The price of risk assets hit a peak late last year and went into a waterfall decline. People were selling stocks hand over fist as they thought that tariffs were bad and would hammer asset prices.
Some of this was true. Tariffs are a tax, and taxes are bad. If there were ever a statement we could agree with, it would be that taxes are bad. Taxes and other forms of market interventions lead to a misallocation of capital and a potential step change in asset prices. It also causes a bit of turmoil as companies look for creative ways to work their way out of the problem. This is what investors have been grappling with over the past few months.
But there is a larger picture to examine here. The US Government, and by that I mean US taxpayers, has been protecting companies and shipping lanes throughout the world, allowing developing countries to export products to Europe and the US since the end of the Second World War. The US government has given trading advantages to developing countries so they could get back on their feet and become part of global prosperity. On a large scale, this was good from “America.” We have more products and lower prices. But like anything else, good ideas go too far, and the US, and this I mean people in the center of the country, the manufacturing center of the US that have been ravaged by globalization, decided now is the time for a change. This came with a human cost. People lost jobs, houses, spouses, and lives. One should not be surprised that the disenfranchised would fight back. Like to not, for better or worse, this created the Trump phenomenon. Go back and watch old Ophra Winfree and Phil Donohue (on YouTube) shows, and you will see Trump talking about the trade issues that he is addressing today.
We are optimists here at TOE, and we think the US and the world will end up in a better place when this is all over, even if the journey is filled with massive volatility and uncertainty. Today, we saw a step toward an international trading order that, we hope, will benefit all of us. The administrator said that now that the world knows where they stand and how firmly they hold their position, they will give the world 90 days to work respite so that bilateral agreements can be negotiated out and will work for everyone. Investors loved this news.
This news caused a 3,000-point rally in the Down Jones Industrial Average, and we think this move is significant. We think this move removed the short seller and anyone thinking of being a short seller from the market. It also makes investors think that the worst is behind us. That being the case, we think the path of least resistance for the foreseeable, short-term future is for higher prices. Given that view, we think it makes sense to close the short position we have suggested for the past few months. This will put subs in a position to take advantage of the higher prices we expect over the next month or two.
In the spirit of covering our short recommendations, we suggest closing the above trade suggestion. If one is able to do so at the prices indicated, one would crystalize a profit of $5,000. Not a bad day’s work.
