YWR: Where the $'s flow next.
Trump and tariffs.
Everyone trying to find direction.
You know the answer.
But let’s work through it again.
And start with 4 helpful clarifications.
Elephants in Rooms and Dogs which don’t Bark.
Let’s take a big weight off your chest. The elephant in the room so to speak.
#1 US.tariffs will NOT create the next global Great Depression.
US tariffs are not Smoot-Hawley Pt.2.
Three reasons:
Remember this is not every player in the world tariffing each other at higher levels. It’s one player tariffing unilaterally. And the US is big, but it’s not the only country anyone depends on for exports.
Even for China, the US is only 11% of exports. Same for Germany (10%). So higher US tariffs, if that’s the final result, can be managed. It’s not the end of the world.
Source: China Briefing Also economies have evolved. Manufacturing as a % of GDP is not that big. We talk about it a lot, but ‘Making things’ isn’t as important as it used to be.
Services and software are a lot more important. 50-75% of GDP. Government expenditure is also a big contributor to GDP, and that never goes down.
So add it up. However it ends up the numbers aren’t that big. It’s a % of a % of a %. Not the next great depression.
#2. US markets were going down anyways.
For most people thinking about Trump fries their brain. They hate how he talks, they hate everything about him. The problem is it short circuits their ability to think clearly. So take Trump out of the equation. Realise the NASDAQ was going to decline in 2025 anyways. It was a balloon looking for a pin. The sell off is natural and expected, not something we don’t understand. So dial down how much weight you give the sell-off in the NASDAQ as a reflection of the effect of tariffs on the global economy.
#3 Pod Shops and Market Structure.
Also realise the hedge fund industry has increasingly consolidated around large, highly leveraged multi-strategy firms (Citadel, Balyasny, Millennium, Point72, etc). When volatility hits, these funds sell EVERYTHING quickly. So when European banks are -10% in one day or the Nikkei is -10% at the open, this is not some thoughtful PM acting first, because she has connected the dots, and you are the last to figure it out. It’s mindless risk management software blasting everything. And it’s an opportunity for you if you are patient and can be on offence.
And yes, I understand, there are time risk management gets you out of crashes before they start, but more often they are reactive and take you out at the wrong time. You have to use your judgement when is when. I think this time is the latter.
#4 Notice the dogs which didn’t bark.
We had a historic VIX movement.
A global derisking.
And yet, the US 10 year barely rallied.
And the US$ slightly weakened. EUR 1.09/$. JPY 147/$
That tells you something….or actually, everything.
How do we make money?
But what happens next?
Like I said.
You know the answer.
But let's review the big picture again and how tariffs are just the symptoms of a deeper shift.
The US as a Heroin Addict
Money is always looking for a Home
Time for a Road Trip
Cyclical Bounce to Structural Trend
America 2030