We Know What Trump Is Trying to Do. So What Are You Going to Do?

After my early morning Market Recon column hit publication, China announced that 84% tariffs would be levied on U.S. exports to that nation starting this Thursday. This, of course, came after the U.S. imposed 104% tariffs on Chinese imports overnight. In addition, and also after I wrote that early column, the European Union approved a set of "retaliatory" tariffs on U.S. goods to be implemented on April 15, which is next Tuesday. 

 With 10% tariffs placed on imports from about 180 nations over the weekend, and "reciprocal" tariffs placed in addition on about 80 of those 180 nations just after midnight, President Trump has certainly upended the world economic order. A bevy of trade partners have almost immediately come out of the woodworks, looking to make deals that would reduce the burden of trade to the U.S. Japan, Israel and South Korea immediately come to mind. 

Then there are U.S. neighbors Mexico and Canada that were not part of the "global" round of increased tariffs but had already been tagged. Then there is China. That nation seems more willing to enter into a trade war with the U.S. than it does seem ready to be seen making concessions. 

Markets Have Fallen Out of Bed

Make no mistake. I took my lumps over the past couple of weeks just like everyone else, despite getting completely out of the Magnificent Seven ahead of the late-week selloff last week, and despite getting completely out of semiconductors ahead of that selloff. 

I had gone to 60% bonds and that seemed like a home run for a couple of days. Psst... that move no longer looks like a home run. No place to hide? Literally, though I'm sticking to my bonds for now, ex-junk and I'm sticking with my precious metals. At least they're pretty. Even after narrowing my equity portfolio, a recession sinks all boats, which is a play on an adage that no longer seems to fit these markets. 

Has the president made a huge mistake? Maybe. Is the president far more clever than we realize? Maybe. The problem, for us, is that we who write articles like this and you who read articles like this, are part of the asset-holding class. 

We have, through luck, or skill, or work ethic, found a way to prosper or come close to prospering in the economic environment that developed post-World War II into the post-Cold War era and then into the loose fiscal, and loose monetary environments. This environment permitted us to pull growth forward for ourselves as the federal government, through perverse levels of deficit spending, smoothed over periods of would-be economic contraction, by forcing them down the road and onto our descendants. 

This was certainly an unsustainable model, where this nation borrowed heavily to purchase goods from abroad that we no longer had the ability or wherewithal to produce ourselves. Oh, we did export high technology and some services, but those industries are not nearly as labor intensive as were the ones forfeited.

What the President Trying to Do

Trump has forsaken the donor class and Wall Street, at least for now. But I don't think that's permanent. Tax cuts, hopefully corporate tax cuts and deregulation, are supposedly on the way. 

The president knows who creates jobs and he knows that this trade war, even if it does not force a recession, will create a slowdown and corporate margins will contract. Contracting margins create contracting earnings, contracting earnings create higher unemployment rates. That doesn't do anyone any good. 

Remember, I come from very little. People born into the asset-holding class generally don't enlist in the military at 17. I never met a person who went away to college until I was already working on Wall Street. I still know many people who do not reside close to the top of the food chain. These are the people the president is reaching out to and from what I can tell, anecdotally, he still has their support. 

Will that last through a recession? With a 6% or higher unemployment rate? I have my doubts, but at least we know what the president is trying to do. The method? I am as uncertain as the next trader.

What Do We Do? 

For one, adjust your expectations. This environment, for as long as it lasts, has changed how traders and investors must proceed. 

Know what you are trying to accomplish. A bear market can last days or years. Sometimes lots of years. Remember, I was the only 13-year-old in my class with a trading account. I remember the 1970s. I was the only Marine in my platoon with a trading account. 

I have been doing this in one way or another for almost 50 years, and professionally for almost 40. I have seen ugly. Surviving it is going to require some rewiring. 10% growth in a day is stupid. 15% growth in a year is beyond outstanding in a bear market. Psst: We may already be in a bear market. 

This should have been done already, but if not, narrow your book. Don't try to focus on 30 to 40 positions. I talk about my top-10 or top-15 positions all the time. Maybe, especially if you do something else occupationally and cannot watch the tape like a hawk, 10 to 15 positions are all you can handle. I have less than 20 positions right now, and this is my job. 

Don't forget... nothing without a reason. Be able to explain that reason. Invest at a discount at levels you've identified. Trade off of technical patterns that you trust using pivot points, target prices and panic points. 

Have rules. Remember my 8% rule? Never lose more than 8% on any position unless I'm asleep when it happens. That rule and my panic points saved me from what could have been catastrophic losses last week.

In Case You Missed Market Recon

Take a look at this. You already know that throughout this selloff, we've called a near-perfect game. From the bear flag to the two-day "day one." Those patterns were highly accurate. 

As I wrote to my early readers, it appears that the S&P 500 is trying to build what's known as an "island bottom." This occurs when prices gap lower and then trade sideways for a few sessions. Wednesday morning's action appears to be backing that up. This activity is typically caused by an exhaustion of sellers. We discussed that this morning as well. 

That island is often characterized as a period of elevated trading volume (we have that here). This development does not necessarily indicate a long-term change in trend, though it can. The move higher can be short-term. Keep that in mind, but we may have a trade here.

Bottom Line 

We all get our tails kicked from time to time. Is this time different? It might be. Therefore, we may have to be different. 

That said, there will ultimately be a sunny day. Maybe not for a bit, especially if the economy tanks. That said, we are all going to have to be smart enough to defend ourselves and be set up for that sunny day when it occurs. 

Can you do that? Your loved ones may be depending upon you. If that's not enough motivation, I don't know what is.

At the time of publication, Guilfoyle had no positions in any securities mentioned.