Capitalist Investor

Market Meltdown, Tariffs, and The Masters, Ep.315

• Strategic Wealth Partners

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In this episode of the Capitalist Investor, hosts Derek and Tony explored some pressing topics in the world of finance and golf. Here's a rundown of the five hot topics they discussed:

  1. Market Meltdown and Tariffs: The episode kicks off with a discussion about the recent market meltdown, which saw a 12% drop due to the imposition of tariffs. The hosts dig into the unexpected hawkish stance from President Trump, who introduced the "Board of Death," leading to a steep sell-off.
  2. U.S.-China Trade War Escalation: The conversation shifts to the escalating trade tensions between the United States and China, particularly focusing on the high tariffs now imposed on Chinese goods. Derek and Tony emphasize the uncertainty and volatility these tariffs introduce and speculate on the potential long-term consequences of this trade war.
  3. Effect of Tariffs on Various Industries: Derek discusses the broader implications of these tariffs across different industries, highlighting situations like increased costs for companies like Amazon and challenges for consumers regarding wait times and pricing fluctuations.
  4. Policy Uncertainty and Market Volatility: A significant part of the discussion considers the concept of policy uncertainty and its impact on market volatility. They compare the current trade-induced fluctuations to past events like the financial crisis of 2008 and the COVID-19 pandemic, highlighting the potential for a quicker recovery due to the self-inflicted nature of the turmoil.
  5. The Masters Golf Tournament: On a lighter note, the hosts also delve into the upcoming Masters golf tournament. They share their favorites and underdog picks, touching on the Netflix series "Full Swing" and the overall excitement surrounding this iconic sports event.

Tune in for an enlightening mix of financial insight and golf enthusiasm that captures the highs and lows of current market conditions and the excitement of the sports world.

This week on the Capitalist Investor, we're going to talk about what has happened over the last week, which was a complete market meltdown of 12%. The cause of that, aka tariffs. And kind of recap our zoom call or zoom meeting that we did for all of our clients just the other day. And also we're going to touch base on the Masters, a tradition like none other. Derek and I will have some, some picks for that. All right, well, welcome to the Capitalist Investor. You got myself Diamond Hands D. We got Tony the Tiger. How you doing, buddy? Doing good, man. Yeah, it's been a, been a rough week, to say the least. The markets and the masters. Yeah, a lot going on this week. Yeah, for sure, for sure. So, yeah, the market has melted down in the last five days. So even before, you know, the market is down like 16% year to date. And the market essentially priced in an 8% tariff. You know, they already discounted the tariff because yesterday we did a company wide zoom for all of our clients and friends and we talked a lot about how tariffs were already cooked in. But then when you got President Trump coming out and coming out a lot more hawkish than a lot of people would have expected, he brought out, I think they called it, the Board of Death. He's standing at the podium with this big board of like what the tariffs are going to be like. Oh my God, dude. With math that no one really understood. Yeah, yeah, like so no one priced in the other. The hawkish tone and the Board of Death and all this other stuff. So that's why the market's selling off. Like he, he slapped a tariff on everybody. And since then again, a day feels like a week because of just social media these days. Everyone, like, everyone gets instantaneous news, right? And if you really want to, you can get instantaneous news all day long and really fry your brain. And I think every day that goes by, it is just feels like weeks at this point. So, Derek, what's your, what's your take right this second? Yeah, so, you know, it's, you know, I'd say high level. You know, I, and we talked about it last week. I think what is going on in general is a good thing. You know, I think we are, you know, and kind of what I think, I think Canada, you know, Mexico, Europe, you know, Taiwan, Indonesia, I think, I think the, like the zero to zero, you know, reciprocal tariffs, free trade, I think that's going to get done. I think everyone's main concern right now is kind of twofold China. So, you know, basically we Hit them with more tariffs. They're up to 104%, I want to say. Yeah, they came back this morning with even more on us. So I mean, honestly, it is essentially going to be United States versus China. Yeah, that's, I think that's what we're focused