We are delighted to share, with permission, the following article from highly esteemed economist Daniel Lacalle, PhD.1
When Keynesians predict a disaster, start buying.
April 6, 2025
I always get excited about a market correction when I read the Keynesian consensus predict a disaster. The same people who claimed massive money printing and soaring government spending wouldn’t cause inflation are the ones who know exactly how tariffs will impact aggregate prices. Fascinating.
In June 2016, sixteen Nobel Prize winners expected higher inflation from tariffs, and it never happened. Furthermore, many of those economists recommended enormous government spending and Federal Reserve quantitative easing in 2020, stating there were no concerns about inflation. However, this led to the highest inflationary burst in thirty years. Reality showed that there was no inflation in 2016-2019 and that the insane printing and spending spree of 2021 led to the current inflationary burst. This happens because many economic experts will always justify all government imbalances and tax hikes but raise alarm at any tax cut or supply-side measure. We should never trust experts that work painfully close to social democrat governments.
According to fearmongers, tariffs will create an enormous inflation burst both in the U.S. and abroad. These estimates show that Trump’s tariffs will be paid by US consumers, China tariffs against the US will also be paid by US consumers, and EU countermeasures will be paid only by American consumers. Quite amusing. If we believe this narrative, tariffs would be the best news for businesses all over the world: Americans would swallow the cost entirely, margins will not decline, and the world would be happy. It is so ridiculous that it would be laughable if millions did not take their words seriously. Furthermore, according to the consensus narrative, tariffs will cause a global recession if imposed by the US. However, when tariffs are imposed by China or the EU, then it is all fine.
When Keynesians predict a disaster, it is unlikely to happen. When the Keynesian consensus tells you that there is no risk, as they did in 2008, run away.
We should consider some relevant factors. Markets already discount a recession and a risk of stagflation, but the latest jobs report shows the opposite. 228,000 jobs were created in March despite some federal jobs. The ISM Composite Index points to expansion, and the economically weighted figure is comfortably above the expansion level (50) according to Real Investment Advice. All the investment and production leading indicators are far from a recession signal. Furthermore, many market participants seem to discount a hawkish Federal Reserve and a recession, something that has not happened in two decades.
What I find intriguing is that, for the first time in many years, the S&P 500 is attractively priced. After being hugely expensive in a bull market with constant multiple expansion, we can finally say that the S&P 500 is starting to be attractive, even if you discount a significant downward revision in earnings. The Price-to-Earnings ratio of 15.2x for 2027 provides ample room for a revision and still shows an attractive entry point. Stocks are quite cheap at 10.3x EV to EBITDA 2027 (enterprise value to earnings before interest, taxes, depreciation, and amortisation). Furthermore, with the 10-year yield of Treasuries at 3.99%, it means that stocks look attractive compared to bonds for the first time in months. Margins are strong, guidance is positive, and entry points for long-term investors are starting to be evident, as inflationary pressures are likely to be limited and the so-called trade war will be negotiated, with more than 50 nations calling on the US government to make a deal on trade barriers.
Any long-term investor should look at opportunities in which fear is exaggerated, valuations are attractive, and consensus concerns are unrealistic. It may be a good idea to start building long positions, knowing that quantitative easing and rate cuts will likely follow periods of volatility.
Investors need to protect themselves against inflationism and central bank destruction of the purchasing power of currency and that has not gone away; it is coming back stronger as governments all over the world continue to build debt and fiscal imbalances. Protect yourself against inflation with a balanced strategy, building positions that protect your wealth and help you navigate volatility.
1Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.
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