Welcome to the trade war!!

 

Even after markets sank this week, some investors are sitting pretty.

Short sellers betting against the stock market have raked in about $159 billion in profits over the last six days. “81% of every short trade was profitable, and 97% of every dollar shorted was a profitable trade

Some highlights or lowlights!!

Country-specific tariffs on 86 of the US′ trading partners went into effect overnight

China hit the US with 84% retaliatory tariffs effective April 10

Canada slapped a 25% tariff of its own on American auto exports

The EU approved its first set of retaliatory tariffs effective April 15

Just before 1:30 PM, President Trump announced via Truth Social he would raise tariff rates against China to 125% and reduce universal tariffs to 10% for all other countries effective immediately.

20% of the S&P 500 hit a 52-week low before Trump’s unexpected pivot, but news of a 90-day pause helped the index hit its biggest single-day gain since 2008. The Nasdaq enjoyed its best day since 2001, and the Dow exploded nearly 3,000 points higher for its biggest one-day rally ever!

Bitcoin, oil, and gold all surged as a widespread relief rally took hold.

You've all seen or heard it. In fact you couldn't "not" see it. See what? The screaming about the market dumping 5% more last Friday. Talking heads were apoplectic over it. Staunch Trump supporters were on line asking if they screwed up voting for him. It was epic.

The last several letters have been about what he's trying to accomplish and how. We talked about how they're going to reprice gold holdings and create a sovereign wealth fund, which they will populate with "assets" from tokenizing all of our US holdings. (oil reserves, natural gas, shale, forest, minerals, etc.)

Then we talked about Dr. Miran and his article about tariffs. Miran is now part of Trump's administration.

What comes next in this grand scheme? Well, if I'm reading this right, and the hints are there, he's going to do anything he can to get rates down. However, the Fed who wanted to cut rates, just said that it's too early to say what they'll do now... because the tariffs could cause inflation, which would keep them sidelined on cutting.

He needs lower rates and unfortunately, a weaker dollar. I think he changed his timeline of events to get both. In other words, I think they should have done the gold revalue and the asset tokenization, and the Sovereign wealth fund before the tariff attack. But I think Trump worried that the Fed was NOT going to cut any rates this year.

The economy isn't strong, but it's not falling apart either. Remember the original predictions about 2025 had us getting 4 rate cuts this year. Then it was 3, then it was "hopefully 2" and then whittled down to maybe one and done. So, I think Trump saw this and figured that he'd jump the gun on tariffs. Why? He knew the market would take a monster hit. He knew it would send a lot of people out of equities and into treasuries and he knew that would lower rates.

It did. At one point Friday the ten year fell to 3.86 a level not seen since October.

Okay, so what's the push for a weaker dollar all about? Well, it's about Triffin's dilemma. What the heck is that? Back in the late 50's Robert Triffin wrote a few papers suggesting that while being the world's reserve currency has many benefits to the US, it would cause ever larger trade deficits. He was right. Look at us now.

After WWII we had the BWC. The Bretton Woods Conference, held in July 1944 in Bretton Woods, New Hampshire, established the framework for the post-World War II international monetary and financial system, leading to the creation of the International Monetary Fund (IMF) and the World Bank. Well, there were people there that objected to wanting the US to be the worlds' reserve currency, knowing way back then that it would distort global trade.

The problem is that when you're the world's reserve currency, everyone needs dollars. There's 'un-natural, non organic' demand for them. That keeps them somewhat artificially high. Well, when your currency is high, you can't compete with lower cost/price nations. Your manufacturing base goes to hell, because your goods cost too much to foreigners. So instead, they take our bogus dollars and build plants and make their own stuff...cheaper.

But over time it got worse. Nations put tariffs on our stuff. But maybe even worse was their governments' subsidizing products. We saw that in 1979 in Perth Amboy NJ, they built the most advanced steel "mini-mill" in the US. State of the art technology. They'd take scrap iron/steel, melt it down and then cast it into 5x5 inch, 40+ foot long bars weighing 2.2 tons. Those bars were reheated to orange/red and then run through a series of ever smaller reducers and at the end of the line you'd have steel wire, in sizes from a quarter inch to about an inch depending on the needs of the buyer.

There was one grade and size wire they made that they excelled at, and it was a big seller. The plant sold it for 600 dollars per ton of wire. But then Brazilian wire started showing up in the US. How on earth could they make it in Brazil, ship it to the US on barges and ships and sell it for 400? The Brazilian government was giving their steel mills subsidies. Raritan River Steel closed. At one point it had 500 employees, making good money, good benefits. When they finally gave up, there were only 150 left.

Trump knows of all this. The tariffs on us, our problem with being the reserve currency, our debt, foreign subsidies, etc. And he thinks he can fix it. At least that's what he's selling us. If his true goal is to fix America, bring back manufacturing, and improve the middle class, it will NOT come easy. If it comes at all. To pull this off, inflation will soar for a while. That's bad.

We don't have the production capabilities nor the "near shore" supply chains. They've got to be built.

One thing is certain. The path we were on, is unsustainable. Everyone knows that. So this is a tipping point. Either he pulls this off, or the collapse that was ultimately coming anyway, comes.