on. And I don't know if you caught it this morning, but Jamie Dimon was on Mornings with Maria and funny you bring that up like the Mexico and Canada thing, he goes, think about like China and who they're surrounded by, like their territory. Like it's not, they're not friends really. You know, they might be kind of colleagues because they're neighbors, but here in the United States, you know, Jamie Dimon kind of put it a nice way, like we're actually blessed to have two partners in Mexico and Canada that we're not, you know, too contentious with at all. You know, we, we vacation there constantly. We go to Canada, you know, United States, they'll go to Canada, they'll go down to Mexico. Like it's pretty friendly. Canadian side of the falls, you know, beautiful. Right. So this whole thing with, with China is going to really, it's escalating. Right. I'll touch a little bit on that later because as of this morning, again, another development, the 10 year treasury is the, the yield is ballooning. That, that was the second thing I was going to say there. Yeah. So, so what that means is somebody selling is what it means. Yep. So we're going to talk a little bit about that. But the one thing I do want to talk about, so on our zoom yesterday, Mark kind of laid out a kind of a base, like three base cases. The first base case, you know, it's a short term tariff. Right. Like this is going to be over in days or weeks. Like something, something's going to get so frazzled it's going to be over. Well, they already have, what, 70 plus countries trying to come to the table to negotiate. And I think they mentioned like, you know, Donald Trump's not like, hey, you're ready to negotiate, I'm going to strip that tariff away. He's not going to do that until there is something set in stone. He's not giving anyone a free pass until things are inked. Right. So that's good. But that again, that could take weeks. Right, so. Or longer. Yeah, it could. And again, every, when every day feels like a week in this market, get ready for volatility. So, you know, on the short term, things are solved and these tariffs go away. It creates free trade and you know, we're able to sell our stuff across to everyone else, which is what we want. Right. We're realizing short term pain and the long but for long term growth. Right. And again, that is us actually exporting and people buying stuff from us and manufacturing jobs. Right. Getting a revitalization here in the United States. The second one is a semi, you know, permanent move and that might be just longer than six months. Right. It's like, hey, we got some countries inked up, but we don't have some others. We're waiting for them to come with a better deal, whatever that might look or sound like. Again, I think as companies or countries start inking deals like the, you're going to see these spikes in, in the market, right. So it makes me, you know, it just, I think with that premise, which I think this is probably the base case is like a semi permanent, you know, like things are going to get inked up as things come through is that I really feel that every one that comes is going to be a pop to the market, like a positive pop. Right. So I feel like we're going to get back to even a little bit sooner than a traditional bear market does. And I got some stats on that too. And one more one is then a permanent. Well, good thing, is it, the good thing is it's, it's meant for long term growth. Bring all, you know, get our, our items that we are exporting, like get them on an even playing field. Right. But it's going to be very shock. You know, the way he rolled out these tariffs is very shock. Shock and awe. And the market's still trying to absorb that. Yep. Right. And that's so funny. So funny. Funny thing is I met with a client yesterday and we were talking about all this stuff and she goes, I just bought something on Amazon that I always buy. It's like on, you know, the, the automatic monthly whatever. And they, this time when it went through, they said, hey, expected deliveries three weeks to three months. It's out till like June. Like there's this huge window. Can you imagine somebody like Amazon who, they're selling something for 20 bucks now and next week it's 26. Cause it's coming from China. Or maybe if it's 20, it might be 40 right? Then just to have it reverted a week later. Like all the returns like, hey, I bought this, I'm returning it to get my money back so I can rebuy it for like, can you imagine the pickle they're in? Like, holy cow. But I digress on that. I mean, even, even, you know, just scrolling Instagram even watches, you know, I follow some watch people, you know, they, they don't know what to do. They don't know what's going to happen. I think Switzerland had like a 31% tariff. So, you know, in, regardless of the industry, you