The trade war is over. Tax cut chaos is next. | Australian Markets

Welcome back to the relaunched Daily Reckoning Australia. Of course, we’re not off to a standing begin. The DR has been round for many years. And subversive pamphleteering for hundreds of years earlier than that.

Heck, receiving controversial concepts in your inbox sparked total international locations and religions in to being. The pen has proved mightier than the Facebook police many occasions.

But we’re a more modest bunch than Martin Luther or Thomas Jefferson…simply making an attempt to make you wealthier one thought at a time.

But how?

I spent final yr warning readers about Trump’s trade war. Specifically China’s response to it. Which is, of course, the actual purpose the stock market crashed final month.

Most different international locations jostled for space on the negotiating desk as quickly as Trump made good on his tariff threats. And trade offers have been labored on since.

But China responded badly to Trump’s threats. Just as I’d warned they might. And so financial markets started to price in a correct stoush between the 2 most important trading nations back in April.

It solely took a month for stocks to bounced back although. As quickly because it grew to become clear China was secretly negotiating with Trump, the restoration was on.

If Trump’s bombastic tariffs are merely the opening gambit of a negotiating strategy, issues can solely get higher. And it’s time to buy these eight stocks now.

Retail buyers woke up to this chance fairly shortly. They’ve been shopping for the dip like mad in response to the stats.

And thus far, it seems like they have been proper. The UK has already secured a trade deal. And even the Chinese are close in response to news over the weekend.

Only one sector of the market stays noticeably overwhelmed down. That provides buyers who didn’t buy the dip yet one more alternative to buy what’s nonetheless low cost.

But institutional buyers aren’t satisfied we’ve seen the underside. And neither is the oil price.

Why?

The actual chaos is but to come back

Trump isn’t simply resetting the worldwide trading system. He has all types of wacky plans. Including severe tax cuts.

Debate on the tax cut laws started Friday. No taxes on suggestions, tax-free additional time and tax-exempt Social Security advantages are on the menu. Trump described the coverage in great technical element, calling it a “big, beautiful bill.”

As you’ll be able to think about, the Democrats usually are not impressed. Whatever is within the invoice is a catastrophe ready to occur.

The dreaded debt ceiling looms.

And if April’s tariff tantrum gave us a style for how Trump will negotiate with Congress, we’re in for a wild journey!

All this exposes one thing I’ve by no means understood about negotiations and politics…

The artwork of the deal dodger

If compromise is the title of the political recreation, then there’s a easy hack. All you need to do to get your approach is begin with an absurd opening place.

The one who begins off with probably the most absurd place will get the best “compromise” final result as soon as the events meet within the center.

And no person, outdoors of the Middle East, has more absurd opening positions than Trump…

In reality, Trump is infamous for utilizing this hack in business. He merely refuses to pay his payments to smaller companies he contracts with. They can’t afford to tackle the Trump organisation in courtroom in a sequence of appeals. So the events accept a partial cost – the fee of doing business with Trump.

Trump is doing the identical factor in geopolitics. Making large bombastic threats with the intention of working in direction of a compromise. A compromise that favours the US simply a little more than the established order did. That’s precisely what he achieved with the UK trade deal.

The flaw within the strategy is that somebody might ultimately call your bluff. Trump might encounter somebody as belligerent as himself. Or somebody who has clocked onto the identical negotiating strategy.

China did, briefly. That’s what frightened the stock market. Investors made the error of taking each Trump and Xi actually.

An identical bust up over tax coverage may be subsequent. And there’s a specific purpose to fret.

Bond markets don’t negotiate

Back in 2024, I used to be requested to contribute to a sequence of predictions about 2025. Mine was that the bond market would pull the rug out from President Trump.

That’s exactly what occurred during the April tariff tantrum. The US authorities’s borrowing prices spiked during the panic. And so Trump was compelled to calm the market by delaying most tariffs by 90 days.

The large fear is that we’re going to see a repeat of this in coming months. But for tax cut and debt ceiling negotiations with Congress.

The bond market will wobble as soon as again. And take stocks with it in a lot the identical approach.

In reality, the bond market hasn’t stopped wobbling. US borrowing prices lately jumped again. The tax cut disaster might have begun already.

But this time, there is no geopolitical opponent for Trump to bully or placate in negotiations. The bond market doesn’t negotiate. You adjust to its calls for or end up high and dry.

Regards,

Nick Hubble,
Editor, Strategic Intelligence Australia

All advice is common advice and has not taken into consideration your personal circumstances.

Please search impartial financial advice concerning your own state of affairs, or if doubtful concerning the suitability of an investment.

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