Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide. Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending it daily shortly after the market close.
The opinions expressed below are my own
2PM turnaround. The day was pretty boring. The ECB didn’t change anything, as expected. The morning was slightly bullish and overseas markets were higher. Tariffs were the talk of the day as we waited to hear the details. We bobbed around and were trading flat-to-slightly-down around 2 PM. Around that time, equities rallied quickly and steadily into the official tariff announcement…. At which point the market reversed….and then went right back to pre-announcement levels. Weird 11th hour swings.
The 25% steel and 10% aluminum tariffs go into effect in 15 days and Mexico and Canada have short-term exemptions. There’s flexibility for the tariffs to be altered in the future too. Investors don’t seem too scared by this event and the details. In the short term, the spin is that this tariff is small (relative to the economy) and that it’s watered down enough and flexible enough for it to be more of a negotiation tactic than a trade barrier.
Maybe that’s true. Maybe that’s not. The ball is now in Europe’s and China’s court. We have to see what they say and do.
I think it is absolutely crazy, borderline reckless, to think that this is not a materially bearish risk.
Maybe it doesn’t play out that way. Maybe tit-for-tat trade barriers don’t go up across the globe….
But that’s the risk! That is the downside. It is big and it is reasonable and it must be considered.
What is the upside? How much upside is there?
Investors are supposed to weigh probabilities of outcomes. How the heck can these tariffs not skew things more to the downside? How is this course of action anything but bearish?
Fairness is important. I have no doubt the US is getting the short end of a lot of trade situations. I think we should address those situations. Tariffs are probably not the best way to go however.
Tariffs are certainly not a bullish way to achieve the ultimate goal.
I don’t pretend to know what the most investor-friendly way to get fair trade is. I’m just saying that the investing landscape has changed significantly and the change is not bullish.
Why did the market rally then? Great question. Usually one can see both sides of an uncertain situation. Maybe you personally favor one argument over another but you can see the other side. You can see how the other side has a reasonable case. This one is tough though.
Can you see it? I can’t.
See you tomorrow, nonfarm payrolls will be the catalyst of the morning.