In the Feb. 5 issue of this publication, I warned you about the pernicious nature of tariffs and their inevitable slide into what nearly always causes a harmful trade war and the destruction of wealth. Recall that this issue, titled, “The Trouble with Tariffs,” used a Star Trek episode analogy to illustrate how harmful tariffs can be.
Here I quote from that article:
“In this comic episode, the Enterprise visits a space station that soon becomes overrun by rapidly reproducing, small, furry creatures called ‘tribbles.’ But, of course, their rapid reproduction rate soon overwhelms, and that means trouble for the crew and its mission.
“I thought about this rapid reproduction idea because, just like tribbles, the trouble with tariffs is they are also a rapidly reproducing organism that will speedily overwhelm if not quickly contained.”
Last Wednesday’s tariff announcement from the Rose Garden of some truly ridiculous tariff levels on nearly the entire planet (tariffs largely based on an erroneous formula that took into account trade deficit data and that included one calculation off by a factor of four) did exactly what I told you they would do — they caused chaos that overwhelmed markets and destroyed trillions of dollars in investor wealth.
Now, just as I was in the middle of writing this issue, news hit that President Trump had come to his senses and announced a 90-day pause in reciprocal tariffs for what he calls “non-retaliating countries.” To perhaps no one’s surprise, but much to everyone’s delight, stocks ripped higher on the news.
Within an hour of the Trump tariff pause announcement, the Dow had spiked some 2,800 points, or 7.4%, while the S&P 500 soared 8.7%. The Nasdaq Composite was the most-beaten-down of the indices since the tariff announcement last week, and after the reversal it surged nearly 11%.
What this shows everyone, including President Trump, is that markets will not abide bad policy, nor will they grant clemency to capricious proclamations designed to punish or “reshape” the global trade landscape.
If we look at the chart here of the market action since the tariffs were announced and right up until the tariffs were paused, we can see precisely what prompted the more rational heads in the Trump administration to make the correct decision to capitulate on the prior week’s ghastly policy.
Today’s massive market bounce will, I suspect, go a long way toward fully recovering the damage done to the global financial system.
Yet, to be certain, the damage will not likely ever be undone in the sense that the world now knows that President Trump is capable of proclaiming very bad policy that is obviously not very well thought out, nor a rational approach to a problem that never existed in the first place (i.e., the idea that trade deficits are somehow a bad thing).
Make no mistake, this is a victory won by the power of the market people — people who rendered their verdicts on the tariff tribbles by massively de-risking capital in the face of bad policy and then moving risk-on when the bad policy was rescinded.
So, power to the market people! May our money continue to trump bad ideas (pun intended).
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The Beauty of Self-Love
“To love oneself is the beginning of a lifelong romance.”
–Oscar Wilde
When it comes to love, there is one person in the world that deserves your best. No, it’s not your wife, or husband, or mother or father or even your favorite progeny (yes, we all have a favorite). The person who deserves your deepest love is… you.
The reason why is that a failure to love yourself means that you have let down the one person in the world who you are most responsible for, and who can have the biggest impact on your happiness, and by extension, the world’s happiness. So, when you make choices about your existence, do so with the requisite self-love needed to make your world just a little bit better.
Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.
In the name of the best within us,
Jim Woods