know, you see people pulling forward purchases. Yeah, I don't know if it's true. I heard the Apple flew in like five plane loads full of iPhones into the United States yesterday. So, so yeah, that's, that's what is making everyone nervous is the uncertainty. And you know, you know, whether, whether you hate Trump or you love Trump, he's not doing anything to quell those, those fears that people have. You know, I think that was perfectly evident on, on Monday. I think it was Monday when Netanyahu was in from, from Israel and basically, you know, they had a press conference and you know, he's like, I want to lead the way with these, you know, zero, you know, zero percent terrorists, free trade. And they asked Trump, you know, if he, he's gonna, if that's gonna be good enough to, to lift the tariffs. And he basically said no. So, you know, that's, I think that is another layer that I don't think a lot of people are talking about. You know, it's a. What, what Trump is ultimately trying to do is completely resets the trade market and that's both short term and long term. So even if he gets, you know, these 0% reciprocal tariffs, we talked about this a little bit last week. The, the zero, you know, the, the 10 baseline tariff seems like it may stay in place no matter what. So that, that is a curious policy move there because I think that will add to inflation. And that's not real, that's not really the spirit of what everyone thought was going to happen. It's like, hey, there's unfair trade. UB0, we be zero. We have free trade and, and you know, the U.S. you know, benefits from that and hopefully brings back manufacturing jobs, all that good stuff. Yeah, I, I don't know what, what is going to happen long term if those 10 baseline tariffs stay in. Yeah, I mean, it's inflationary, but not as much as a hundred percent. Yeah, so, so there was a couple, like, I'm a big stat guy, you know, I like numbers, obviously, as the former recovering engineer, but there's this index and it's called the policy uncertain Index. What is going on right now? These tariffs, this is a policy uncertainty environment because it's not a Financial problem. It's a policy problem. So like the financial crisis back in 08, you know, 08, 09, that was a financial crisis. And when you take a look at the difference between a complete fundamental breakdown of the economy like back then, right, there's banks and there's like big banks going out of business, like big problem. Yes, right. It was a four to five year recovery in a policy correction, you know, or a policy inflicted pain like we are right now or. Covid, Covid. There was a 33 day turnaround. We went down 30%. We had it mostly back within 30, 40 days. Yeah, it was wild. So. And that was positive for the year. Right? Like it was down 30%. That means it ripped like 50 after that. Right. So again the day that the, these tariffs. There's a solution or there's some level heads like communicating is it. They're going to want to be involved. Right. The biggest days of the market are in the darkest days. The biggest upticks, I should say are in the darkest days. There are usually 5 to 10% swings. Right. But let's take a look at this. So there are concerns of, of recession, recession fears. So we feel that we're, we're, we're getting close to the average bottom of a market drawdown. So without a recession, you know, a typical bear market without a recession really happening is around 23%. If there is a recession, it's 27%. We are down year to date or I'm sorry, not year to date, but we are down from the highs around 18 right now. So we're not even, we're not really close to, you know, we're close to a bear market but we're not quite there yet. One bad headline and we would be probably. But we're not near these averages yet. Right, but those, those would be the averages and, but we're close. So it's our team, our investment team is saying that hey, we're, we feel we're very close to the bottom and if we are, if we're not already there. Okay, so that's another thing. And I talked about the recovery time for something like this is less than a year. It could be months, not years. Right. So because again this is a self inflicted, just like COVID policy transition is what I'll kind of call it. Now the other thing before we close up on this topic is I, we talked about it before China versus United States. You know, the reciprocation is the negative reciprocation on these tariffs is who's gonna who's gonna buckle first, who's gonna flinch and things like that. And I find it funny. Again, I try to say that. I look at the left and the right side of commentary and immediately, as soon as Trump came out with the tariffs, ironically and uncharacteristically, he shut up. He didn't, he didn't say anything. Very true. Very, very, very muted compared to how unmuted he