By Chris Ciovacco
BIG IMPACT OR SMALL IMPACT?
U.S. Treasury Secretary Steven Mnuchin indicated Sunday the U.S. is hopeful to strike a deal with China, which means the tariffs would never go into effect. However, if a deal cannot be reached, how significant are the tariffs relative to the big picture? From CNBC:
Jeremy Zirin, head of investment strategy at UBS Wealth Management Research, told CNBC that President Trump’s announcement Thursday on tariffs on up to $60 billion in Chinese imports didn’t seem that bad.
“The economic impact of [the tariffs] is less than one-tenth of 1 percent,” Zirin told “Squawk Box.”
“It’s actually pretty bullish what we heard yesterday,” he added. “If you look at the steel and aluminum tariffs as a template, things got watered down and then scaled back. So, if you look at the whole economic backdrop, still a very good profit momentum.”
From a bigger picture perspective, the economy does not appear to be on the brink of a recession and the 20-year breakout in the Value Line Geometric Index is still in play.
Continue reading Tariffs May Not Slow Profit Momentum
By Michael Ashton
Last week, the stock market dove in part because President Trump appeared to be plunging ahead with new tariffs; on Monday, the market recouped that loss (and then some) as the conventional wisdom over the weekend was that Congress would never let that happen and so it is unlikely that tariffs will be implemented.
I’m always fascinated by market behavior around events like this. Investors seem to love to guess right, and to put 100% of their bet on an outcome that depends on being right. Here’s what I know about tariffs – prior to last week, if there was a risk that tariffs would be implemented that risk was not priced into the markets. And markets are supposed to price risks. Regardless of what you think the probability of that outcome is, surely the probability is non-zero and, therefore, ought to be worth something on the price. Putting it another way: if I was willing to pay X for the market when I wasn’t worried about the possibility of the detrimental effect of future tariffs, then assuredly I will pay less than X once I start to consider that possibility. Although the outcome may be binary (there will be increasing tariffs and decreasing free trade, or there won’t be), the risk doesn’t have to be either/or.
This is one of the things that irritates me about the whole “risk on/risk off” meme. There is no such thing as “risk off.” Risk is ever-present, and an investor’s job is not to guess at which risks will actually present themselves, but to efficiently preserve as much upside as possible while protecting against downside risks cheaply. Risk management is really, really important, but it often seems to get overlooked in the ‘storytime’ that 24-hour market news depends on.
To be sure, the risk of tariffs coming out of the Trump Administration is not new…it’s just that it has been ignored completely until now. Right after Trump’s election, in our Quarterly Inflation Outlook I wrote about which elements of Trump’s professed plans were a risk to steady inflation. The one area which I felt could be the real wildcard leading to higher inflation as a result of policy (as opposed to higher inflation from natural dynamics, which are also a risk as interest rates normalize) was the possibility of a Trump tariff. Here is what I wrote at that time – and it’s poignant today:
Continue reading Trump and Tariffs – Not a New Risk
Well it turns out that no one knew what Trump was going to do on Thursday when he rattled global markets and infuriated America’s trade partners by announcing tariffs on steel and aluminum imports.
Of course all you really needed to do to understand that this was yet another example of Trump flying off the handle was look at the sequence of headlines. Recall how this played out yesterday:
- 8:53: TRUMP IS SAID TO ANNOUNCE TARIFFS AT MORNING MEETING: CNBC
- 10:42: CNBC: TRUMP EVENT AT 11AM WILL BE ON TRADE, NOT TARIFFS
- 12:30: TRUMP SAYS 10% TARIFF FOR ALUMINUM; TRUMP SAYS 25% TARIFFS FOR STEEL
Clearly, Trump simply went rogue as he’s prone to do and just like all the other times he’s come unglued and made a rash decision with global implications without coordinating with his aides, lawyers, and cabinet, he doubled down on Twitter the next morning in an effort to try and make it seem as though he hadn’t made a mistake.
On Friday afternoon, NBC is out reporting that according to an internal White House document, “Trump’s policy maneuver was announced without any review by government lawyers or his own staff.” To wit:
Continue reading ‘Unglued’ Trump Was ‘Looking For A Fight’, Was Goaded Into Tariff Decision By Ross, Navarro: NBC