Cash Is King (Until Proven Otherwise)
Here's why I'm not looking back at stale economic data but forward to 'Liberation Day' and what I see as the worst and ... best? ... case scenarios.
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I am paying little attention to any economic data. Economic data is always backward looking, but as the global economic landscape shifts, it is almost irrelevant what the data “used” to be.
For me, it almost all comes down to “Liberation Day."
We were all waiting for Liberation Day, yet, the administration couldn’t help but slap 25% tariffs on autos last week (I don’t know when they will take effect, if they will take effect, but I’m not sure that matters any longer).
In the worst case: We get big tariffs and no major deals. The market continues to weaken on uncertainty as it is virtually impossible to figure out the impact (with all due respect to the administration, that goes for them as well).
In the best case: We get delayed tariffs and some deals -- with promises of negotiation. Off to the races? Not so fast! The changes have come so quickly that some form of appeasement is likely to be offered, but that is only to stem the bleeding from other countries as they figure out what to do with their economies “knowing” that the U.S. has gotten extremely “tricky” to deal with.
There is little evidence of a plan on tariffs coordinated to maximize the benefits (USDA forced to help farmers due to rising costs, due to tariffs, as just one example, with questions about where do the refineries that rely on heavy crude get their input with tariffs on Canada and Venezuela?)
Will countries “cherry pick” where they give and where they don’t budge? Presumably every country has done the work to figure out what tariffs can be shifted with minimal impact to their economy. In “normal” times, the U.S. would have done that, but I see little evidence of that having occurred, and given the scope and speed of the tariff wars, question if it could have been done.
Corporations, who may normally have a seat at the table, are not able to offer any negative input to the process. There are signs that the admin doesn’t like dissent (and may even punish for dissent) so the corporations who might know best what could help manufacturing here, while minimizing costs and profit issues, have a very small voice, if any.
That is all occurring while DOGE continues to “disrupt” in an economy that was already weakening. I applaud the idea of reducing or even eliminating government waste, but I’m not sure that DOGE is doing it effectively yet and may be causing a lot of harm to morale and expectations – not just within the government but those who service the government.
The Bottom Line
I do not believe there is a "Trump Put" – as he understands that for his policies to achieve his goals, there will be pain first (I don’t think the policies will achieve their goals, but so long as the admin thinks they will, expect more pain for markets).
While there might be a Fed put, I’m not sure it will be that effective relative to the power of tariffs and global trade disruptions.
I do not like risk assets here. Maybe the world outperforms the U.S. but I see it occurring in a world where stocks continue their downside slide.
Bonds can do well here as “risk off,” but even then, be careful at the long end, as credit spreads are a risk and I’m not sure that we won’t see foreign selling of Treasuries.
I am in the cash-in-king mode -- as much as I ever -- until the administration takes a meaningful turn in direction (or I’m proven wrong on my outlook on the global economy).
