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Tariff Man Bankrupts Farmers

Written by Briton Ryle
Posted December 4, 2018 at 7:00PM

One day. President Trump made it one trading day before undermining his tariff truce with China and reigniting fears that tariffs will weigh on an already slowing economy.

Ah, but what a glorious trading day it was... 

Everything was running. Financials, tech, even the homebuilders had a pretty good day. 

My Real Income Trader subscribers took a 116% gain on some Bank of America call options we bought on November 20. I told you in Monday's Wealth Daily that we also had a 140% gain on some AMD calls, but I was holding out for 200%...

AMD kept moving higher, and at 1:35 p.m., this email hit their inboxes:

That was good for 223%. 

You may have heard me use the phrase “Twitter risk.” This is defined as the risk that the president will tweet something when the market is closed that leads to a big sell-off when the market reopens. 

Twitter risk has been a thing since Trump was sworn in. Remember the Air Force 1 tweet? When he said he would cut the cost of a new plane? Boeing dropped a few bucks on that one. Same thing happened to Lockheed-Martin when Trump tweeted that he would reel in the cost overruns on the F-35. 

Typically, Twitter risk has been most evident on Fridays. There have been maybe two green Fridays in the last two years because traders lighten up before the weekend. Lotta downtime for idle thumbs...

I don't even remember if the market was up or down on that amazing day, now known as “covfefe Monday.” And really, does it matter? We may have lost money, but we all got so much covfefe. There was dancing in the street. Bitter enemies openly embraced. Mitch McConnell even cracked a smile. It was 100% worth it. 

Tariff Man 

When trading, you have to be nimble. You have to be willing to tweak your method from time to time. Because things work for a while, then they don't. One of the biggest tweaks I've made is to simply be quick with the trigger finger. You just never know when we'll get a tweet like this: 

As I write this, one of my last 2018 installments of Wealth Daily, the Dow is down right around 550 points. Yeah, way more than Monday's trade truce rally. 

It's a general rule that when you have two news items and you want to see which one is more significant, check the market reaction. In this case, we can conclude that Tariff Man is more significant than Tariff Truce.  

What's so bad about Tariff Man? I think it's the notion that tariffs will make America rich again. If you want to tell Americans that yes, tariffs will hurt, but we need to up our game against China and really force the issue about unfair trade practices and intellectual property theft, OK, I can imagine that a pretty solid percentage of Americans would support this. 

But you wanna tell us that tariffs will make us rich? C’mon, man. That's just dumb. 

There's Your Problem

Tariffs are not a means of getting rich. A tariff is a tax on imports.

Question: If Walmart brings a bunch of shirts made in China into the U.S. to sell and has to pay a 20% tax on those shirts, it will: 

  1. Sell the shirts for the same price because it loves America and wants us all to have more money.

  2. Raise the price on shirts to cover the tax.

Trade wars are wars of attrition. They are a series of zero-sum battles that get fought until one side can’t take the pain anymore.

President Trump clearly believes it will be China that can't take the pain over the long haul. He's probably right. And it's largely because the U.S. is much wealthier. But win or lose the trade war, it's real wealth that we lose. 

Back in August, the government started doling out the $12 billion in aid for farmers that aren't selling as much soybean and pork to China. In 2018, farms are declaring bankruptcy at twice the rate they have over the last five years. 

Yesterday, in a note to clients, a Robert Baird managing director named Michael Antonelli wrote: 

[Yesterday's] move feels like the market is a scorned lover. It had believed, for whatever reason, that progress was being made at the G-20 and that turns out to be murky -- it feels lied to...

Exactly.

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.

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