COPIERS AND FOLLOWERS UPDATE
Hi everyone, today is shaping up to be a momentous day in the markets, so I thought I should update you with what is going on and how we are positioned for it.
Volatility has continued unabated, with only once thing on investors’ minds; tariffs. Dubbed “liberation day”, Trump is set to announce broad-based tariffs on imports from every country initially, hoping this will jumpstart a new era for the U.S economy.
The economy has been in focus for a while now, with investors worried about stalling growth and inflation that is proving stickier than expected. Now tariffs are added to the mix, this could add further headwinds to businesses as costs increase and end up further stoking the inflation fire.
The idea of these tariffs is to encourage more products to be made and sold in the U.S, as importing from other countries will become more expensive. However, deeply intrenched supply chains will mean shifting production to the States will not be an instant fix and in the short to medium term could prove to be a mill stone round the States’ neck, especially if tariffs are here to stay.
The best case scenario for markets is that the tariffs announced are lower (prob around 10%) and there was no room for negotiations, so there was some degree of certainty for companies to plan for. A bad scenario and one which markets are more likely to be braced for, is higher tariffs (20%) with no clear outcomes in the short term.
Remember, stock markets hate uncertainty, so the narrative surrounding tariffs appears far more important than the actual tariff percentages themselves. We have already seen this with U.S treasuries which, despite the Fed having cut rates, have continued to fluctuate on the back of economic news.
For our part, should the worst happen and markets receive the news they don’t want to hear, the portfolio should weather the storm reasonably well. Treasuries have been gaining in recent weeks on the back of the gloomy forecasts and now appear to be back in their traditional role of benefitting when stocks suffer declines.
Those of you may have noticed that I sold our position in 10 - 20 year treasuries the other week for a small profit. This cash is now reallocated to our $TLT (iShares 20+ Year Treasury Bond ETF ) position with a hope to benefit if markets receive unfavourable news. This is backed up by stats showing a huge amount of funds flowing into call options for treasuries, so certainly the markets are expecting further gains for treasuries in the next couple of weeks.
Our exposure to the U.K market could also prove prudent during this time. The U.K has a more balanced trade situation with the U.S, as well as a much smaller industrial export market compared to countries such as Germany. It could be that this will be enough for the U.K to avoid the worst of any tariffs, as well as provide some important diversification for the portfolio.
In the meantime, the best thing to do is to strap your seatbelts in and wait for the announcement later today. Trump has scheduled his speech after stock markets close for the day, so I think it is fair to say we should expect volatility whatever the announcement will be. Keep posted and I will update you again when everything looks a little clearer.
Best wishes, Richard.... Show More
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