GDS Investments October 2025 Consumer Letter

Outdoors of its professional perform, authorities does nothing as nicely or economically because the personal sector. – Former U.S. President Ronald Reagan

Final month, enterprise leaders gathered at Yale’s biannual CEO Caucus, a closed-door discussion board designed to elicit candid dialogue on coverage and the economic system. There, the Yale Faculty of Administration surveyed dozens of CEOs on the present administration’s method to tariffs, financial coverage, and different issues. The outcomes had been putting to us:

• 70% stated the administration’s tariff scheme has harmed their companies.
• 80% stated pressuring the Federal Reserve to chop charges just isn’t within the nation’s greatest curiosity.
• 70% stated the administration is “giving in” to China on the proposed TikTok deal; 80% judged the deal an outright menace to nationwide safety.

As a result of the anonymity of the survey encourages frankness, it presents us an unusually clear view of what CEOs are seeing from the motive force’s seat. It additionally captures a dynamic we now have been waiting for a while: What does it imply when a president from the historically pro-business celebration falls out of alignment with the enterprise neighborhood itself?

We alluded to this final month, however we largely view the personal sector as a form of “buyer” of the general public sector, not less than in financial phrases. Authorities’s position is to not run companies, nor to choose winners and losers, however to domesticate and keep the situations by which American companies can plan, make investments, rent, and develop. When these personal sector “prospects” constantly report poor service, the service supplier has, or ought to have, an obligation to pay attention and enhance.

On this context, the Yale outcomes learn like another service survey. These prospects, nevertheless, are CEOs who see coverage unpredictability and avoidable prices as hurting their corporations. If tariffs, ad-hoc regulatory actions (just like the FCC placing stress on personal operators), immigration restrictions and adjustments (like growing the price of H1B visas), and different public stress campaigns towards unbiased establishments have gotten normal working process, it impacts how CEOs can and may make day-to-day choices round pricing, stock, capex, and hiring. All of that may in the end and inevitably filter all the way down to progress, margins, and valuation.

Observe {that a} massive a part of the issue right here isn’t the coverage per se; it’s coverage formulation with out session. We made this level beforehand within the context of the “Liberation Day” tariffs and the way the tariff scheme was designed and carried out with out severe session with the personal sector. Corporations like Walmart (WMT) (WMT) and Amazon (AMZN) (AMZN), for instance, can inform us, nearly in actual time and all the way down to the greenback, how customers are spending, how substitution patterns are shifting, and the place provide chains are strained. Why weren’t they consulted for his or her insights? To bypass, ignore, or merely posture at this experience is to handicap coverage earlier than it begins.

As a substitute, we see a rising inclination by the Trump Administration to dictate to the personal sector. In some circumstances, they’re operating interference in ways in which blur the strains between capitalism and socialism and generally are even going as far as to attempt to decide winners and losers utilizing the regulatory state. As hedge fund billionaire and Republican donor Ken Griffin put it: “When the state turns into concerned in choosing winners and losers, there’s just one method this sport ends: All of us lose. The core competency [for business leaders] gained’t be which you can drive innovation. It’s which you can drive the proper favors from D.C.”

“However Markets Look Wonderful…”

These issues may appear at odds with comparatively regular headline markets. Since this yr’s low level proper after the ‘Liberation Day’ announcement, the inventory market has continued to develop month after month. (Or, as Goldman Sachs (GS) put it final month: “Goldilocks continues to flee the bears.”)

How can tariffs et al. be inflicting issues when the largest measure of financial well being continues chugging alongside simply nice?

A part of the disconnect is timing. It simply takes time for the impression of those insurance policies to cycle by means of the market. Properly-run companies can take in a good quantity of friction like greater enter prices and provide chain disruption for fairly some time. However nobody can outrun compounding uncertainty and rising prices indefinitely. Finally:

Take a small importer closely uncovered to newly tariffed inputs. A money buffer due to good capitalization may carry them for 1 / 4 or just a few; they’ll maintain worth briefly, lean on provider goodwill, and lower discretionary spend. In some unspecified time in the future, although, simple arithmetic wins: the agency both raises costs (risking demand), eats the prices (risking solvency), or exits strains of enterprise (lowering progress). Some companies will merely have to shut their doorways.

