President Trump backed off from hardcore tariffs last week.
First…
… on Wednesday, he announced that reciprocal tariffs would begin for all countries at 10% rather than absurdly higher rates announced the previous week. However, cumulative tariffs on China were set at 145%, a rate that would effectively freeze most commerce between the world's two biggest economies.
Then…
… on Friday, US Customs Borders and Protection announced that PC’s, smartphones, and other goods containing semiconductor chips would be EXEMPT from reciprocal tariffs. That move effectively dialed back the onerous China tariffs and keeps companies like Apple, which manufactures 87% of the iPhones it sells in the US in China, from having to increase domestic prices radically and immediately.
and…
… on Sunday, AS I WRITE THIS,, Trump posted on Truth Social that the Fake media had reported the chips exemption incorrectly, that indeed tariffs on chips were coming over the next few months. I guess he was exempting the exemption!
Last week, in our post, “The Big Chill” (read here), we admitted (with rare humility) that “headline” risk was too high to trust the usually reliable indicators of risk-on or risk-off determined by the color-coded Macro Monitor. We decided that the model would “chill out” and not implement in the market the “risk-off” signal sent by the Macro Monitor. That was a sensible and wise choice as the volatility would have stopped out the sell signal of the model for a loss.
A look at the week:
Stocks were up big (S&P+5%)
Bonds prices were down big (Treasury yields +25-45 basis points)
US$ was down big (Yen+2%/Euro+3%/Gold+7%)
The magnitude of these market moves is astounding. Moves like these take months or even quarters to play out. Both investors and traders need principles to guide them through the unpredictable newsflow and market chopiness. One of those is diversification.
Readers of the wolf of wall street know that Trump’s attempt to restructure world trade would shake confidence in the US dollar and US dollar assets, including Treasury bonds.
“…diversification is important in any portfolio, which should not only have a mix of asset classes (equities, bonds, and commodities) but also a mix of currencies.
Now, esteemed reader, is a good time to consider diversifying into non-dollar investments, be they commodities or foreign bonds and stocks.” (From Make the Dollar Break Again, March 15th, read here.)
For investors who believe they are diversified holding the traditional mix of US stocks and US bonds, a quick back-of-the-envelope calculation shows that in 2025, stocks (the S&P index) are down 10%, but 10-year bonds are up only 1%. Bonds were not a successful diversifier. Indeed, a money market fund would have returned about the same as the bond portion of this portfolio, with far less duration risk.
Now, let’s look at the markets through a different lens. Consider that you are a European investor and have invested 100% of your wealth in the US, also at a 60/40 stock/bond split.
Not only has your portfolio been devalued by 9% in dollars, but you have been further crushed in units of your home currency: the Euro exchange rate has moved from 1.04 to 1.14 this year. The European investor has suffered a 20% loss - in just three months!
This simplistic example hopefully shows how Trumponomics is already affecting portfolio flows. If Trump is ultimately successful in eliminating the US trade deficit, lower imports to the US will mean fewer dollars paid out to our trading partners, and that means they will have fewer dollars to buy US assets, whether it be US stocks, bonds, real estate, or private equity.
The trend out the dollar, I believe, is not over - Trump will continue his back-and-forth on trade policy.
The trend out of Treasuries, I believe, is not over - the market is growing increasingly concerned that Trump will not reduce the deficit from 6.5% to 3.5%, as Treasury Secretary Scott Bessent has optimistically targeted.
The trend into foreign equity markets is not over - stock markets like China and Brazil offer significantly lower price/earnings ratios than in the US and are not denominated in dollars. These markets should attract flows.
The trend into (some) commodities is not over - foreign investors will continue to sell their dollars to buy stores of value like gold.
The investment regime seems to be shifting from the US to abroad, from growth to value, and financial assets to real assets.
Money is coming out of the US and looking for a home, and although I have never written about my fondness for gold mining stocks, they deserve a mention this week.
This is the monthly chart of GDXJ, the “Junior” gold miners ETF. Read about its holdings and fee structure here.
In 2025, gold is up 22%, while this ETF, which has languished as a forgotten asset since COVID-19, is up 40%. That is an example of money finding a home where there is value.
The objective of this newsletter is NOT to give investment advice. You are responsible for your own money, and hopefully, you have a financial advisor who can simulate the performance of your portfolio given a base case scenario and stress-test it with alternative scenarios. If the advisor insists on keeping you 100% in US assets, split about evenly between stocks and bonds, tell him to go back to the drawing board and diversify you further. Also tell him to suscribe to this newsletter!
Seriously, though, without giving you any advice, the final section of this week’s post will consider an investment alternative - platinum.
As gold has soared, platinum has stagnated. This is the platinum monthly chart.
The story, though, is the relationship between platinum and gold. Back in the ‘90s, an ounce of platinum was worth an ounce of gold. The gold/platinum ratio traded near 1:1 for many years. In 2007, during strikes at mines in South Africa, the world’s largest platinum producer, an ounce of platinum appreciated and for a time was worth two ounces of gold.
In the 2010s, environmental regulations decimated the use of diesel engines in both trucks and cars, particularly in Europe, reducing industrial demand for platinum used in carburetors, and platinum fell into a protracted bear market.
In 2024, gold began its ballistic and ongoing ascent, leaving platinum, sorry for the pun, in the dust. The gold rally has brought the gold/platinum ratio to 3.4:1. Here is the chart of that ratio, since the 1990’s.
In other words, platinum has value relative to gold. This makes it fit into the investment regime outlined above. The platinum ETF is “PPLT.” Read about it here, but remember, this is not investment advice.
Investing in commodities is for institutional investors, but if a particular commodity catches the attention of an individual investor, he (or she) should limit its participation to less than 5% of the overall portfolio.
If you would like to read more about the investment case for platinum, take a look at the World Platinum Investment Council’s 2024 outlook (here).
Once again (with a heavy heart), I have suspended implementing in the market the signal given by this week’s Macro Monitor, repeating last week’s sagacious decision. The model isn’t built to avoid the randomness of Trump’s policy tweets, not to mention the unending and often contradictory interviews given by his coterie of clownish advisors (Bessent, Lutnick, Navarro, and Miller).
This signal, for what it is worth, is “risk-off.” The text in the boxes is always worth reading. It summarizes how each Macro Factor developed over the week.
Disclaimer: The content of this post reflects only the views of the author and not necessarily those of Armor Capital.