If Tariffs Are Not Allowed, What Happens Next?

To investors,

We got news yesterday that a federal court has thrown a major wrench into President Trump’s economic plan. CNBC writes:

“The U.S. Court of International Trade on Wednesday blocked steep reciprocal tariffs unilaterally imposed by President Donald Trump on scores of countries in April to correct what he said were persistent trade imbalances.

The ruling deals a potentially serious blow to the Republican president’s economic agenda and ongoing efforts to negotiate trade deals with various nations.”

Bloomberg shows that not all tariffs are being struck down by this ruling, but a very large percentage of them will be negated.

The legality of the tariffs will be highly debated and I anticipate the case will eventually be heard by the Supreme Court. Regardless of the outcome over time, there are two repercussions of the court’s ruling. A large part of the market will see this decision as a removal of majority of the tariffs, which means we will see capital flood back into assets as investors gain confidence that the worst economic pain is behind us.

Another large part of the market will have a different read on the tariff court ruling. They won’t gain confidence, but rather they will see this development as a return to uncertainty because of the appeals process. This second group won’t allocate capital back into the market until there is finality in the court cases, which could take weeks if not months.

My guess is that self-directed retail investors will accelerate their investing pace, while institutional investors will continue to be cautious. This ultimately boils down to a key difference in how these two groups think about financial markets. Retail understands that the dollar is going to be debased, bear markets have been outlawed, and there will be a persistent bid for stocks for decades to come. Institutions not only question those three assumptions, but they are more focused on delivering their quarterly and annual return numbers.

Retail is investing for profits, institutions are investing to keep their AUM.

The crazy part about this situation is that both groups may be right. Stocks have become very expensive, according to Barchart, who points out the Warren Buffett Indicator has officially hit 193.5%, which surpassed November 2021 as the second most expensive time for stocks in history.

They also show that the 30-year Treasury yield has risen above 5% again, which is not what sophisticated investors want to see.

Retail investors are playing a different game though. Global Markets Investors writes “According to Bank of America, hedge funds sold ~$1.5 billion equities on net in 4 weeks, the most since the 2022 bear market. Institutional investors sold ~$2 billion. Retail investors bought nearly $2 billion, the most ever.”

So while retail and institutions battle it out in the markets, the new court ruling around tariffs will only further complicate the situation. But I don’t think anyone is going to change their mind. Retail will keep buying. Institutions will keep selling. And the world will keep spinning.

Only time will tell who is right and who is wrong. And the beauty of capitalism is that the market will be the ultimate referee.

Hope you all have a great day. I’ll talk to everyone tomorrow.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

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Is The Bitcoin Bull Run Back?

John Pompliano and Anthony Pompliano discuss bitcoin, bitcoin conference in Las Vegas, bitcoin treasury companies, macro environment, inflation, timeless investing principles, and how this all impacts your portfolio.

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