President Trump Rocks the Markets
Move over, Jerome Powell... President Trump rocks the markets... Prepare for more 'trade war' turmoil... A huge day for gold stocks... What to do if you missed this week's special gold stock event...
Today was supposed to be all about the Federal Reserve...
That's because Fed Chairman Jerome Powell was scheduled to give a widely anticipated speech at the central bank's annual symposium in Jackson Hole, Wyoming (more on this in a moment).
However, as has been the case all too often this year, today's market action revolved around President Donald Trump's Twitter account instead.
You see, a few hours before Powell was set to take the podium, China made an unexpected statement of its own...
In response to the latest round of tariffs announced by the White House earlier this month, China said it would be enacting new tariffs, too. As Bloomberg reported...
China threatened to impose additional tariffs on $75 billion of American goods including soybeans, automobiles and oil, in retaliation for President Donald Trump's latest planned levies...
Some of the countermeasures will take effect starting September 1, while the rest will come into effect from December 15, according to the announcement Friday from the Finance Ministry. This mirrors the timetable the U.S. has laid out for 10% tariffs on nearly $300 billion of Chinese shipments.
An extra 5% tariff will be put on American soybeans and crude-oil imports starting next month. The resumption of a suspended extra 25% duty on U.S. cars will resume December 15, with another 10% on top for some vehicles. With existing general duties on autos taken into account, the total tariff charged on U.S. made cars would be as high as 50%.
This news alone likely would have been enough to upset President Trump...
However, it was also followed by a less than "dovish" speech from Powell.
In short, while Powell did suggest that the Fed would provide more stimulus if the global economy continued to slow, he once again stopped short of signaling the start of a new rate-cutting cycle. He also used the opportunity to take a jab at the president's trade policy. From his speech...
In principle, anything that affects the outlook for employment and inflation could also affect the appropriate stance of monetary policy, and that could include uncertainty about trade policy. There are, however, no recent precedents to guide any policy response to the current situation.
Moreover, while monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade.
When it comes to monetary policy speeches, that's about as close to 'fighting words' as you're likely to see...
And President Trump was clearly not amused. He unloaded a barrage of angry tweets aimed at both the Fed and the Chinese government.
For the sake of space, we've compiled the text below and formatted out the breaks that are required by Twitter's character limitations...
As usual, the Fed did NOTHING! It is incredible that they can "speak" without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work "brilliantly" with both, and the U.S. will do great.
My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?
Our Country has lost, stupidly, Trillions of Dollars with China over many years. They have stolen our Intellectual Property at a rate of Hundreds of Billions of Dollars a year, & they want to continue. I won't let that happen!
We don't need China and, frankly, would be far better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA. I will be responding to China's Tariffs this afternoon. This is a GREAT opportunity for the United States.
The markets reacted immediately...
Stocks plunged... "Safe haven" U.S. Treasury bonds rallied... And both gold and gold stocks rocketed higher. And for good reason...
In the span of two minutes, the president's "tweet storm" all but guaranteed further escalation in the ongoing trade war. And it dramatically reduced the chances of an amicable resolution anytime soon.
It also means the Fed may be less willing to cut interest rates again when it meets in September.
Remember, the Fed seeks to maintain the appearance of political neutrality. If Powell cuts now, he'll likely be accused of kowtowing to the president.
So while we continue to believe the Fed will cut rates further in the months ahead, we suspect it may now delay its next move as long as possible.
President Trump said he would respond to China's latest announcement this afternoon...
As we write, all three major U.S. market indexes are down more than 2%, and trading near the lows of the day. Gold is up nearly 2%. And gold stocks – as tracked by the VanEck Vectors Gold Miners Fund (GDX) – have rallied more than 4%.
Both gold and gold stocks are quickly closing in on new multiyear highs.
So unless the president has a sudden change of heart, we fear this afternoon's announcement may only add fuel to the fire.
If you've not yet taken our advice to hold some extra cash and a reasonable allocation of gold and gold stocks... what are you waiting for?
We'll also remind you that if you're looking for more guidance on gold (and silver) stocks, there's no better resource than our newest colleague...
As you've certainly heard by now, legendary gold stock analyst John Doody has officially joined the Stansberry Research team.
During a special event on Wednesday night, John shared his latest thoughts on the precious metals markets... including how his unique gold stock strategy could help you make hundreds of percent gains in the months ahead.
If you weren't able to join us, it's not too late... You can still watch a replay of this special event for the next few days. Click here to see it now.
New 52-week highs (as of 8/22/19): Axis Capital (AXS), Blackstone (BX), Equinox Gold (EQXFD), Barrick Gold (GOLD), Home Depot (HD), iShares U.S. Aerospace and Defense Fund (ITA), iShares U.S. Home Construction Fund (ITB), Leagold Mining (LMCNF), Lockheed Martin (LMT), Medtronic (MDT), MarketAxess (MKTX), NVR (NVR), PNC – Series P (PNC-PP), Polymetal (LSE: POLY), Sabina Gold & Silver (SGSVF), AT&T (T), Belo Sun Mining (VNNHF), and Vanguard Real Estate Index Fund (VNQ).
In today's mailbag: One reader has a worry about gold, while a second shares the "real reason" for the Federal Reserve's recent rate cut. As always, send your comments and general questions to feedback@stansberryresearch.com.
"I agree that this is a time for owning gold, but my problem with buying physical gold is that if you have to cash some of it for an emergency, it will be hard to do it and you will probably have to sell it at a discount. What is your answer to that problem?" – Paid-up subscriber Antonio R.
Brill comment: That's simple... Hold some cash for emergencies, too.
"Why did the Fed lower interest rates? I put this out there for you to think about. If inflation is soaring, then they raise the rates to rein in the inflation. If the economy is in a recession, then they lower the rates to give the economy a boost. With the economy perking along nicely, there was no reason for lowering the rates, save one.
"The only possible reason for lowering the rates was to invert the yield curve in an attempt to make President Trump look bad and to see if they can force a recession as we near Election Day 2020.
"It is a conspiracy to get President Trump out of office, pure and simple." – Paid-up subscriber Rob M.
Brill comment: You're absolutely right, Rob...
At least, if you ignore the "request" from President Trump on Monday that the Fed's short-term interest rate "should be reduced by at least 100 basis points, with perhaps some quantitative easing as well"... and on Wednesday, that "the only problem we have is Jay Powell and the Fed. He's like a golfer who can't putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT – but don't count on him! So far he has called it wrong, and only let us down."
Regards,
Justin Brill
Baltimore, Maryland
August 23, 2019