The markets are expected to open to indiscriminate selling today as they continue to react to the Trump tariffs. We’ll provide frequent market analysis and news content on our WhatsApp channel throughout this period of volatility, so please subscribe if you haven’t.
Today’s post is about explaining how to think about this current market, and we’ll do it in 3 parts:
Part 1: What’s Happening?
The U.S. government levied very heavy tariffs on almost every country in the world. China, for instance, was slapped with a combined 54% tariff increase. Last Thursday and Friday, more than 6 trillion dollars was wiped out from the U.S. markets in response.
Why?
Because tariffs are ancient Latin for taxes. This means that companies will either have pass the extra cost on to the customers or absorb the cost for the customers. Neither option is good for the bottom line, and both of them are great ways to destroy an economy. Here’s a very nuanced explanation of the severity of the situation from Singapore’s Prime Minister Lawrence Wong.
Part 2: What Will Happen?
There are different perspectives in the market, and we’ll explore some of them
- A negotiating tactic: Some investors believe that in the near future, the Trump administration will either announce a pause or cancellation of the tariffs altogether because there is just too much at stake here.
- Tariffs are here to stay: One problem with the previous view is that the Trump administration was very adamant over the weekend that this is not a negotiating tactic and these tariffs aren’t going anywhere any time soon. A second problem of viewing this as a negotiating tactic is that it has done significant damage to American companies’ abilities to sell outside the U.S. No one can quite understand why the U.S. has gone on this war path so even if the tariffs were removed, do people in Berlin and Toronto still want to wear Nikes?
- Capitalist pressure will prevail: The world’s richest people have unprecedented access to an American president, and they have lost half a trillion dollars since Wednesday. Surely they will try to persuade him that his point has been made and the time has come for him to dial it back?
- Tax breaks and the Fed are coming: The final school of thought is that palliatives in the form of an emergency federal reserve rate cut and a future tax break on the wealthy and corporations will soften the blow of the tariffs.
- Donald Trump Off-ramp: Donald Trump will randomly change his mind after seeing the amount of destruction it’s caused.
Part 3: What can I do?
- Keep Calm and do nothing: Do not decide to buy, sell or hold from any place of anxiety. It’s easier said than done, so maybe you need to delete your Bamboo app for a few weeks. You want to avoid a situation where you sell today and Trump announces a reversal tomorrow morning if you have a long-term time horizon. If the time horizon for some of your investments is coming due, then maybe it might be right to take some things off the table.
- Invest in Vix Volatility ETFs: These ETFs track the Vix volatility index that rises when there’s a lot of selling in the market. Some examples are Proshares Ultra VIX Short Term Futures ETFs (UVXY), which is up 62% in the past week, or VIX Short Term Futures ProShares ETF (VIXY), which is up 41.4% in the past week.
- Invest in Inverse ETFs: These ETFs go up when the market goes down. The ProShares UltraPro Short QQQ (SQQQ) is a good example, and it is up 30.6% in the past week.
- Invest in Fixed Income: In times of volatility, fixed income investments act as a haven. You can try Fixed Returns (up to 8% USD), Treasury Bills (up to 22%) and Naira Savings (up to 18%).
We’ll see you on the Bamboo WhatsApp channel shortly.
