Dear Clients,

We hesitate to open with a cliché, but Mark Twain’s quip, “history does not repeat itself, but it often rhymes” seems appropriate at this moment. In researching what follows, we went back and read the dozen letters scribed during this Administration’s first tenure and, remarkably, the verbiage used by associates and business leaders then was near-identical to terms being utilized now — only the level of frustration is higher today. It used to be common knowledge — not just among policymakers, economists, and investors but also students with a grasp of history — that widespread tariffs are a terrible idea. The phrase “beggar thy neighbor” had meaning, as did the names (Senator) Smoot and (Representative) Hawley. Our high school history class (1980s) made us well-aware of what the 1930s protectionist Act that bears their names did to turn a global economic crisis into something far, far worse. Indeed, since Hoover (1929-33), no U.S. president has been so willfully illiterate of their history lessons: thirteen successive presidents vowed never to repeat those mistakes. Until now, Administration 2.0.

It has become apparent in very short order that starting an economic war on allies, trade partners, foreign adversaries, and domestic political opponents simultaneously might not have been well thought through. That’s a conclusion that markets have drawn as stocks and treasuries plunge on what has quickly metastasized into a zero-predictability business environment. A presidential admission that the U.S. could go into recession this year and that, if so, it might even be a good thing.⁽¹⁾ Coming from a no-guardrails administration where anyone not on board is an “enemy of the people” investors have understandably reconsidered their post-election enthusiasm. Indeed, in reaction to the volatile nature of policymaking, the initial animal spirits of Administration 2.0 have been trumped by the uncertainty unleashed by Turmoil 2.0. The administration has been in office for two months, yet the whirlwind of tariffs threats, federal job cuts, the DOGE boys — the upending of the world order baked into the investment pie — have been head spinning.

At this writing (4/8), the animal spirits engendered by the presidential election have given way to mounting concerns that investors were warned about but dismissed as alarmist and unrealistic. We don’t know any more than anyone else. If his first term was any indication, a strong case can be made for prolonged bare- knuckled negotiations that are ultimately resolved, albeit haphazardly. But speculation is not conducive to spending/consumption, and there is little question that a lack of sound policy is having a chilling effect on business and consumer confidence. The recently concluded 4Q earnings (pre-tariff) indicate a high degree of uncertainty across every industry and sector which, we might add, is not normal.⁽²⁾

As a business-oriented periodical, we try to stay in our lane for a full-spectrum of recipients such that our goal is to share what we have learned and how we process these factoids as investors. We may ruffle the occasional feather, but we try to remain thoughtful and, to borrow a phrase from great author Douglas Adams, we are “mostly harmless”. Earlier in the quarter, we planned to unpack the rush for critical minerals, the impact of Chinese tech on a very popular U.S. investment narrative, and the root ingredient in globalizations rise, aka American “exceptionalism”. We will revisit these topics in monthly and quarterly letters to come because they are worthy of observation, but investors have rightly been quick to react to the here and now. So, to begin, America’s top three exports are trust, stability, and U.S. dollar, and all three have been badly tarnished in short order. This is not hyperbole as the entire global economic system was designed by and for the benefit of the U.S. His aggressive approach proves that his mercantilist view of trade has atrophied, and he remains stubborn and unfamiliar with the last 250 years of economic theory (which have shown undeniably that trade is not the zero-sum game and benefits all). Ignoring Newton’s Third Law of Motion — every action has an equal and opposite reaction — this administration seemingly wants to reap what it should so clearly avoid. Protect one industry and make all the others less competitive. Attack critical, non-redundant supply chains and see what happens. This is where we are, and it is here that we jump off for this, our first letter West of the HudsonTM in 2025.

When stupidity is considered patriotism, it is unsafe to be intelligent — Isaac Asimov

·       Reign of Tariffs

We are all familiar with this presidents preference to play his cards so close to his vest that his own advisors generally have no clue what he is going to say next. Even so, as we write this post “liberation-day” communiqué, the administration continues to play financial market sentiment, leaking out strategic option trial balloons and generating extreme volatile price shocks. Its trade policy on the fly and it’s surreal. Investor sentiment is now reduced to faux negotiations and deals, with mostly groveling, kiss-the-ring concessions. It’s bad for businesses, large and small, public, and private. And markets are in revolt.

Equity markets are in revolt and more volatile than they’ve been since the Great Financial Crisis. On his social media echo chamber, the president has melted down over China’s pushback with its own reciprocal tariffs. ⁽³⁾ China’s immediate retaliation is why you don’t start a trade war: whatever notion one has about the economic goals that tariffs could assist, we cannot control how other countries react. This is why this trade war is terrible policy — because we don’t possess the power to tell country’s what to do. Most important, we don’t get to dictate the rules in a fight that we started. This is why most economists have stated that, whatever we think tariffs will accomplish, the costs of spiraling tit-for-tat retaliation is never going to be worth whatever the gain is. He wasn’t briefed on this basic, historical fact and the current outcome enrages him. He’s supposed to be winning their submission, and they aren’t submitting. So, he’s just going to keep dialing up the threats until he gets the results he wants…which are at odds with each other of course.

