Zero-Sum Thinking Dominates Markets: Friday Charts Reveal the Harsh New Reality
Wall Street's favorite fallacy is now a self-fulfilling prophecy.
### The Game Theory Trap
Traders are treating every rally like a last-chance buffet—gorging on leverage while eyeing the exits. Liquidity pools resemble shark tanks, and the 'greater fool' theory got an algorithmic upgrade.
### Crypto's Brutal Truth
Bitcoin's 20% weekly swings aren't volatility—they're wealth transfers in disguise. DeFi yields? Just repackaged rent-seeking with extra steps. The blockchain doesn't lie: every new ATH creates twice as many bagholders.
### The Closing Irony
Modern finance finally achieved perfect efficiency—at redistributing wealth upward. (Bonus: Goldman Sachs now offers a 'zero-sum mindset' ETF for accredited victims.)
The euro-dollar exchange rate is usually a function of the difference in interest rates between the US and EU. These two things have decoupled since the start of the trade war, which suggests that currency markets (unlike stock markets) think that tariffs do matter.
Try to keep up:
Economists at Yale’s Budget Lab calculate that the announced tariffs — as of today! — amount to an effective rate of 16.3% (pre-substitution). It’ll probably be different tomorrow. And probably higher.
Tariff cheat sheet:
Yale also keeps a running calculation of how tariffs will impact GDP, inflation and our purchasing power. It currently estimates that the annual disposable income of American households will fall by an average of $2,480. (It seems to have read its Adam Smith.)
Is inflation due for a trend change?
CPI has surprised to the downside four months in a row, but the Cleveland Fed sees inflation nearly 0.8% higher in Q3 vs. Q2. Next week’s CPI report will be scrutinized for a change in the recent trend.
Shrinking the economy:
The Budget Lab estimates that tariffs will take about 0.8% off GDP in 2026 and that the US economy, growing from a smaller base, will remain 0.4% smaller than it otherwise would have been, in perpetuity.
Shrinking the economy, part two:
The Economist (using Yale data again) charts the effect of the big beautiful bill, which is expected to have made the US economy 2% smaller in 2050 than it otherwise would have been. Two percentage points in 2050 may not sound like much, but it will happen faster than you might think. I did the math and found out 2050 is less than 15 years away. (Weird, but true.)
In case you missed it:
“It” being the stock market. Data from @ryandetrick shows that when stocks are up as much as they are now, they are always higher three, six and 12 months later. That is a mathematical fact…but with a sample size of just four, unfortunately, so maybe don’t bet the house on it.
My favorite chart:
I am excellent at buying high, so I always enjoy seeing the counterintuitive data Mike Zaccardi reprises above. Somehow, buying the S&P 500 only at its all-time highs is better than buying randomly. There’s hope for us all.
Doing more with more:
The unsung hero of this longer-than-expected economic expansion has been a surge in productivity, as measured by output per hour. Economists are not yet sure why we’re getting more productive, but Timothy Taylor’s best guess is that we have the Covid-induced adoption of technology to thank.
They’d all agree, however, that the way to be even more productive is to keep trading with each other.
Have a great weekend, positive-sum readers.
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