As timing would have it, I was interviewed by Jim Goddard of HoweStreet.com on Tariff Thursday. In terms of the impact for markets, I made three points. First, August is probably the worst month for liquidity so dropping this bombshell on the first of the month is setting the stage for a summer rollercoaster ride.
Secondly, this is good news for gold because on Wednesday Fed Chairman Powell indicated that more trade uncertainty could be something that triggers more rate cuts. We clearly didn't have to wait very long for Donald Trump to whip up more trade risk. Say what you want about the American President, he certainly knows how to deliver surprises and tension. Moreover, most large institutional funds are not involved with gold in a meaningful way, but the career risk will rise for those portfolio managers who do not hold gold or gold stocks.
Third, I suggest that there is too much complacency among US stock market investors that a China-US trade deal is going to be made. At this point, I advocate that the base case will be for the Chinese to take the tariff pain being threatened by the Trump administration and see how the US side reacts to the pain that Americans will feel from the move. If events evolve in this manner, US stock market valuations will need to adjust for heightened risk.
Finally, I explain that we will be focusing on the direction of crude oil which was in the process of recovering before Thursday. If it bounces back from yesterday's swoon, it could suggest that the global economy may be able to withstand the latest tariff tiff. As we have pointed out to subscribers over the past month, we will be paying attention to Canadian Western Bank (CWB) which moved above $30 on Wednesday. However, the breakout stopped dead in its tracks yesterday and so far, today it continues to head lower.
Listen to the interview above or on https://www.HoweStreet.com.