This president pines for an irretrievable past that was dominated, briefly, by his 1890s-era hero, William McKinley, who also described himself as a “tariff man”. That was an era when today’s strongest U.S. manufacturing sector, technology, didn’t exist, and no one even knew what “services” were. This is mind- boggling to economists, particularly because it precludes services in a 21st-century economy in which services such as telecom, education, and finance represent 20% of U.S GDP, whereas manufacturing is only 10%.⁽⁴⁾

True to his character, the president has claimed — in an inconceivably short amount of time — that his tariffs have forced numerous countries to now want to make a deal. This is supposed to mean that they’re going to now stop treating us unfairly thanks to his toughness. That whole line about them treating us unfairly is of course completely absurd — the entire global economic system was designed by and for the benefit of the U.S. But, putting that inconvenient, forgotten fact aside, let’s say for the sake of argument that other countries are knocking down our door to make a deal — how much more can we gain from these deals that changes our well-being when most of the world cannot afford what we export.

The most obvious challenge for business and investors is that these tariffs lack a basic articulation of an achievable goal (other than his perceived masculinity). What are we really trying to accomplish and what are the metrics we can use to know when we get there? This idea that the international community is going to bend the knee or kiss the ring, and we will therefore have a better trade deal isn’t a metric, but we fear that’s going to be the end goal. It’s incumbent upon the administration to explain this basic question and they haven’t or can’t. The broad motivation for tariffs — job creation — is incompatible with extreme tariffs and will actually slow economic growth (70% of GDP is consumption and everything is about to be much more expensive). This directly impacts corporate bottom lines, placing profitability and jobs cuts in the crosshairs at the large-cap companies, making the idea of small business formation less achievable.

There are approximately 33 million companies in the U.S. but only 21,000 employ 500 or more and make up just 23% of all employees.⁽⁵⁾ This war on the world ignores the more than 32 million other businesses that can’t afford to build a new factory or pay tariffs or absorb cancelled contracts. These tariffs are meant to force a reshoring production in order to build domestic industries, but it’s up to the individual business to find investors, facilities, equipment, and people to get it all started, which is really hard to do if the market is tanking and there’s fewer investor funds. But the real overhang is that tariff threats are not meant to build

out manufacturing but are just a negotiating tactic so that any movement towards domestic production would be superseded. As we have said, it’s a struggle to find a coherent economic policy because the move towards manufacturing while negotiating are in conflict.

Are we really going to sacrifice our economy to bring back manufacturing jobs as opposed to thinking of something more creative? Are we really going to bankrupt the federal government for a tax cut that serves very little economic purpose? We might also ask, is this how we make America great, by getting a lot of native-born to assemble monopoly pieces, sew sneakers, or assemble electronics? This drive toward manufacturing is misplaced — not because they’re not good jobs per se, but because they’re not industries that will be growing into the future. And if we really want good middle-class jobs, we must identify the jobs that can’t be exported or replaced by machines. What made manufacturing jobs good was that they were high-paying and had health/retirement benefits. That requires an economic labor policy that no longer exists. Instead, we prefer to lament about the lost past and, in the meantime, destroy the present.

As for his avowed devotion to bringing back jobs, the administration is attempting to gut the implementation of the CHIPS Act which invested in the very same high-tech semiconductors that a strategic reindustrialization effort would seek to prioritize. There is no single coherent explanation for tariffs, only hypotheses that violate one another’s internal logic. If there’s anything worse than an economic plan that attempts to revive a 19th-century protectionist economy that foisted societal costs on everyone but the wealthy, it’s the fact that the very people responsible for explaining and implementing it don’t seem to have any idea what they’re doing. The varied goals — raising revenue, free trade, re-jiggering the global economy

— are incompatible with one another. From this perch, the ideology of it — the set of tropes and images and ideas that we associate with this movement — are founded on sand.

Presidents usually do all they can to avoid recessions, so much so that they avoid even saying the word. But this president has offered a very different message. In an effort to align policy with economic reality, we are now told “maybe a recession wouldn’t be that bad” and we should expect “a period of transition” as his policies sink in.⁽⁶⁾ Within the first 50 days, this policy mix has intensified due to a haphazard pace of activism, generating an environment of pronounced uncertainty. Along with the rapid loss of government business, the tariff bomb threat is upon us and carrying substantial economic implications. Businesses of all sizes have been forced to consider their options, but it’s too late for that as the erratic nature of policy has impacted on business risk-assessment. Collectively, these factors are weighing on confidence which feeds economic growth. More than anything, executives crave predictability, and the cracks of uncertainty are leading to hiring and capital spending decisions to be postponed.

