How to Protect Your Portfolio From the Trump News Cycle
Dear subscriber,
Donald Trump is a hazard for a weekly writer like me.
He causes immense drama on a Friday evening, roils financial markets over the weekend and into Monday, and resolves it all by Tuesday afternoon.
You already know what happened on Wall Street this week. Everyone in North America does. So what's left to say?
I'll recap the recent tariff news a bit, but I want to spend most of today's issue looking further out into the future.
Specifically, I'll discuss what all these Trump news cycles mean for your portfolio... and how you should prepare to invest from here.
As you likely know, over the weekend, Trump signed executive orders instituting 25% tariffs on goods imported from Mexico and Canada and a 10% tariff on those coming from China. The tariffs were set to begin on Tuesday, February 4.
However, once leaders from Mexico and Canada appeared willing to negotiate, Trump hit "pause" and suspended the tariffs on the countries for a month. The tariffs on China did take effect, but those are of less consequence than the 25% tariffs nearly placed on our North American allies.
The tariff announcement on Saturday wasn't a surprise. The market's initial reaction on Monday was a decline... but a muted one.
And if you ask me, the tariffs were unlikely to stick.
When Trump announced the tariffs, he also listed specific grievances, such as illegal immigration and drug smuggling. That seemed like he was laying out a clear path for Mexico and Canada to play ball and get back on his good side... without giving up too much in return.
I can think of two reasons Trump would do this.
First, Trump made a lot of promises about tariffs on the campaign trail. He was always light on specifics of how big the tariffs would be and what goods or countries they would hit.
Occasionally, he'd let it slip that he would use tariffs as a way to improve his bargaining power on other issues.
Tariffs are bad economics. They can lead to a tit-for-tat trade war and hurt domestic consumers. And Trump may be OK with that in the short term. The president and his policymakers may eventually decide that the national- and border-security benefits are worth the economic risk.
It's also possible that more traditional economic thinkers, like Treasury Secretary Scott Bessent, convinced Trump that tariffs would be harmful. So Trump made a lot of noise and gave our trading partners an easy out.
Either way, he gets to claim that he fulfilled his campaign promise and got other countries to cave to his demands.
That's just politics. And these kinds of maneuvers are something many of our elected leaders do. Trump just happens to do them in a louder, more disruptive way... one that plays out in financial markets and breaking-news headlines, rather than in the overlooked negotiations at a G7 meeting.
The second reason, and slightly darker interpretation, would be that Trump wants to appear "crazy."
This is called the "madman" theory. The term was coined by President Richard Nixon, though the idea can be traced all the way back to political theorist Niccolo Machiavelli.
Essentially, in international relations, you have to appear crazy and highly volatile... willing to do anything. This instills fear in your enemies and gives you bargaining power.
There have been clear signs that Trump has followed the madman theory over the years...
Way back in 2015, referencing a quote from one businessman, he said, "There's a certain unpredictability about Trump that's great."
Later on in his 2016 campaign, he said, "We must as a nation be more unpredictable."
And just look at his comments about purchasing Greenland and taking over the Gaza Strip.
I'll admit, I don't know if the madman theory works or if it's particularly wise... You can decide that for yourself.
But it isn't fun to watch from a financial-markets perspective, as it makes for a whole lot of volatility.
That said, if the madman theory is true and Trump is using it as a negotiating tactic today, long-term investors should buckle up and avoid the news.
My role at Stansberry Research is to find the stocks of high-quality businesses for long-term investment.
That's what I do.
I've never been a day trader. If you want to trade through this administration, you'll probably find lots of opportunity.
That's because traders thrive on volatility. They turn the unexpected into profits. Our in-house trading expert Greg Diamond lamented the lack of volatility in 2024, and he's very excited for what's ahead in 2025.
For long-term investors, it may be time to slow down your news consumption.
Nothing Trump did this week will affect the underlying businesses of our favorite stocks. Alphabet (GOOGL) will still sell ads. AutoZone (AZO) will still sell auto parts. Stock exchanges (which we love in our flagship monthly newsletter Stansberry's Investment Advisory) will still facilitate trades. (In fact, the volatility helps them.)
If evidence for the madman theory piles up, investors should breathe easy, since it's all a bit of a show.
But if some of these ideas that have proved disruptive to financial markets do start to stick, we'll have to watch our portfolios a little closer... for opportunities and risks.
What Our Experts Are Reading and Sharing...
We haven't gone into much detail about the actual tariffs imposed on China, but the market's reaction remains muted. China turned around and said it'll impose tariffs on oil, coal, gas, cars, and farm equipment. It's a retaliation, but a measured one. And to me, it signals that they're keeping the door open to negotiations. Here's more from Reuters.
"Imagine a town that tries to protect itself from competitors. Rather than freely trade with the shoe shop in a nearby-town, it demands a pay-off... It makes the same proposition to the car dealer in the next town over... and with the newspaper in the state capital. What do you think? Does this town get rich... or does it become a joke?" That's from brilliant essayist and longtime friend Bill Bonner at Bonner Private Research. As he explains in a recent newsletter, in his typical no-nonsense style, tariffs are a "lose-lose" deal.
Here's a fun (for me, at least) political-science paper out of Penn State University. Professor Roseanne McManus proposes four types of madness... and suggests the madman theory works best if a leader's madness grows from "extreme preferences," rather than being completely irrational.
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Until next week,
Matt Weinschenk
Director of Research
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