usually is. And the left said, he threw this out and no one, no one called immediately or whatever. He's like, he's scared. Right. And then the right's like, hey man, the first person to speak loses. Yeah, you know, it's like, like this is a tactic. It's like, I'm just gonna go over here, I laid out my plan. I'm just gonna go shut up and wait till somebody else absorbs that and wants to talk first. Yep. And you know, according to White House, there's 70 people, you know, 70 countries lined up ready to negotiate. So I guess we'll, we'll find out. But I, I found that entertaining. But it's a China thing, man. Like the reason this, now today that the 10 year treasury is spiking, you know, that again, it would make you believe that somebody's dumping our debt. Who owns most of our debt? China. So are they dumping our debt? Are they A, trying to hurt us financially? Right. Or B, are they trying to save their own currency, sell our debt so that they can buy their, their currency? But then you also have like, hey, there's, there's probably levered up funds that need to liquidate cash to do margin calls and, and all that fun stuff because it's a weird dynamic and you can't really pin who's actually doing what. But I don't, you know, it's, it is definitely a move if they're trying to dump our debt. But they said another way for China to dig themselves out of this deficit is for them to quantitative ease. In talking about printing massive quantitative ease, like a trillion to $2 trillion. The problem with that, you thought we have a lot of debt, they don't have as much monetary debt. But when you look at their debt to GDP ratio, it's already 300%. Yeah, we're at about, we're at about 120, 125. I believe the United States is, they're at 300. Right. Strap on another one to $2 trillion and like sayonara. Right. No pun intended. Yep. Right. So. So it basically comes down to, you know, how much pain Is, you know, Trump willing to go through, to ultimately win because you, you just perfectly laid out we do have the leverage, but they can make it very, very painful. Correct. And you know, we talked about it for weeks. You know, Tony called it a conspiracy theory. I don't really think it is. But Trump wants lower rates. Right. And the thought was if there is a, you know, recession, they're going to have to cut rates, but rates are going up because China is, is dumping their, their, their debt and their bonds. And, and, and that's a big, big, big problem now. And now, now they're talking about how this is gonna, you know, Jerome Powell said, ah, we're, we're fine. This, is this another, this is another chink in the armor for, you know, again, what President Trump wants is to him have, you know, the Fed start lowering rates. There was no emergency meeting last week, but there might be this time because of what's happening with the 10 year treasury yields right now. So we'll find out. But in kind of closing though, I've had several conversations with clients recently. Obviously the last five days things have escalated and not every client's the same. Right. Different portfolios, different strategies, different allocations to bonds and things like that. And believe it or not, I mean, the market's down 18%, bonds are flat. The AG, the AGG, the aggregate bond index, it's flat. So a lot of clients might be scared like, oh my God, I'm down X amount of percent. And that's the other thing. So when I take a look at a balanced portfolio that I'm talking to with clients, most clients are down 4 to 8% depending on what's going on. So watching TV versus what's really happening in your portfolio is two different things. Yep. So again, not every client's built the same. I don't want to say, hey, you know, you could be down more, you could be down less. But that's the typical client that I'm, I'm seeing right now. And when you got a market that's down 15 or 16% from its for year to date, because I'll look at year to date numbers, being down mid single digits is, is a victory. And it's, you know, bonds are doing what they're supposed to be doing, at least for right now. Yep. So, and, and honestly, in some of our, in some of our actively managed strategies, we've, we sold some bonds to free up cash for buying opportunities. And that's playing out to be very good for, you know, us and our clients. Right. Now because we're not taking, you know, as bond yields, Bond yields go up, the asset goes down. So we're not partaking in that. So that's nice. Yep. Look, you know, no one wants to lose money, no one wants the market to go down. You know, I'm, my portfolio is not doing well. You know, I'm, I'm in a lot of growth year names. But at the same time, you know, you have, you have, we have the recent memory of COVID and how, you know, how quickly that snapped back around. What we do have to keep in