Trump and tariff “flexibility” … uncertainty in FedEx’s guidance … Charles Sizemore with Trump’s real tariff goal … why a monster rally could be in the cards As I write Monday morning, stocks are exploding higher on hopes of lighter-than-expected tariffs. The optimism began last Friday when President Trump told reporters that there will be “flexibility” in his tariff plans. From Trump: People are coming to me and talking about tariffs, and a lot of people are asking me if they could have exceptions. And once you do that for one, you have to do that for all. I don’t change. But the word flexibility is an important word. Sometimes it’s flexibility. So, there’ll be flexibility, but basically, it’s reciprocal. Then, yesterday, The Wall Street Journal reported that the Trump administration is likely to narrow the tariffs it enforces on April 2. From the WSJ: [Which] sector-specific tariffs, however, are now not likely to be announced on April 2, said an administration official, who said the White House is still planning to unveil the reciprocal -tariff action on that day, though planning remains fluid. The shift was earlier reported by Bloomberg… The focus of the reciprocal action now looks to be more targeted than originally thought, according to people with knowledge of the planning, though it will still hit countries that account for most of the U.S.’s imports… The fate of the sectoral tariffs, as well as tariffs on Canada and Mexico that Trump said were justified by fentanyl trafficking, remains uncertain. The article suggests that Trump could limit his tariffs to the “dirty 15,” which is how Treasury Secretary Scott Bessent put it last week. These are countries with trade imbalances the Trump administration doesn’t like. Now, same as Wall Street, I’m excited to see what appears to be some softening in Trump’s tariff stance. If it continues, today’s rally could turn into a significant bull run over the coming weeks (more on that later). But let’s also recognize that the WSJ article reinforced the bane of the market for weeks now … “Uncertainty.” A key earnings-report last Thursday echoed this concern… (We’ll circle back to Trump and tariffs momentarily.) “Continued weakness and uncertainty in the U.S. industrial economy.” That was the reason FedEx management cited for why it cut its profit forecasts for the third straight quarter last Thursday after the closing bell. Wall Street didn’t like the news and punished FedEx on Friday, driving the stock 6.5% lower (and as much as 11% lower intraday). FedEx is one of a handful of stocks considered bellwethers for corporate America and, by extension, the stock market because it plays an integral role in global commerce. Business slowdowns or geopolitical tensions affecting trade often show up in FedEx's earnings and outlook, so it can serve as a “canary in a coalmine” for the global economy. Now, last Thursday, FedEx reported reasonably solid quarterly earnings. The problem was its full-year guidance, which management cut. So, what’s the missing variable between today’s solid earnings and tomorrow’s potentially weaker earnings? You guessed it. Our “word of the day.” From Barron’s: Tariff uncertainty is reducing overall activity. As noted above, next week on April 2nd, President Trump will reportedly unveil his plan for reciprocal tariffs Here’s Axios: The new tariff regime will take aim at trading partners that officials believe treat domestic exporters unfairly. The result will be Trump's most aggressive tariff actions to date, which could hike costs for consumers, damage longstanding trade relationships and spark global trade wars. In recent weeks, Trump has referred to April 2 as “Liberation Day,” saying his upcoming tariff decision is “the big one,” distinguishing it from the series of levies we’ve seen imposed so far. Here’s Trump from Truth Social: For DECADES we have been ripped off and abused by every nation in the World, both friend and foe. Now it is finally time for the Good Ol' USA to get some of that MONEY, and RESPECT, BACK As I’ve highlighted in recent Digests, tariffs make me nervous. If they’re used briefly to apply negotiating pressure for the ultimate purpose of making trade freer and less expensive, fantastic. Let’s use them, establish better deals, then return to prosperous trading. But if used for too long, they risk reigniting inflation, dragging down economic growth, and eroding Main Street America’s spending power. Plus, as we noted in last Tuesday’s Digest, we’re not seeing abundant evidence of “ripped off and abused” on a wide basis: Does this new levy match a 25% tariff that Canada has had in place on the U.S? Not from what I can tell. According to the World Trade Organization's 2023 data, Canada's simple average Most-Favored-Nation (MFN) applied tariff was 3.8% for all products. For agricultural products, the tariff was 14.8%. For added perspective, prior to Trump’s 25% tariff on Canadian goods, U.S. tariffs toward Canada were somewhat like Canadian tariffs toward the U.S. According to the Tax Foundation, the average U.S. tariff on all U.S. imports (including Canada) was approximately 2.5% in 2024. However, certain Canadian products had higher tariffs, such as softwood lumber. Last summer, President Biden raised its tariff from 8.05% to 14.54%. In the days since that Digest, I looked at the tariff situation between the European Union and the U.S. I can’t find evidence of a massive tariff differential there either. Yes, certain sectors have specific, far higher tariffs, but those appear to be select cases. From the European Commission: There is not one “absolute” figure for the average tariffs on EU-US trade, as this calculation can be done in a variety of ways which produce quite varied results. Nevertheless, considering the actual trade in goods between the EU and US, in practice the average tariff rate on both sides is approximately 1%. (As I noted in last Tuesday’s Digest, if you have data that suggest a different conclusion, please email me at ipdigestfeedback@investorplace.com. I’m happy to feature it in this conversation.) So, if horribly lopsided tariffs aren’t necessarily at the heart of Trump’s tariff plan, what might be? According to our geopolitical expert, Charles Sizemore, a more aggressive effort to “rebalance” global trade via the Mar-a-Lago Accord. | Recommended Link | | | | According to Louis Navellier, the legendary investor who picked Nvidia before shares exploded as high as 3,423%… Before April 30th, President Trump could make a shocking AI announcement… Sending these