Subject: Re: War, currencies and jurisdictions
The President does not have role in accepting a new state.

The US president does not have a role in suspending habeus corpus, either, but he managed that : ) The point being, it doesn't really matter any more what is written on an old piece of paper. Besides, the job certainly does come with the power to order invasions with specious justifications, as history demonstrates so regularly. It's not as if (say) it was an issue that Nicaragua wasn't correctly approved as a state during its 20+ year occupation till 1933.

On a more practical note, Berkshire's revenues are essentially all in the US and in US dollars. The current official policies of the US are in the process of trashing the economy of the US by trashing trade (essentially the source of all wealth creation: the division of labour). There is no US prosperity without trade intensity. The tariffs are mostly a sideshow, because the real damage has come from the removal of all trust and the breaking of treaties and alliances, and because that damage is so much more lasting. Trading through a tariff is merely expensive, but trading with and supporting an enemy is odious.

The nowcast for the rate of change of real US exports of goods and services for Q2 is -5.45% versus last year. (-2.77% nominal nowcast, minus MCT TTM inflation 2.68%). It's likely that is just the beginning, as new tariffs always crush exports over time. (no, not a typo, exports, and not because of retaliation. The Lerner Symmetry Theorem)

US products are ubiquitous and unavoidable, and many US firms will carry on. Particularly those providing intermediate and non-branded goods that aren't too visibly American. But personally I am certainly doing absolutely everything I can to minimize the sales and prosperity of every US company I might otherwise interact with. I suspect the number of people behaving that way at the margin is now in the hundreds of millions, as the US is now on the spectrum between untrusted adversary and outright enemy around the world. Nobody paying attention buys from such places if they don't have to. I have friends in about nine non-US countries, and I haven't heard anyone planning to increase their ties, whether in supply chains or investments.

To think this is all just a jest is a grave mistake of the first order, and trying to live in a drive-to-the-mall-everything-is-fine bubble is not going to insulate people from the real world consequences of the definitive end of the trusted US era. The geopolitical implications are awful enough, but (on topic), US companies and stocks are going to do very much worse in the next 10+ years than people have been accustomed to, hitting every town.

A specific prediction would be lower profit growth rates and falling cyclically-adjusted valuation multiples among public companies because of that. The lower profit growth rates would be due largely to low revenue growth rates combined with lower net profit margins. I anticipate average net profit margins falling from the current 12% to around 9% or lower cyclically adjusted, measured as "Corporate Profits After Tax (without IVA and CCAdj)/Gross Domestic Product". A mix of a weaker economy, weaker exports, and higher interest expense. If cyclically adjusted real sales rise at most 1-2%/year and typical net margins fall by a quarter and valuation multiples on smooth real earnings fall by a third, where are US markets in a decade? FWIW, S&P 500 real sales rose 1.45%/year in the 17 years to end 2024.

Berkshire should do somewhat better than the broad US market as it isn't starting from such a high valuation level, which is why I am anticipating real returns as high as 3-4%. But it will still be hit by a weaker economy, a lower currency, poorer customers, and poor portfolio investment prospects. The headline corporate tax rate is a big factor, but I have no idea which way that will jump.

Jim