You know the basics: Last week President Trump proclaimed something called "Liberation Day." He then way over-fulfilled his campaign promises and whacked the entire world with tariffs (even on islands with only flocks of penguins), and markets fell off a cliff.
Indeed, if there's one thing about Donald Trump, it's his unsubtle approach. He speaks bluntly and this triggers some people. In this case, people across the globe saw the tariff rates and hit the sell-button.
Right now, pretty much everything is down. All the highflyers, plus the medium flyers, low flyers, tech, biotech, retail, autos, airlines, oil, gold, silver, copper, and you name it. So, it's fair to ask what gives? What's happening? Where do we go from here? Let's dissect this beast...
First, though, a sincere welcome to new readers. That is, we recently conducted a marketing push here at Paradigm Press Group, and it's been successful. We presented our case in terms of how we at Paradigm can help you navigate the rocks and shoals of the current economy, especially with what's happening in politics at home and abroad. We want to help you preserve your wealth and build gains as the future unfolds.
If you're new to the franchise you should know that we don't take advertising money from third parties, which allows us to be independent in terms of commentary and analysis. We don't give personal financial advice; but in another sense our client really is you, the subscriber. Our goal is to give you the straight scoop, as best we can discern amidst the fog of war, financial and otherwise.
Also for new readers, I'm Byron King, a long-time geologist. I cover energy, mining, materials and related technology. It helps that I'm also a retired officer of the U.S. Navy, with 30 years of service, active and reserve. In this sense, I keep an oar in the water, so to speak, of military developments.
I mention all of this because this week I'm attending a major defense conference - as in, huge! - just outside of Washington, D.C. at the Gaylord Center in Maryland; it's just south of the Beltway, along the Potomac River. The event is Navy-themed, plus Marine Corps and Coast Guard. It's sponsored by the U.S. Navy League and called Sea-Air-Space. More on that in a moment, but for now let's dive into Trump, tariffs, international trade, the stock market, and then national security...
Last Wednesday afternoon, President Trump announced tariffs against pretty much everybody. No need to restate the details. Bang-bang, the hammer dropped.
Instantly, markets sold off across the world. Down they went. And two days later, by Friday afternoon, U.S. markets were down over $6 trillion, per the Wall Street Journal. And then down even more on Monday of this week (aka yesterday).
Was this a classic market crash? Well, that's not a term I'm ready to use just now. Instead, I call the past few days a liquidity event.
That is, markets were allegedly "priced for perfection," as the saying goes. But apparently, Trump tapped the system with a tariff hammer and parts of it cracked wide open. As the man in the classic, Eddie Murphy movie Trading Placesonce said, "Sell, Mortimer! Sell!"
Selling led to more selling, which quickly led to massive margin calls. And when the phone rings, people sell what they can unload quickly, to raise cash. In this respect, share prices can easily fall hard until they find a bid, and there's nothing orderly about it.
But again, this was the margin call phase of sell-sell-sell. Even shiny, monetary metals like gold and silver dropped, mainly because sellers at the margin unloaded and these elements always have buyers somewhere (think China or India, if nowhere else). Indeed, when gold and silver drop fast in a market tumble, they're also among the first to rebound in the aftermath.
At this point, it's worth asking what's the story of this wonderful market, if it can lose over $6 trillion in two days? Or stated another way, why were so many people surprised that Trump imposed tariffs? He campaigned on the tariff topic all through 2024. He praised tariffs in general and modeled his thinking after no less than President William McKinley, in office 1897 - 1901.
And yet... People across the planet apparently failed to anticipate Trump's tariffs. Did everybody really think he was just kidding around? Again, what is going on with this market unwind?
Okay, try this: Perhaps something else is driving events. As in, perhaps that lofty, ethereal-level, pre-tariff collective market cap was never a valid measure of actual value in the first place. At the very least, there's no denying that, pre-tariffs, the market was frothy. Some might say that the market was a large, overinflated bubble, awaiting some mechanism for it to pop.
At root, we have many years of massive U.S. government deficit spending. Begin with the Niagara of cash that flowed out of Washington after the Crash of 2008 and continued in one manner or another for the past 17 years. Think of a decade of near-zero interest rates, coupled with the "quantitative easing" of the Fed, which funded multi-trillion-dollar deficits and pumped the economy with monetary steroids.
In so many ways, the past nearly two decades have been deeply rooted in excessive government spending, whether for wars in the Middle East or Ukraine, or bizarre outlays like we've recently seen from, say USAID, or gigantic Covid spending, or Biden's "green" dreams of decarbonizing the economy, or just the normal flow of funds out the door for Social Security, Medicare and Medicaid.
