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What Is The Tariff Strategy?

The markets have been waiting for Liberation Day. Now it has arrived, what does it mean?

President Trump said the ‘reciprocal’ tariffs would be 50% of the rate charged to the U.S. The method used by the administration is:

There are two problems with this:

• It is cumulative, so the reciprocal rate is stacked on tariffs already levied, e.g. add the reciprocal tariff of 34% to the existing 20% tariff on China, taking the total tariff to 54%
• It is not clear how or when this tariff will roll-off

The upside is that this is probably the worst case, so things can only get better from here, and at least we have some certainty now…

What’s The Plan?

Here’s an overview of what Trump is trying to accomplish with his tariff strategy:

The strategy intends to shift the dots toward the reciprocity line. The historical quid pro for this asymmetry has been that the U.S. should receive support from the U.N. votes.
This has not worked out so well: most of the beneficiaries of the asymmetrical trade balance with the U.S. have voted with the U.S. less than 50% of the time.

The plan is to take tariffs back to pre-1950 levels - even if it means inflation.

But, the plan is not working…yet:

• Inflation is not under control

• And new business orders and small business capex plans are trending in the wrong direction:

Our post-WWII, post-Bretton Woods deal with the rest of the world is that we buy everyone’s ‘stuff’—which drives the trade deficits—and we ‘export’ premium-priced financial assets such as stocks and bonds.

If this deal is going to change—and President Trump wants it to change—then there will be outflows from stocks and bonds. This is one reason the financial markets are freaking out.

According to Treasury Secretary Scott Bessent, the administration is attempting to significantly reset the economy, but for Main Street, not Wall Street, which is designed to set the U.S. on a much stronger footing.

In the short term, however, the impact on the investment landscape is volatile.

Here are a few screenshots before during and after the tariff announcements:

Before the announcement

SQQQ, the 3x leveraged bet on the NASDAQ going down was down on the day.

After the announcement

SQQQ turned around in the aftermarket yesterday and is now up nearly 14% Thursday afternoon.

I’m Not Smart Enough to Trade This Market - Your Mileage May Differ

Navigating this chaotic market is very hard. The long-term policy post-reset may be a good one, but getting there is like threading the eye of a tiny needle. You have to have great eyes or great trading tools.

The chart above is crazy.

• It shows the NASDAQ 100 index and the 3x leveraged inverse ETF SQQQ, which bets on the NDX going down.
• The bar at the bottom indicates Relative Strength Index (RSI) divergence. RSI is an indicator of momentum based on price changes in the last 14 days.
• The RSI divergence measures divergence from that momentum. Divergence indicates possible reversals of momentum.
• Look at the number of bull and bear divergences in the last five days!

Pro Tip: Stay on the sidelines when the market is like this to avoid getting hurt. Bets in either direction could be terribly wrong…or terribly right.

Tools You Can Use If You’re Not a Day Trader

There are two pattern indicators I like over longer cycles:.

• Kondratieff Wave
• Elliot Wave

Here is a quick compare and contrast:

• Kondratieff is a tool for understanding which market season we are in.
• Elliot is a way to understand how prices behave within that season.

• he chart above shows the gold price over the last five years with Elliot waves plotted.
• A quick summary is that a typical wave cycle involves five impulse waves up or down. You can see those waves on the left in 2020 and right since 2024.
• There don’t seem to have been many seasons for gold over the last five years: what climate alarmists would describe as a strong secular warming trend!
• The fifth wave signals the end of a cycle, where gold seems to be at the moment.

• The chart for Bitcoin over a similar period shows many more seasons and waves. The fifth wave occurred at $108,000, followed by a strong movement down, after which it has been range-bound between $80,000 and $90,000.3

Pro Tip: Now might be a good time to realize some gains in gold in anticipation of a possible downward wave—a sell signal, but not all of your position.

Bitcoin is a definite hold at this point. You were wise to sell above $100,000 or even in the 90s, but now, within the $80,000-$90,000 range, no strong trend is visible.

What Is The Genius Act?

• It stands for Guiding and Establishing National Innovation for U.S. Stablecoins. Huh?
• The legislation is designed to create a sound regulatory framework for stablecoins.
• Stablecoins are a convenient way to trade in and out of Bitcoin—or any cryptocurrency—without converting funds back into fiat currency via traditional banking systems.
• It sounds boring, but moving cash around into and out of the banking system takes time. With stablecoins, it’s more or less instantaneous.
• Stablecoins need to be backed by undoubted collateral, usually T-bills, to make people feel secure doing this.
• Tether is the most well-known stablecoin

• Tether’s margins exploded since T-Bills started earning 4%+ interest. They hold T-Bills to back the stablecoins and pay no interest, so…$144 billion of market cap at 4% interest margin…

A cynic might say that regulation is about allowing banks to enter this very lucrative business. Here’s the legislative language.

To qualify as a permitted payment stablecoin issuers, a person would have to incorporate in the US and then be either:

• A federal qualified nonbank payment stablecoin issuer that have been approved by the Office of the Comptroller of the Currency (OCC) pursuant to terms set forth in the Act.
• A subsidiary of an insured depository institution that has been approved by the depository institution’s primary federal regulator (e.g., the Board of Governors of the Federal Reserve System (“Federal Reserve”) for state member banks) pursuant to terms set forth in the Act.
• A state qualified payment stablecoin issuer that have been approved by a state payment stablecoin regulator.

Here’s how vital Tether is…and how important stablecoins are about to become.

Takeaway: This is how the government finds another buyer for all the T-bills it needs to issue after it tells China to take back all its surplus capital.

In The Markets

I snapped this image around midday Wednesday, four hours before the formal Whitehouse announcement of tariffs. It captures the mood perfectly.

• Volatility is up over 28%
• Major indices are sharply down by 3.5-4.5%
• Precious metals have had a more volatile week, especially silver, down nearly 6%
• BTC has traded relatively better than the stock indices, and credit spreads have tightened a bit

Markets are in the process of repricing earnings to reflect the impact of tariffs. This is going to take a while.

What’s Next/What To Follow?

If you have so far buried your head in the sand on robots, it might be time to start paying attention, because

This excellent piece by The Oregon Group provides a crash course with charts. It’s worth a click.

The Oregon Group

Where will the metals for the robot revolution come from?

🚀 Please smash the ♡ button, subscribe for the banter ✓ and share with friends and colleagues. We are always grateful for your comments and support.Thank you for reading The Oregon Group. Subscribe for free to receive new posts and support our work…

Read more

2 months ago · 34 likes · The Oregon Group

I watch this four-minute pre-market heads-up by Lance Roberts every morning —this one was Thursday morning. It’s worth a look.

Lance Roberts

4-3-25 EMERGENCY UPDATE: Tariff Terror

The U.S. Tariff Rate just increased dramatically; this is the worst-case scenario. The new tariffs are stacked on top of previously-existing tariffs. These will have to be dealt with by both manufacturers and consumers: The question is whether or not the cost of the tariffs can be passed on to the consumer. This WILL drastically change companies' forwar…

Listen now

2 months ago · 5 likes · Lance Roberts

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