Hermes!
A) The ultra rich people continue to spend (although slower), despite the slowdown among LVMH customers.
B) Strength in price (increases) push people to buy as usual.
Btw, Hermes will pass all tariff costs to consumers. Maybe shall see some pushback from US consumers (a bit more uncertainty).
Source: Hermes 1Q2025
Source: Hermes 2024 annual
Clearly not LVMH.
The core fashion and leather goods has not been growing much since 2024.
Back in 2018, LVMH still grew 10% yoy.
Back in 2008, LVMH still grew 4.3% yoy.
In 2009, LVMH revenue decline by 1% yoy. However, the fashion and leather goods segment still grew ~5% in 2009.
The unofficial “Mar-a-Lago Accord” raised this issue – that USD as a reserve currency bears additional burden.
Countries bought US Treasury to facilitate trade with another nation (not necessarily the US), thus creating an inelastic demand and causing USD to appreciate.
This appreciation shall weaken US export, especially in the manufacturing sector.
Such phenomena reflect what can be described as a “Triffin world,” after Belgian economist Robert Triffin..
However, when the reserve country is smaller relative to the rest of the world—say, because global growth exceeds the reserve country’s growth for a long period of time—tensions build and the distance between the Triffin equilibrium and the trade equilibrium can be quite large.
Source: A User’s Guide to Restructuring the Global Trading System
Another interesting point from the artcle.
..value-added taxes are a form of tariffs because they exempt exported goods but tax imported goods.
Despite that the US trade deficit is at the center of debate, US enjoys trade surplus in service!
What are service exports? IP, travel, financial services etc.
Source: WSJ
There is almost $300bn service surplus in 2024.
Approximately 40% of our products were manufactured in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 11% in Indonesia, and 7% in Bangladesh,
and the remainder in other regions.
Approximately 35% of the fabric used in our products originated from Taiwan, 28% from China Mainland, 11% from South Korea, and the remainder
from other regions
A Special Government Employee (SGE) can work no more than 130 days during any consecutive 365-day period.
They’re allowed to maintain private-sector jobs or other roles.
They are subject to federal ethics rules, but with some exceptions or leniencies given the part-time nature of their service.
They can be paid.
Elon Musk is a SGE.
He won’t be paid though.
https://www.law.cornell.edu/uscode/text/18/202
One thing is certain – US is trying to fight its trade deficits.
Who would be relatively safe from Trump’s tariff threat?
Countries that US runs a trade surplus!
Any examples? Brazil.
If a company wants to relocate its production, Brazil would be a top destination due to the trade surplus US enjoys, which means tariff threat is lower.
Plus, Brail has a big population with a relatively lower labor costs vs other countries like Australia, UK, or Singapore (US runs a trade surplus to those countries as well).
If you look at 2023 vs 2022 export data, you will find China’s export to Russia surged by almost 50% in USD terms.
Meanwhile, EU and US bought less from China in 2023 vs 2022 – China’s export to EU and US dropped by double digit.
In 2024, that trend is gone.
In USD terms, China’s export to Russia, US, and EU all rose by 3-5% in 2024 vs 2023.
Assuming buybacks & dividends are “required”, the unallocated cash flows are matching the capex figure already.
This means additional room to add capex is limited.
Put it in another way, free cash flows after shareholder returns are near 0.
For example, Alphabet got $125bn op. cash flow in 2024, paid $53bn in capex, $62bn in buyback and $7bn in dividend. FCF after shareholder returns is only $3bn, or 2.5% of its operating cash flow.
Meta, with 10% unallocated operating cash flow in 2024, will increase its capex by 50% in 2025. If Meta’s op. cash flow grows 10% in 2025, then FCF after shareholder returns in 2025 is only $3bn, or 3% of its operating cash flow.
Microsoft in calendar year 2024, has $10 billion of unallocated free cash flow. But that should be smaller if looking at its fiscal year 2024.
Berkshire paid the most corporate income tax in the US, or about “5% of what all of corporate America paid”.
Buffett complained a bit about US fiscal recklessness and the inability of fixed income securities to protect buying power.
Buffett still prefers equity – but he didn’t say public equity!
“P/C insurance growth is dependent on increased economic risk. No risk – no need for insurance. ”
Berkshire borrowed “fixed” rate in yen! How beautiful the transactions were. But if Japan’s interest rate were to rise significantly in the future (when Berkshire needs to refinance), will Berkshire find those Japanese dividend less attractive?