Make whatever judgments you wish about the inherent value of each dollar of past government spending. The nation's books never balanced and the overall result was a flood of vaporware currency into the economy. That is, cataracts of excess liquidity poured into an economy that lacked the productive capacity to absorb it all, except via the pathway of inflation.
Over many years, we've endured inflation in terms of a general increase in the cost of living for things like groceries, motor fuel, new or used cars, tuition for schools, insurance premiums, and much more. And then there was asset inflation in terms of rising housing costs, and of course the multi-trillion valuation additions to at least a select few names in the stock market.
Along these last lines, consider companies like Nvidia, Apple or Tesla; they began the year with market caps in the trillions. And in a matter of a few weeks, if not days, all endured declines in the high hundreds of billions, if not trillions.
Looking back, were these multi-trillion-dollar plays worth what the market indicated? C'mon, seriously? Or perhaps, was there always something wrong with the psychology of a market that bid these names - and others, yes - up to such lofty levels in the first place.
Whatever you might think along these lines, the fact is that along came Trump, the triggerman, who said all along what he was planning to do.
Aside from those huge stock market names I just mentioned, consider other well-known companies that also got whacked big time in the past week: Wayfair, Home Depot, Target, Gap, Dick's Sporting Goods, and many others.
What's their business model? In essence, it's to produce or procure things overseas in low-wage jurisdictions, then ship them to U.S. ports on container ships, and distribute and sell this stuff at U.S. level price points. In other words, these are glorified logistics plays that profit from cross-docking freight from the developing world to developed lands like the U.S.
But when Trump announced tariffs on foreign goods, it immediately became crystal clear that the formerly sweet markup for the cross-docking was about to vanish. And the share price of these organizations rebooted to a much lower valuation.
Is this the end of three decades of post-Cold War globalization? We'll see because, frankly, nobody knows what Trump might do next.
Meanwhile, let's fold in another critical issue, namely that the U.S. has deindustrialized to a dangerous degree. We saw it clearly during Covid, when it became appallingly evident that the U.S. doesn't manufacture almost any of its daily needs for medical equipment or pharmaceuticals.
Plus, the point about deindustrialization was further driven home over the past three years of war in Ukraine. That is, it dawned on many serious people that the U.S. lacks many deep capabilities to produce military goods in quantity, items that range from ammunition and missiles to the glacially slow pace to build submarines, ships, aircraft and more.
And again, Trump campaigned hard on the idea of reindustrializing America; to "bring those jobs back" across the land, he said. People write books on things like this, but that's not my goal here and now.
Let's finish up with my attendance at the Sea-Air-Space conference in Gaylord, Maryland. Inside a massive convention center are hundreds of exhibitors that sell to the military market. Sure, the usual names are here like Boeing, Raytheon, Northrop Grumman, Lockheed, General Dynamics, Huntington Ingalls. These, and many more.
Then again, for all the names and exhibit booths, it's fair to say that America's military-industrial base is thin. Shipbuilders, aircraft makers, electronics producers, ammunition manufacturers and more all have problems with their supply chains and an aging labor force. There's not enough Navy to meet the demands of political tasking, and there's not enough industry to build a bigger Navy.
For example, only one company in the U.S. manufactures basic anchor chain; yes, like anchor chain for large ships. And this firm only remains in business due to "buy American" regulations that cover military procurement. Otherwise, the Navy would be buying chain from South Korea if not China.
Meanwhile, many critical systems rely on supply chains that originate in China, Russia, and other parts of the world that are not exactly friendly to the U.S.
For example, metals and materials like titanium, tungsten, antimony, bismuth, gallium, graphite and more are predominantly produced at origin in China; often with Russia in the global number-two slot, and in the case of some materials even North Korea. You see the problem here, right?
And along comes Trump, whose overarching goal is to reindustrialize the country to whatever extent is possible, definitely in the realm of national security. He wants mines, mills, refineries, and factories. And he's willing to impose tariffs as a form of shock therapy to the economy.
So here we are, shaking off the dust of the tariff sell-down. And what does the future hold? Here are a few points to ponder:
First, Trump will likely keep tariffs in effect. He might nibble around the margins and do some of his famous "deals." But he's not going to fold fast.
Second, the market sell-down is still a liquidity event. Things will settle out, likely fairly soon. Then it's a buyer's market, but avoid companies whose business model is at cross purposes with Trump's goal to reindustrialize the country.
Third, basic resource plays in the U.S. have plenty of fairway ahead. Trump will eliminate overregulation and expedite permitting. He wants to see new projects, certainly for items that contribute to national security, as well as energy to keep the national machinery humming.
Finally, and again, thank you for subscribing and reading. We here at Paradigm Press Group spend our time and energy working to figure out what's going on out in the wide world, and we then look for ways to help you preserve wealth and grow your nest egg over the years. We appreciate having you on the customer list.
The Daily Reckoning