DeepSeek Drama and Tariff Triumphs: Cutting Through the Noise

Tech earnings are up 44%, but the market’s panic over DeepSeek and tariffs is creating noise. Let’s talk about what matters for your portfolio.

 Action reaction. Ok, one quick final word on yesterday's AI vomit-fest. 🤮🤮 If you have seen any of my videos or seen me on TV recently, you know that I am not exactly a Wall Street noob. What’s more, I know a thing or two about technology having spent a good chunk of my career working with the smartest tech people in the world… and I am not kidding. I, unlike many Wall Streeters, have lived through some epic market cataclysms, one driven by sheer greed, one by a collapse of the global financial system (and greed), one by irrational exuberance (and Pets.com), one by a complete misunderstanding of technology (and supply and demand), and one by force majeure. 😷 At least two of them can be tied to technology and the world’s misunderstanding of it. Yesterday morning, I made my opinion clear in this very note. As the day rolled on, the TVs in my office were clogged with headlines about DeepSeek, as were all my social feeds. It was a cacophony of ‘splaining, which I think, though the intent was noble, only served to heighten the uncalled-for panic. So, I will state it here again and then move on to what we need to be watching right now.

Yesterday’s selloff was an overreaction. Competition is what fuels technology innovation! DeepSeek developed an AI in a short period of time with allegedly less resources than those used by the US-based prototypes we have all been using to date. That is great news… for every AI behemoth out there who is probably already experimenting with similar models and will by now already be testing DeepSeek’s method. What got everyone on edge yesterday was not that DeepSeek developed an interesting reasoning methodology, but that the company was able to produce the model with less processing resources. First, and I hate to say this, but there is the possibility that the “minimal resources” thing, may be questionable, as many insiders suspect that the company did indeed use “forbidden” NVIDIA technology. Remember that cardboard mockup stealth plane that had the defense industry panicking for a minute? Second, and this is the most important takeaway, regardless of how much resource DeepSeek used, resource-rich companies will be able to blow away the competition. This is not TikTok, where an app that is not in any way unique and essentially a copy of defunct, US-based Vine, is now a global phenomenon. Meta/Instagram and Alphabet/YouTube, despite their collective horsepower, could not compete with TikTok because of its reliance on social influence. THIS IS DIFFERENT.

More resources in this case make better AIs… PERIOD. The only folks who should have lost sleep after this weekend’s release are the private investors in OpenAI and its most recent valuation. And those sleepless nights would only be warranted if the company could not rise to the software challenge of leveling up to DeepSeek. Also, bear in mind that there is already steep competition with other resource-rich companies like Alphabet. Has the lofty AI infrastructure developed in the past 18 months been deep sixed by DeepSeek? No. Oh, and finally, if you are concerned about national security by using TikTok, you should be really concerned about strengthening DeepSix which uses your every interaction to get smarter. Yes, not just what kind of videos you like, but the kinds of questions that are on your mind and how you respond to the answers. I will leave it at that.

Now, let’s clean our pallets by quickly discussing tariffs. Scott Bessent has been officially confirmed as the Secretary of Treasury. Bessent is a fan of an across the board 2.5% tariff—data point number 1. President Trump told us WHILE YOU SLEPT that he was in favor of larger across the board tariffs—data point number 2. Now, we have been spending a lot of time talking about how tariffs are inflationary, and they are, over the long term. However, I want to note two recent incidents where tariffs—or the mention of them—may have been beneficial.

First, in what was supposed to be yesterday’s big news, which was eclipsed by DeepSeek, President Trump managed to strong arm Columbia into taking deportees by threatening tariffs. The Columbian President came out swinging, but he ultimately relented—likely after speaking with his economic advisors (the guys and gals with spreadsheets). No tariffs were levied, and in the process, neither were prices, potentially affecting the nearly $17 billion worth of goods that US imports from Columbia each year. Ultimately, tariffs were an effective bargaining tool for US foreign policy. Credit must be given where credit is due.

Second, as a result of this past weekend’s tariff saber rattling, the US Dollar strengthened. That stronger dollar makes commodities traded in dollars more expensive to foreign currency buyers. This causes the price of copper to go down. That lower price is enjoyed by US producers who use strong Dollars to make purchases. In case you didn’t know how reliant the US is on copper imports; I will tell you that roughly 40% of copper used in the US’ industrial complex is imported. That’s a lot of copper, my friends. Ultimately, if those tariffs are levied as expected, prices paid for the commodity will likely go up. Traders may pay less to buy the metal, but the ultimate purchaser / payor will pay more to factor in tariffs, and those increased costs will find their way into everything that uses copper… which is like everything we buy, except maybe eggs (which has its own problems).

And, finally, I have to say that all this tariff-talk AND DeepSeek-talk is, at the end of the day, still noise. With S&P earnings nearly 20% in, companies have beaten EPS targets by some 6.4% with a year-over-year growth of almost 12%. Tech EPS growth to date is almost 44%. We should be satisfied with that. Stay tuned, because we have a lot more coming our way in the days ahead. Try to stay focused on what is important and don’t get swayed by fear mongering.

YESTERDAY’S MARKETS

Stocks with any relation to AI took a drubbing yesterday, dragging all major indexes except for the Dow Industrials into the red. Chinese upstart AI competitor to ChatGPT came out with an impressive showing causing panicked investors to sell all US AI poster children. Lots of bathwater, but surely lots of babies as well.

NEXT UP

• Durable Goods Orders (December) is expected to come in with a gain of 0.6% after slipping by -1.2% in the prior month.
• FHFA House Price Index (November) probably increased by 0.3% after an increase of 0.4% in November.
• Conference Board Consumer Confidence (January) may have increased to 105.9 from 104.7.
• The FOMC will start its 2-day meeting this morning to discuss monetary policy, but we will have to wait until tomorrow to hear the results… be patient. 😊
• Today’s notable earnings announcements: PACCAR, RTX, Sysco, Synchrony Financial, Lockheed Martin, Veradigm, Royal Caribbean, Polaris, Boeing, NextEra, JetBlue, General Motors, Kimberly-Clark, Invesco, Starbucks, Qorvo, and Stryker.

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