Logical Fallacy Bingo write your own generic Op-Ed), is generally aghast at what they see as ‘Chaos’ (a term that has now been fully politicised by a re-energised Democrat/Opposition media) on tariffs and many are making apocalyptic predictions and this is undoubtedly fueling a sense of uncertainty in financial markets.

What we would say is important now though, is not to try and price in a recession, or inflation as the commentariat are suggesting but rather to adjust earnings for the likely impact of tariffs not only as part of a wider set of policies including lower government spending, lower taxes elsewhere and cheaper energy, but also by focusing on the actual target of the tariffs; US Multinationals.

We are not challenging the orthodoxy on the virtues of free trade, instead we are challenging the implicit assumption that Free Trade is what we currently have.

The Trump tariffs are not killing free trade, instead they are killing the Neo-Liberal World order that gave us the Washington Consensus model of economic development; a model that made Wall St and a lot of Multinational CEOs and shareholders extremely rich, but not many other people.

Defending the current economic order is like defending fixed exchange rates when Bretton Woods broke down, or the Gold Standard when Bretton Woods was born. This is the Great Reset, just not the one that Klaus Schwab of the WEF intended. Indeed, rather than being the architect, the WEF and its sponsors are the collateral damage.

Team Trump have just killed off the the Washington Consensus and the Neo Liberal World Order…they just haven’t realised it yet

The statistic that free trade has lifted hundreds of millions out of poverty (and thus is a good thing) ignores the fact that most of those people were in China, which (we are told) has not been practicing free trade.

In fact, China explicitly rejected the Washington Consensus model that essentially moved agricultural workers into western owned factories for low wage exports, created plantation farms for export, lent money in US$ to local banks to fuel consumption (of western products) and built capital markets that boomed and then ultimately went bust, allowing western financiers to take ownership of key public goods.

This was the model described in in Confessions of an Economic Hitman. The author, John Perkins, has naturally been described as a conspiracy theorist, but the real conspiracy, we think, is that Team Trump are going after the Global Multinational business model and they are only just starting to realise it.

The key question then is, what are Team Trump trying to achieve?

Our thesis is that Team Trump are viewing the US economy as a corporation that needs restructuring and in particular they are trying to fix the twin deficits on trade and government spending.

It’s not that they don’t care about the stock markets, or that they don’t understand the disruption they are causing, nor that they are ignoring the commentary. However, they also recognise that the ‘experts’ are almost all so totally immersed in the status quo that they need to stay focused on the plan. And yes, there is a plan.

As we say in the title, simply interpreting this as a cock-up would be a mistake, the tariffs are part of a wider system change, a system change that might indeed be called a conspiracy, for it involves the wholesale rejection of the Neo-Liberal world order that emerged under Reagan and evolved into full scale Globalism under Bill Clinton.

The real targets are not countries, but corporations, and mostly US corporations. The essence of the Washington Consensus ‘development model’

Ironically, as this article from the Council for Foreign Relations points out, part of the problem is the incentives put in place by the previous Trump administration in the 2017 Tax Cuts and Jobs act. Accidentally or not, while it did encourage some onshoring of several trillion dollars of offshore profits mostly sat in tax havens, as hoped, the act has simply encouraged (and enabled) US multi nationals, in this article they cite US Drug companies, to continue the practices that mean they pay almost no tax in the US.

Source: CFR March 2025

It’s not just Pharma companies of course, as The Irish Times reports, the five largest companies in Ireland are all US Tech - Apple with revenue of $219bn, the same size as the next four (Google, Microsoft, Meta and Dell) combined. In total, the revenues of the ten largest companies benefiting from Ireland’s low corporation tax regime are almost half a trillion dollars. And all but one are US companies.

What is the betting that part of the US tariff deal with the EU may involve some form of closing this loophole?

Team Trump probably can’t explicitly say who they are going after, but for us this is the reality. They need more tax paid in the US, by people selling into the US, and if they can’t easily stop the transfer pricing practices of US Multinationals (Coca Cola for example has been in litigation disputes with the IRS for literally decades) then tariffs offer an alternative route.

Charging your US corporation a very high price to import its own products and thus minimise your onshore profits will now involve paying a high tariff on those products.

If Team Trump wanted to raise US corporation tax, they would have to go through Congress and, by extension, the corporate lobbyists. This way, the Corporations have to pay a tax in the form of a tariff, alter their transfer pricing set-up, or re-shore their production.

Implications for investors

A market cap weighted Equity index, almost by definition, represents the winners from the system that is now being disrupted, so after this discount rate move - and some form of bounce back from an overshoot - the important things will be to look at EPS forecasts.

The fact that some of the key beneficiaries of Globalisation are now going to have to pay more tax in one form of another means that market earnings estimates for the US in particular are going to have to be revised down.

Indeed, we would suggest that transfer pricing risk needs to be incorporated into earnings forecasts.

There will of course undoubtedly be a lot of ‘deals’ done and a lot of horse trading, not only at the individual stock and sector level, but also at the country level. Team Trump will extract an increased return on their asset base.

Less likely are the extreme macro scenarios painted, the slippery slope assumptions that everything will be at the worst end of expectations.

Meanwhile, we shouldn’t ignore the message from the Bond markets, which as the picture shows suggests they like Team Trump and their policies.

The picture we should perhaps be looking at…

Higher revenues from Corporate earnings re-purposed as tariffs, combined with inward investment not driven by subsidies, will help go some way to solving the twin deficit problems and shift the momentum away from ever larger government.

Some have suggested that the actual conspiracy is to crash the economy, get bond yields down and then refinance. We doubt that is the plan and would suggest that it puts too much emphasis on the role of inflation in bond prices.

Of course, lower bond yields help refinance at lower rates, but you get there by getting your deficit spending under control, not by collapsing demand and causing a recession, which would actually have the opposite effect.

Bottom Line.

The market correction that is threatening to be a full scale crash is leading to an over-emphasis on the economic narrative, with much commentary tinged with a liberal dose of Logical Fallacies and a central focus on trade wars being bad for growth. Removing free trade is indeed bad for growth, but we don’t have free trade, we have a crony capitalist system whereby the biggest US companies pay little or no tax in the US as part of a system that has both allowed and encouraged them to manufacture offshore and then sell into their ‘domestic’ market free of tariffs while transfer pricing all the profits to tax havens.

That system has just been broken. This is the Great Reset.

If you want a list of the beneficiaries, check the list of sponsors of the WEF at Davos. These companies - and especially their C suites - have been the winners under the 40 years of the Neo Liberal World order of late 20th century Globalisation.

They are now the ones being reset. And they (obviously) don’t like it. Unfortunately for a lot of investors, their portfolios are heavily skewed, not to the US economy, but to these Washington Consensus ‘winners’. Once the dust settles on the trading volatility, there are going to be some post tax and tariff earnings estimates that need adjusting.

*David Foster Wallace gave one of the most celebrated of recent commencement speeches back in 2005, where he began with the story of an older fish asking two young fish who were swimming past “How’s the water today boys?” Slightly puzzled, the two young fish swam on a little before one turned to the other and asked “What is water?”

The speech (well worth reading or listening to) was essentially about how young, soon to be, graduates had no experience that did not feature themselves at the very centre of the universe and how the real value of an education was to change that default setting. The water was the world around them that they now need to be (more) aware of.