On the different finish of the spectrum, giants like Walmart and Amazon have the dimensions to soak up significantly extra disruption however even they are going to be topic to identical underlying dynamic. In different phrases, they will not be on the identical threat of one thing like insolvency, however even they need to make progressively tougher tradeoffs, like reallocating capital away from innovation or progress into threat mitigation or passing alongside prices to customers that in the end present up as decrease actual buying energy or decrease returns on invested capital. Whether or not corporations conceal or move by means of the prices, the economic system will essentially take in them someplace. The system can maintain a stunning quantity of pressure, till it might probably’t.

So The place To From Right here?

We have now described courts and credit score markets as partial guardrails. They’re, and we proceed to have faith they (particularly credit score markets) will react to the worst excesses, however they’re admittedly imperfect options. Courts transfer slowly, and interim uncertainty is dear by itself. As well as, latest Supreme Court docket choices have, on stability, been favorable to the administration. The one main exception is briefly blocking Trump’s try to fireplace Fed Governor Lisa Prepare dinner.

And credit score markets can go each methods. They will self-discipline extreme risk-taking, however they’ll additionally endorse it for fairly some time.

Proper now, all we are able to hope is that Trump’s financial advisors perceive the necessity to work with the personal sector and are listening to its leaders, just like the CEOs who attended the Yale occasion.

All That Stated, Credit score The place Due…

Shifting gears, not each coverage proposal from the administration is counterproductive, and we shouldn’t dismiss the productive ones simply because they’re issued alongside unhealthy or questionable choices.

One we view constructively is the suggestion to cut back the frequency of obligatory public reporting from quarterly to semiannual. The quarterly cadence fuels volatility, encourages short-termism, and diverts assets towards “assembly the quarter” reasonably than constructing sustainable worth. A slower cadence may:

• Mood the trading-driven “bounciness” that benefits Wall Road transaction quantity over value-driven funding self-discipline.
• Give administration groups extra time to check and pursue promising initiatives with out a synthetic three-month clock limiting their runway and forcing them into short-term considering.
• Scale back reporting overhead, liberating assets for higher-return work.

If pursued thoughtfully (with acceptable interim disclosures for materials occasions), that is the form of course of reform that would nudge the system towards long-term worth creation reasonably than over-reactivity and short-termism.

Our Personal Positioning

In the end, for all that we have to perceive the political panorama nowadays, our job is to not handicap each political transfer. It’s to allocate your capital to companies with sturdy money flows, stability sheet power, rational capital allocation, and clear aggressive moats. Markets will incorporate the consequences of insurance policies like tariffs and different coverage adjustments a technique or one other; we proceed to focus on, in your behalf, the companies which can be greatest positioned to efficiently adapt to a variety of results.

On Our Desk

A couple of latest items we suggest:

• Article: Stratechery’s tackle YouTube: A compelling argument that YouTube is “the tip of the Google (GOOG, GOOGL) spear.” The essay particulars how YouTube’s scale, dominant market share, and forward-looking product growth just isn’t solely forward of opponents in streaming but additionally as a linchpin in Google’s broader monetization and platform technique.

• E book: InEVitable by Mike Colias: A transparent, partaking view of the auto business’s “inevitable” and accelerating electrical transition. Our personal analysis continues to counsel that EV penetration will rise meaningfully over the following cycle, and we proceed to see corporations like Rivian (RIVN), a comparatively latest addition to our portfolio, as nicely positioned to capitalize on that shift.

• Video: Richard Reeves on “The Male Inequality Drawback” (by way of The Large Suppose): That is off our regular beat, however price a point out. Reeves, a Brookings Institute senior fellow, tackles the methods by which a quickly altering world is leaving younger males behind in areas like instructional attainment, psychological well being, and what he has known as the “friendship recession.” He does so totally with out culture-war framing or misogynistic rhetoric. It’s considerate social science and, for a few of us as dad and mom of boys, of private curiosity.

A Closing Observe on the Shutdown

As we write, we’re nonetheless digesting the details surrounding the authorities shutdown. For our functions right here, we are going to merely observe that it represents one other occasion of the general public sector failing to satisfy the wants of its constituencies, together with the personal sector. We might have extra to say subsequent month because the details settle.

With heat regards,

Glenn Surowiec

Click on to enlarge

Unique Publish

Editor’s Observe: The abstract bullets for this text had been chosen by Searching for Alpha editors.