mind, ultimately it may, this could be a turning point for the whole country, you know, and you know, some people like Trump, some people don't. But what we're fighting has been going on for 40 years. Really. You know, the, the offshoring of everything to China. You know, I saw a clip of Mr. Wonderful on CNN last night. There was like a three minute tirade against the, you know, the Chinese government, you know, they're, they lie, they cheat, they steal, they're not good to deal with, etc. Etc. And because we offshored so much to them and we gave them so much and then they can just ship in, you know, stuff from TEMU directly to us. Now that, that has changed our economy and our way of life. So to reset that, it's not going to be a simple short process. You know, like I said, I mean. That'S why Apple's down 30%. Yeah. Holy cow, man. Like, I didn't, I never really knew the number, but 90% of their stuff is made in China. Yeah. Woof. I think they said like, if you're paying a thousand dollars for an iPhone, be prepared to pay 2 to$3,000 now for an iPhone. Yep. So if you haven't, if you need an iPhone and you're on the fence, this is the time to get off the fence for sure. Get one of those. That came over in the plane yesterday. You know, it's, I saw something on Twitter. There was like a 61 year old person that had a bunch of likes and I'm like, you know, that's, that's kind of like, hey, my 401k is down 25% year to date and I'm 61 years old, how am I supposed to retire? And I saw like a bunch of likes. So I had to start and there was like 500 comments. I'm like, I gotta start reading this because I have my two cents and somebody just nailed it on the head. They're like, what in the Hell are you invested in at 61 years old? And you thought you were ready to retire, I'm sure. Yeah, I'm sure you made a lot of money the last two years, but you never deleveraged. You never, you know, righted the ship a little bit and took some chips off the table. Now you're getting your, you know, your teeth kicked in. Yeah. So again, you know, there's, there's, there's greed. You know, what's that old saying, like something about pigs get slaughtered or something? God dang it. I shouldn't even brought that up. But anyway, so, so yeah, it's about being, having a balanced portfolio right now, being prepared. I always tell our clients, I'm like, hey, we might not be as high as the market, but our goal is not to be. Is low. Yep. So, Mark Tepper here from SWP Investment Management. It's time to elevate your portfolio with the SWP Growth and Income etf, a diversified basket of high quality growth companies that pay dividends. SWP stands out from the pack because total returns matter. Don't just Invest. Thrive with SWP. Visit investswp.com for more information. Disclosures apply. All right, let's, let's transition into this. This Masters should be the best week of the year. You know, honestly. So this, this market turmoil is kind of spoiling that. All right, give, get, give me one favorite and then we'll go ahead with you. Finish that. But like, one favorite and then like one kind of middle of the road like no one might know about. Did you happen to watch the Netflix show about the golfers? Am I, am I a bad person if I don't have Netflix? Well, I just canceled Netflix, actually, but at Full Swing is what it's called. Yeah, it's, it's an amazing series if you've never watched it. But that, that's my last. I haven't watched too much golf. The last episode of that. What is it about? It's, it's, it follows the PGA Tour players. So it's like all of them. Like, no, no one in particular. That's jt. It's a, it's a list. Yeah. Okay. Okay. Rory. Yep. You know, so like, they, they. Bryson's in it. All the top players are in it. This year was obviously about last year, so, you know, Rory talking about the Pinehurst and US Open choke job. But yeah, the. I, I, I just wanted to see if you had seen it because of the last episode is I, I cried like a baby through the entire thing. Basically, it was about a golfer who lost. Lost a child. It was just. It was so, so sad, but so uplifting at the same time. So if you haven't seen that one, check it out. It's. It's a great series, but that, that was a long way to get to. I don't. There are not that many people, I don't think, that can win the Masters. I know. You know, so of the top 10, who do you like this week? You know, it's. There's really no one playing well. Like, Colin Morikawa is the third choice at 20 to 1. He's been playing. He's 20 to 1 on the third choice because I know it's Scheffler and Rory at the top. But anyway, regardless, I'm sorry, that's. To win 14 to 1. 