I feel the markets might have put in highs for the year.
Markets don't like tariffs, especially when they could be symmetrical.
Trump's just announced 25% on iron an aluminium, "to level up the playing field".
It's the purchaser in the US who pays that tariff, so
will suppliers eat the tariff i.e. lower their sale price?
No, they will get together and find a counter tariff or quota.
Will the American companies buying iron and steel for their products, such as construction companies, "eat" their profit i e absorb the tariff?
Maybe they'll have to
Or will they pass the profit on to end-users, the consumers, the americans who consume their products?
Quite possibly, and this would be inflationary.
Trump has explained his idea, that in the medium term at least, the companies producing abroad will onshore,
but there's no "system test environment" in which to trial his ideas
and in production, there are so many moving parts that one slip and everything could easily go belly up.
It is this uncertainty, added to
- debt levels approaching and above one hundred percent of GDP that risk crashing the currency or the economy
- Growing threats of communitarianism, which means instead of integrating in a pluralist society, we have groups that are splitting and dogmatically taking positions against other groups, and
- the extremely serious global geopolitical risks.
These are the three fundamental risks, to which we now add
- a tariff war,
that are driving the price of gold.
I don't think that countries that are in a balance of payment surplus feel very confident putting their money into dollars any more.
They need to keep some dollars in a reserve account for foreign trade, which is still largely in dollars.
But a country like China is just going to put its trillion dollar profit from last year into its belt and road initiative (BRI) in the form of loans to participating countries.
And these surplus countries will just further stock up on gold.
And incidentally, they will drain the London bullion vaults, arrange for their goal to be repatriated, for fear that it's all paper, that it have disappeared!!!
"It's only when the tide goes out, as Warren Buffet said, that you see those who are swimming naked."
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Keep it clean, keep it lean