What is the true cost of a rebrand?

Well, according to NBC News, U.S. President Donald Trump’s executive order to change the Department of Defense to the Department of War could cost up to US$2 billion, primarily due to the complete rewriting of the department’s digital infrastructure, as well as the cost of replacing signs, letterheads and labelling at military bases worldwide.

I was thinking about changing the name of this newsletter to TDA Cashmoney, but now I’m slightly deterred!

You may have noticed that the Australian stock market is down at the moment. In the past week, it has dropped to a four month low. 

Why is that? And should we be worried?

Remember, the ASX200 is an index. It’s like a weighted average stock price of the 200 biggest Australian companies. So when the ASX drops, it means that, on average, the value of all Australian stocks went down.

Two main reasons. 

First, the future path of interest rates is now a little more uncertain. Remember, interest rates can affect asset valuations (including stocks). Why? Lower rates, means cheaper loans, means more cash flow and more investment. Cash flow and investment can increase companies’ value. But now, inflation and unemployment were both higher than expected, the future path of interest rates is more uncertain. So investors could be a little concerned about some companies’ prospects. 

Second, there was a similar loss of value in the U.S. The value of companies on the ASX tends to follow the value of companies on other big exchanges, because the factors that affect value in country A also affect value in country B. We also saw a big drop last week in the U.S. on the NASDAQ, so it’s unsurprising we saw a big drop on the ASX. More specifically, the NASDAQ is a very tech intensive index, and the sector which saw the biggest drop on the ASX was the tech stocks. 

I hear the follow up. Why are tech companies losing value? No real reason - tech companies are just reaching record high valuations, like becoming the biggest companies ever. So some investors worry they may be overvalued or some correction will come at some point. There’s not much to say here, other than that we live by the whim of the nervous portfolio manager.

No. 

Neither of these reasons reflect real economic changes. Rather, they reflect investors’ or economists' opinions about the outlook for certain companies or sectors. Just because some stocks dipped on Friday afternoon is no reason to leave the country and drain the bank accounts. 

And investors and economists (myself included) can make mistakes, and sometimes act like sheep. A four-month low is newsworthy, but not worrisome. If you think about it, in any four month period, there is always a four-month low.

Last week, President Trump announced that the U.S. would cut tariffs on a number of agricultural products, such as beef, coffee, fruits, and cocoa. What does this mean, and why did he do it?

A tariff is an import tax. A 10% tariff means that if I am an American company - like Walmart - and I import $1 million of bananas from Costa Rica, I have to pay the U.S. government a tax of $100,000. If I had bought those bananas from an American banana company, I would not be liable for any tax.

Earlier this year, the U.S. increased tariffs on lots of imports. Some of these tariffs were applied specifically to some imported goods (e.g., some pharmaceuticals, steel), but some were applied to all imports from a certain country in blanket fashion (e.g., Australia copped a 10% tariff slap). 

Importantly, some of these tariffs applied to agricultural products: meats (BROTEIN!), dairy products (mmmm cheese), fruits (yum!), veggies (yuck!). In short, American companies importing agricultural products were paying the government a tax for doing so.

Yes - the Trump administration issued an executive order saying that lots of agricultural products, including coffee, tea, fruits, coca, spices, beef, fertilisers, and others, will no longer be subject to tariffs. 

Grocery prices are too high. 

Trump’s top economic advisor - a guy called Kevin Hassett - said that although overall inflation is going in the right direction, grocery prices specifically are still a big burden on household budgets. 

In 2021, the average household monthly bill on groceries in the U.S. was $400. One year ago, it was $510. Now, it’s around $512. So, although the pace of increases has slowed, prices are still much higher than they were. So, the government is looking for different levers to pull so they can get grocery prices down. 

Maybe. 

It’s hard to estimate the true effect of tariffs on groceries. It’s certainly not 1-1, because then a 10% tariff on agricultural products should have increased grocery prices by 10% (assuming all groceries were imported). But they haven’t.  

It is, at the very least, implicit in the decision to cut tariffs that the administration thinks tariffs may not help prices come down. This is certainly a marked shift in the administration’s attitude towards tariffs, which have been very positive to date. 

There’s definitely some movement in the tariff space. In addition to making tariff exemptions, the US also signed trade deals with Argentina, Ecuador, Guatemala, and El Salvador, to help the flow of food into the US. 

We will have to watch this space. 

Last week, Kim Kardashian’s brand Skims reached a valuation of $US5 billion. The updated valuation comes as the company raised some more money to open new stores and introduce new products. 

“What’s Skims”, I hear my male readers ask. Well, maybe if you turned off the UFC or stopped listening to Andrew Huberman 24 hours a day, you would know. Kimmy K started Skims in 2019 as a lingerie company, but they’ve since expanded into clothes, activewear, accessories, and opened stores in LA, Miami, Atlanta, New York and other places in the US.

My parents read this newsletter, so I hesitate to include this final detail, but journalistic integrity must take precedence over parental embarrassment: possible new products include thongs adorned with pubic hair, and bras with fake nipples. Finally, something from Skims I would actually wear.