This sentiment is supported by a distillation of hundreds of quarterly calls and transcripts we reviewed over the past months — before the tariff announcement. A wide range described a lack of clarity in which to invest, with most making mention of the haphazard approach to governing and rule-making as reason to withhold capital.⁽⁷⁾ The base complaint is that the president’s policy is incoherent, hard to navigate, and requires time to recalibrate. In the words of one industrial company, “we tried to explain to the administration that it takes 2-3 years to shift production domestically and that we need to know if the tariffs go for much longer than that to even start planning…no one could say, so we are cutting spending instead”.⁽⁸⁾ Therein lies the downside of uncertainty.

One thing that economists watch is earnings reports from public companies because they say not just what they earned but project how they’ll do in the future. If tariffs are impacting supply chains, they will call it out in no uncertain terms. If enough earnings calls say similar things, this is not a data point that’s concentrated on one company, but holistic of how the economy is doing for producers and sellers that are not necessarily reflected in an unemployment report.

The case with automobile manufacturing continues to offer examples of what not to do (and we have shared many with you). Putting aside the dubious boast that we can build new plants “within a year” ⁽⁹⁾, what will our domestic automotive champions do with these facilities when the material required to build cars still comes from countries that are now being heavily tariffed? Indeed, the U.S. military literally cannot make

missiles or fighter jets without China because so many of the basic sensors, components, and specialized metals are made only in China. ⁽¹⁰⁾ Replicating just the manufacture of our armaments requires huge supply chains that took China more than decade to develop. We mentioned this a year ago and bears repeating: the

U.S. can’t produce basic pharmaceuticals (aspirin, antibiotics) because the foundational parts of pharma manufacturing are…controlled by China (there is a theme here). So, it may make a good cliche we should focus on “chips not toasters” ⁽¹¹⁾ but unless we have at least some of those foundational industries we are still at the mercy of industrialized nations we just tax bombed. Genius policy? Not if you are ill.

Administration officials are gung-ho on tariffs because they are not a negotiation and yet also are a negotiation; because they are permanent and also temporary; because they will be a lasting source of new revenue for the government and also a declining source of new revenue for the government; because they mirror other country’s tariffs and because they don’t mirror other country’s tariffs; and because they’ll have the U.S. start making medicines again, make ships again, make semiconductors again, etc. The alleged benefits are a fantasy (data is after all the scourge of ideology): tariffs don’t make sense as economic policy because they aren’t economic policy, but a means to force companies to pledge loyalty in return for relief. Their view of trade deficits is equivalent to getting mad at Target because we spend money there, but they never buy anything from us. They provide a service for which we pay.

We tire of saying this, but some form of this turmoil was to be expected. The president promised chaos as a candidate and voters — including numerous high-profile institutional investors — thought that sounded good. And yet, these avowed capitalists sit meekly as their businesses are threatened — nothing screams free market capitalism like a supposedly “pro-business” president telling publicly-listed companies not to raise prices to offset costs associated with his ideological policies.⁽¹²⁾ If the former president(s) tried this stunt, a certain news outlet would be on 24/7 socialism watch! Returning to Asimov’s waring above (channeling Pol Pot), it’s safer to remain ignorant!

·       Final Thought

The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge — Stephen Hawking

Setting aside the obvious question of why the United States needs liberating from an international economic system that is 100% American — we are all left to wonder who actually benefits. If you failed to spot America being “looted, pillaged, raped and plundered by nations near and far” or missed the part where we were cruelly denied a “turn to prosper”⁽¹³⁾, you are not alone. The problem for policy of this magnitude is that it all depends on the proclivities of a notoriously unpredictable, dishonest character who has a shockingly poor record in business and politics. His plan, if fully implemented, will return the U.S. to the highest tariff duty as a share of the economy since the late 1800s, before the invention of the automobile, aspirin and the incandescent light bulb.

The administration says that tariffs are aimed at benefiting Main Street, not Wall Street. But Wall Street is Main Street and what happens on Wall Street matters a great deal to Main Street, which owns lots of stocks in American corporations that are facing massive disruptions. One has to wonder: is the president purposely talking the economy into recession? That would be an unusually self-defeating move as he hasn’t passed any legislation and a recession all but guarantees the GOP loses control of Congress in the midterms. Plus, a recession means the deficit blows out as tax revenue dries up and unemployment claims mount — leaving little room for enacting permanent tax cuts. In short, a recession will derail his agenda and presidency.

