Investment Conclusion
The range and level of tariff threats made by the US this week is not something President Trump can go TACO on. Indeed the accusation that he is TACO on Tariffs probably is a factor behind the current raft of threatening tariff letters. Most threats will become reality. The level of tariffs promised will not inspire Kow Tow from key trading partners but resistance. Hence retaliation and trade wars. However, this will unfold gradually until August 1.
The 30% Tariff threat made to the EU on July 11 may not (60:40 probability) result in an immediate counter threat of retaliation from the Commission. There is nothing to be gained by triggering a trade war ahead of the August 1 date. The Commission’s hope is that the latest threat is a negotiating ploy that President Trump will back off. The Commission hopes that, come August 1, President Trump will declare victory on the basis of what the EU has already negotiated. I don’t buy that happy Aug 1 outcome.
The risk asset and equity holiday we have enjoyed since the 12 days war will end between now and August 1. We sold a quarter of our safe-haven assets (10% of the portfolio) as the 12-day war unfolded. We bought EU equities (principally Germany and Banks). I am now starting to reverse that trade. That means reverting to a 40% (up from 30%) weighting in safe haven assets such as Gold, the Yen, the Euro and Bunds (2 yr). The Wealth Preservation Portfolio is at the end of this report.