Good morning. Tired of kinetic war? Good news: you can focus on the trade war again. Yesterday the White House announced 50% tariffs on a range of Canadian goods including milk, dairy, alcoholic drinks, clothing and furniture. The tariffs won’t take effect for a month, so they could be a threat or a sign of a larger reopening of economic hostilities.

In yesterday’s piece on bubble‑era portfolio construction, I began with a reference to Shiller’s valuation ratios for the S&P 500. One was the cyclically adjusted price‑to‑earnings ratio, the Cape ratio, which is the price of the S&P 500 divided by the 10‑year rolling average of its profits. The other was the excess Cape yield, the reciprocal of the Cape ratio minus the 10‑year Treasury yield. The Cape ratio is at 41 and the excess Cape yield is 1.4 %, both signalling that the market is very expensive and that long‑term forward returns are likely to be well below average.

The additions to U.S. corporate profitability—higher return on capital, wider spreads between cost of capital and return, and better conversion of net income to free cash flow—have led some to argue the market deserves a higher multiple. Yet the AI revolution has forced Google, Microsoft, Amazon, Meta and others to rethink the durability of their old models, adding capital intensity and potentially lower returns.

The debate is not just about historical valuations; it’s about future growth expectations. Shiller’s metrics are common sense: they remind us investors will pay only so much for a dollar of profit, and today big U.S. stocks are right up against those limits.