While everything he doesn’t like is labeled fake, this is not: 70% of GDP is consumer spending and half of that (i.e. 35%) comes from the top 10% of households by income.⁽¹⁴⁾ If the wealthy pull back spending because of declining stock prices, its risks a feedback look whereby declining equities cause declining spending by the wealthy, which causes declining equities, and so on. Further, retirement today rest almost entirely on the health of the stock market: as a percentage of their nest egg, retirees have never been so overweight U.S. equities as they are today. 62% of Americans own stocks and/or mutual funds — but fully 80% of retires are exposed and now must decide how to get by should prices continue to fall. ⁽¹⁵⁾

Despite initial investor enthusiasm for the election’s outcome, it’s hard to ignore the fact that in a rising interest rate environment — from the 10/12/22 market low through election day 11/06/24 — the S&P500 provided an astounding two year compounded return +29.6%, backed by an economy that grew at a respectable annualized 2.8%.⁽¹⁶⁾ Indeed, on inauguration day, GDP was expected to grow 2.5% in Q1’25. Despite a brief post-election move to the upside, the S&P 500 was down (-4.8%) in Q1’25 and, at this writing (4/8) is teetering on bear-market territory (-14% YTD and -31% compounded) ⁽¹⁷⁾. The Atlanta Fed Nowcast is now at -2.8% annualized for Q1 real GDP growth. ⁽¹⁸⁾

This is a very dangerous game to play with the economy: it’s a dangerous to play with prices; it’s dangerous game to play with export markets that American producers rely on; and it’s dangerous to play with supply chains. Anything that changes in such a short amount of time is only the result of current leadership. Businesses are broadly reluctant to hire or invest given the increased uncertainty resulting from the administration’s policies. There’s an overriding sense of helplessness — CEOs are feeling stunned, and they’re not used to feeling like they don’t have good moves. They wrongly assumed that this economic regime might steer away from unpredictability, but they have received no relief. This administration remains guilty of ongoing, contradictory arguments, alternately saying tariffs aren’t likely to raise prices but if they do, inexpensive imports of apparel, toys and electronics are overrated and that the American dream is about more than access to cheap goods. And they look at the smallest sliver of Americana to suggest that free trade has not lifted our standard of living.

We leave you with this fact about uncomfortably sharp market dislocations: after Bear Stearns collapsed (3/08), the S&P 500 shot +12% higher on a “worst is behind us” narrative. After the deep post-Lehman plunge (9/08), the S&P 500 went on to enjoy a +20% snapback…but the lows were still nearly five months off. The exact same +20% bounce occurred from the depths of the lows after 9/11 when the lows were nine months away back then.⁽¹⁹⁾ There are grounds to believe that the lows are in right now, but those odds are rather slim. Re-tests of lows in periods like this are rather common. In the past we would caution that we must make the distinction between short squeezes and true fundamental lows that typically have a real catalyst behind them. Today we must add in the self-forced break with the international community that has bought our bonds and kept our rates low for decades. If that breaks — and we are seeing cracks — fasten your seat belt because equity, treasuries, and currencies are all on the front line.

Even as a disproportionate number of our portfolio positions are in multinational companies. we are grateful to invest in these very large-cap companies. Despite the uncertainty, they have a long history navigating the myriad rules, regulations, nations, and volatile characters that pop up from time to time, we remain positive that opportunities will continue to reveal themselves as the market finds a happier place to settle. And this is where you find the team as we close the books on quarter. And with that, from our families to yours, we wish you a peaceful, safe, and profitable period ahead!

Yours truly,

Hirschel B. Abelson
Chairman, LCES

Adam S. Abelson
Chief Investment Officer, LCES

This information is intended for the recipient’s information only. It may not be reproduced or redistributed without the prior written consent of Fischer Stralem Advisors & HighTower Advisors LLC, an SEC-registered investment advisor. Securities offered through HighTower Securities, LLC, member FINRA/SIPC. This information is intended for the recipient’s information only. It may not be reproduced or redistributed without the prior written consent of Fischer Stralem Advisors. This commentary reflects our current views and opinions. These views are subject to change at any time based upon market or other conditions. Past performance is not indicative of future results. Sources

1. Bloomberg 3/3/25, 2. Fischer Stralem Advisors 4/8/25, 3. Bloomberg 4/9/25, 4. National Association of Manufacturing 9/30/24, 5. Small Business & Entrepreneurship Council 10/31/24, 6. New York Times 3/18/25, 7. Bloomberg 3/28/25, 8. Bloomberg 4/4/25, 9 Gavekal 4/4/25, 10. Wall Street Journal 4/3/25, 11. CNBC 4/8/25, 12. General Motors 4/4/25, 13. Economist 4/3/25, 14. McKinsey & Co. 2/25/25, 15. Yardeni Research 4/9/25, 16/17. Bloomberg 4/8/25, 18. Atlanta Fed 4/4/25, 19. Rosenberg Research 4/8/25