Trump-o-nomics: Everything You Need to Know
Dear Wealth Watch Reader,
Tariff and trade war chatter has hijacked headlines for days, keeping stocks in turbulence.
Today I examine what Trump’s true plans behind the tariff talk could be. Then break down how gold may be your best bet to weather what happens next.
Read on below…
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Trump Tariffs Part II… and What to Do!
Since it’s about the only thing the financial media are obsessing about right now, here are a few more words about the possibility of an escalating trade war thanks to the Trump tariffs on imported aluminum and steel.
First, I’ve seen many commentators wondering aloud if this is the start of a trade war with China. Of which could have grave implications for the global economy.
I don’t think this is likely.
As I said in my last article, it seems more likely that Trump is using this as a bargaining chip to get stalled NAFTA negotiations moving again.
After all, these tariffs take direct aim not at China but at Canada and Mexico — our two largest trading partners.
Canada is by far the No. 1 exporter of steel to the U.S.
Mexico is fourth on the list, sending about 75% of its output north of the border.
Two other nations would also be impacted in a big way: Brazil, the No. 2 supplier, and South Korea, the No. 3 supplier.
China isn’t even in the top 10 on the list.
That’s why this isn’t really about “risk to American national security” from cheap Chinese exports.
It’s all about NAFTA.
However, the Trump tariffs still represent a clear and present danger to the U.S. economy, not to mention the stock market.
The sad truth is there is not much for America to gain and a lot to lose.
Consider that domestic steel and aluminum producers employ about 200,000 workers today, compared with an estimated 6.5 million jobs in industries that use these metals.
There are more U.S. jobs at risk in everything from aviation and autos to soda and beer cans!
Analysts at Goldman Sachs conclude that the Trump tariffs could be just the opening move of a larger plan for the U.S. to exit NAFTA altogether.
Goldman warns that it could be a drag on the economy, leading to a weaker dollar and higher inflation and possibly triggering a steeper stock market correction.
If there’s one thing that’s certain, it’s that market volatility is back and here to stay.
In fact, since Jan. 26, the stock market peak, we’ve had 16 trading sessions with gains or losses of over 1% for the S&P.
That’s twice as many 1% swings as all of last year. Since then, average daily price swings in stocks have been plus or minus 1.2%, compared with just plus or minus 0.3% in 2017!
Trade friction leads to volatility and higher inflation, which are inevitably passed on to consumers.
So what can you do to cope with trade uncertainties and protect yourself from more turbulent markets?
Gold is a great hedge against volatility and inflation, as you can see in the chart below:
Based on data from the World Gold Council, annual returns for gold were about 15% per year on average when inflation was rising more than 3% year over year.
That’s a much higher return than when inflation is at or below 3%. During such periods gold gains were 5% annually on average.
And guess what?
Inflation today is hovering right at the 3% borderline.
Growing trade tensions could easily push inflation higher still.
If so, one investment to consider as a hedge against inflation and uncertainty is the SPDR Gold Shares ETF (GLD).
It’ll offer a steady stream of income and provide a nice buffer from the market turbulence we’re currently seeing.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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