Multi-Level Thinking

What a crazy week! It occurs to me that the three major events of the week (the Trump-Musk feud, the US-China talks and payrolls) all had an element of multi-level thinking and game theory involved. But first, the only two other news items of note were:

· I’m wondering to what extent the Wells Fargo caps being lifted and the CBO estimate showing a positive impact on the deficit from tariffs affected the longer end of the curve (relatively) on the margin.

· I keep hearing that on the order of 10 million people could lose their healthcare coverage. That could mean we need fewer healthcare jobs, so we should keep that in the back of our minds after the budget Bill passes. While I think the goal of universal healthcare is noble, I hate how it is implemented in the US, where there is a cliff on income eligibility. From a game theory perspective, this causes a massive incentive for people to stay under the caps to receive tens of thousands of dollars in various government benefits - hence the MAGA middle class anger. But did someone say “game theory”?

Elon

Elon materially overstated his importance. Shocker. He clearly didn’t think through his actions. Maybe he is just emotional or multi-level thinking is not his forte.

· His cars are like 2x more expensive than BYD and he pissed off the guy who can let Chinese EVs in.

· His profitability was mostly based on the EV subsidies and energy credits. Why not look to salvage some of this?

· He also pissed off the guy who can do an investigation of the full self-driving (FSD) crash incident. He is 1 year behind Waymo in FSD and he could be staring at years of red tape.

· I’m not sure if he is aware, but there are ways for the US government to seize properties. Most of the ways involve Congressional approval, which may be unlikely. However, creating a “national security” issue like withholding space flights is colossally stupid.

· Have I ever mentioned Trump is petty as hell? See Harvard, Zelensky, Biden, etc. I don't know the whole story, but the media made it seem like Trump disliked Tim Cook for not showing up to some event, and before you know it, he's ordering Apple to move from India to the US. I’m pretty sure Tim Cook didn’t do anything as offensive as claiming Trump is a pedophile on national media (although we all know it’s 98+% likely). I don’t see how pedophilia gets walked back.

· Elon has now pissed off the left, the right and foreigners. #CEOoftheYear

· The only minor saving grace is that it could be bad for stocks in general if we see Trump go after companies based on his whim. But who knows? Trump is also emotional and not known for great multi-level thinking.

China

I suppose we could be closer to a Chinese TACO deal. But you have to ask yourself about the quality of new information we got last week.

· We called China. The fact that the Presidents spoke is not really news. What is Xi supposed to do – not take the call? We had been playing this game of “China, please call us” for weeks before the mulligan. So I guess we decided not to wait weeks again, and just made the call. I assume we really need these critical materials. The fact that Trump is eager and took the initiative to call probably puts us one step closer to a Cosmo Kramer coffee deal. TACO! Any trade deal with China will be a relief to the US economy.

· But here is the problem with trying to make a trade deal with Trump. He keeps adding new tariffs and restrictions. Take the UK for example. They were the first to agree to a framework. Then literally a few days later, Trump says he is going to tax foreign films. The UK is one of the countries subsidizing the film production industry to lure away from Hollywood. Then a couple weeks ago, Trump announces 50% tariffs on steel and aluminum. The UK is one of the countries affected. So it was laughable that Trump sent out a letter to trade counterparties asking for them to send their best deal by last week. All we heard were crickets. It usually doesn’t make sense for anyone to send anything remotely close their best offer with this much time before the deadline. But in the case of Trump, it makes even less sense to do so.

· Let’s simplify and look at China’s motivations.