14. Yeah, that was first round, 20 to 1. Yeah. Yeah. You know, Bryson, you know, hasn't done anything, doesn't play any, any real events. He's 16 to 1. He's the, the fifth choice. So, yeah, it feels like really only Scotty scheffler or Rory McElroy and possibly Bryson. I think those are really the, the three favorites. And, And I think it's a pretty good chance that all three of those guys are, Are in contention. Yeah, I, I saw this crazy thing on. On Twitter and it was. I love reading all these, like, daily fantasy and stats and stuff, and. And they had some crazy stat. Like, over the last six or seven years, anyone that has finished in the top 10 of the previous year's Masters, like, their average finish was like, 30th. It was this thing. So what I did is I took this list of, like, really, they said. And then also one of the other things is that the most. I think there's this running stat of, like, 40 years in a row where the winner of the Masters has already won a tournament. Walking into the Masters this year. Okay, so with that being said, I took all the winners for this year, and then I started eliminating all the ones that were in the top 10 and of the top horses, all of them, actually. Rory, Rory, Rory. What? Did not finish in the top 10 last year, but he's won this year, so he's my pick. I hate. And you know what? Rory's been. Excuse my friends, but he's such a. I always thought he was such a prick. Yeah, it's kind of like Bryson DeChambeau, like, just this, you know, he just. The meat. Like, he just never came off. Nice, cool, friendly and something with both of those golfers. DeChambeau and Rory, they. They've changed. They just seem more likable and nicer. And so, like, I'm on the Rory bandwagon. That's where I'm at. And I even threw some money on them to win. Yeah, they went win and win the first round, too. Yeah. So, yeah, you know, I will just to be different, you know, I think it's basically only two favorites and then everybody else, so I'll take the other one. I'll take Scotty. Okay. The other names I will give you. I'll give you two. You know, I would. Justin Thomas. I watched some of that indoor golf. He's been around the leaders, leaderboards on some of the events, too. I like Justin Thomas, too, you know. You know, if you're betting DraftKings top five, I like him top five, but I think he'll have a chance to win. I also think Phil Mickelson could make. Some noise, say he's playing well. Yep. So, you know, just knowing your way around that course is. Is half the battle there. So that's why I still kind of am intrigued by, like, Patrick Reed. Phil. Right. But another golfer that's been playing really well lately and is Henley. Yep. You know, Henley's like, somewhere in the middle of the pack, like, 30 or 50 to 1, and I like him. I think he's going to be a. Like a kind of a favorite for, you know, daily fantasy sports and stuff. But, like, dude's playing balls. Good ball striking right now. You know, Corey Connors is also a good ball striker, so all these guys need is some. And they also. They also say, like, putting is equalized there. The greens are so fast and so undulated that good putting is good. But, like, you actually got to get lucky for some of these putts to drop. So I'm gonna go with Rory and then kind of that out. Outside of the top favorites, Henley. Nice. I like it. Yeah, it's. I hope Dustin Johnson and Brooks Kapka do something, because they were two of my favorite golfers and they went to live, and they just. Obviously, Brooks won, I think, in the first year of live, but they've just fallen off. They're not competitive. And that's. That's sad because I think they're, you know, two of the best. They don't need to. They got paid already. Oh, yeah. They don't need to do, like. I mean, John Rom's playing very well, but I'm at the live thing. Kind of throws me off because I'm like, how competitive are these guys? Could it? It's not easy to win and it's not easy to play good golf consistently. But you have Jon Rahm, who consistently is always in the top 10 of every live event. Y Some of these guys might win and then just fall off for a few weeks. You know, it's. I just don't know what the competitive nature is when they got paid to play. Yep. So. And there still seems to be no, no end in sight for the, you know, merger or whatever they're planning between live and pga. So yeah, we will see. All right. So. All right. Well, so yeah, you know, hang in there. We'll be here to, you know, talk, talk through all the market turmoil. Hopefully we get some some better news next week. If you guys, you know, keep those show ideas coming@infowpconnect.com and we'll talk to you next week. The opinions expressed in this podcast are for general information purposes only and are not intended to provide specific advice or recommendations for any investments, legal, financial, or even tax strategies. It is only intended to provide education about the financial industry, so please consult a qualified professional about your individual needs.