stocks exploding higher. |  | | What is the “Mar-a-Lago Accord” and what would it mean? For newer Digest readers, Charles is the Chief Investment Strategist at our corporate partner, The Freeport Investor, where he marries political and macro analysis with the investment markets. Here’s Charles with more on this Accord: It’s based on a November 2024 paper written by the chairman of Trump’s Council of Economic Advisors – a Harvard Ph.D. called Stephen Miran. And at its heart, it proposes forcing America’s trading partners to strengthen their currencies versus the U.S. dollar, making U.S. exports cheaper and imports more expensive. Now, there is no evidence that Trump or his administration has officially proposed or is actively pursuing this plan. But it’s worth examining since it might explain Trump’s focus on tariffs. At the center of the Mar-a-Lago Accord is one thing – a weaker dollar. Here’s Charles: Trump wants to boost American manufacturing by making American products cheaper than their foreign competition. He wants to balance America’s $900 billion trade deficit (the difference between the value of imports and exports) by weakening the exchange rate of the U.S. dollar. When the dollar is strong relative to overseas currencies, it makes U.S. exports more expensive. A weaker dollar makes U.S. exports more affordable. Think of a weaker dollar as a “stealth tariff.” It gives U.S. exporters an advantage but without the negative political fallout of a trade war. The easiest way for Trump to make his policy agenda sustainable is make the dollar weaker. Part of this plan would target national debt reduction. Foreign holders of U.S. Treasurys would be required to exchange their bonds for interest free 100-year bonds. Charles highlights how this would instantly chop about $300 billion off the federal government’s $1 trillion annual interest bill. Very good news. Of course, countries holding our debt may not be thrilled about swapping out Treasury payments for 100-year zero-coupon bonds (they’d be sold at a discount, so holding them to maturity would be the only way foreign governments would get back their investment and make a return). This could result in foreign governments dumping our bonds, driving up yields. Not so much “very good news.” Now, even if this part of the plan isn’t pursued, Charles believes a devalued dollar would still be front-and-center for one purpose: to shrink the U.S. trade deficit. This is what President Reagan pursued in the 1985 Plaza Accord. Forgetting the “why”, let’s turn our attention to the “what?” Let’s shift our focus to the potential outcome of a weaker dollar. There are pros and cons. A weaker dollar would be supportive of more U.S. manufacturing since a strong dollar has the opposite effect. Here’s Charles: A strong dollar makes U.S. exports cost more in overseas currency terms. This encourages manufacturers to move production overseas instead of locating them in America. And, to a point, a weaker dollar would be good for your portfolio. More than 40% of the S&P 500’s revenues come from overseas. So, if the dollar weakens, those overseas revenues convert into more dollars during the currency conversion. That means more profits. But the downside of a weaker dollar is inflation. After all, a weaker dollar requires more of those weak dollars to pay for the same basket of goods. Back to Charles: The Mar-a-Lago Accord will – by design – reduce the buying power of your dollars. Yes, it may be a boon for U.S. exporters and the folks who work for them. It may even boost jobs. But it won’t be a free lunch. And the downside will be that the dollars you earn and save will be worth less. So, what’s the related action step? No surprises here; we’ve answered it many times in the Digest. Make sure you own: - Top-tier stocks with pricing power to protect profit margins
- AI/technology stocks with strong earnings growth potential
- Gold – the go-to wealth preservation asset for millennia
- Gold miners – essentially gold with leverage
- Real estate – another proven wealth preserver
- Bitcoin – yes, it’s been struggling in the wake of its December all-time high, but even a small allocation remains a wise move
- Some cash – not too much cash. But if bearish sentiment results in another leg lower, you’ll need some cash to take advantage of great assets on sale
To learn how Charles is playing this in his service Freeport Investor as a subscriber, click here to learn more about joining him. I’ll add that beyond his investment portfolio, no one breaks down the connection between the political and investment worlds as well as Charles. Now, let’s end today by circling back to the buying pressure we’re seeing on Wall Street. Are we seeing the long-awaited rebound rally begin? In recent Digests, we’ve highlighted how, in the short-term, sentiment is the primary driver of a stock’s price. For durations of one year or less, sentiment is responsible for nearly 50% of a stock’s movement. However, in the long-run, earnings are the true driver. The farther out you go, the greater the link between earnings and price. For example, after 10 years, earnings account for 74% of a stock’s movement while sentiment drives just 5% of it. Circling back to FedEx, what happened with this bellwether last week is a good symbol for what’s happened with the overall market. Current earnings have been bullish. But current sentiment has been bearish based on worries about future earnings (due mostly to tariffs). As of now, if earnings remain bullish and something changes that flips bearish sentiment bullish (say, Trump softening on tariffs?), then we’re in for a massive rally as Wall Street shifts its gaze away from “fearful sentiment” and refocuses on “robust earnings.” Think of a slingshot being pulled back to within centimeters of its max elasticity. When that pressure is released, the momentum is extraordinary. In the same way, if today’s bullish sentiment settles in, the market will explode higher. But if something changes that spooks Wall Street, throwing cold water on our forecasted strong earnings, then our “stretched” slingshot breaks…and stocks take a fresh leg lower. All this points toward April 2, and Trump’s big tariff reveal If Trump comes in light on tariffs? Melt-up. But if Trump goes big on tariffs and sounds unapologetically hawkish? Melt-down. As it looks today, “melt-up” has the slight edge and Wall Street is getting excited. As the Alexander Pope poem goes, “hope springs eternal.” Have a good evening, Jeff Remsburg | 
Tidak ada komentar:
Posting Komentar