This post is opinion only. See full disclaimer below.
I want to discuss 2 critical issues.
First, Trump’s new 100 per cent tariff on China for their restrictions on rare earth exports. I have said this in earlier posts that Trump views tariffs as a kind of capital that can like any good businessman would be deployed over and over again. Yet, somehow the markets continue to be surprised by the news that he is doing so. We saw a fairly spectacular reaction but I believe this has as much to do with he overextended price appreciation that has occurred especially in a. few narrative tech stocks. I do think its quite possible that the markets over Trump’s presidency will trend higher. The US economy is being so juiced by this regime in terms of promoting the private sector that this should hardly be expected if it occurs over the next 4 years. The problem though is that if you look at some of these stocks there charts look like rocket ships. It is very hard for stocks not to correct significantly at some point if the angle of ascent is nearly vertical in some cases. If you doubt me look at some of the charts for these stocks. Its actually quit amazing and not seen that much. Obviously here I’m thinking of some of the AI and quantum computing stocks. I have written about some of these potential longer term issues elsewhere. The risk is that as the great investorWilbur Ross learned in the late 1990’s stocks can continue to go up in bubbles much longer than one can stay solvent in positions sometimes. The other problem is that AI though very useful is an ideal choice for the creation of bubble narratives since its promises of transformation are so open ended.
Second, the oil sector reacted to the news of the Gaza peace deal by acting despite less than expected recent Saudi promised cuts as if it was a signal that an oil glut was coming. The problem with this thesis is that AI will need tremendous oil amounts to fuel its ever expanding energy requirements and that both the US and the EU look like they are entering an era of cheaper central bank money hardly something bearish either for economic outlook or oil demand. The other key factor is that the end of the Gaza war makes more not less likely major new initiatives against both Iranian and Russian oil exports. The new UN sanctions are already in place against Iran and Trump is likely to go after much more fully countries that are buying Russian oil as he tries now to keep Iran’s nuclear program reigned in and to force an end to the remaining Ukrainian war. There are important counterfactuals to consider to be sure, but why would these specific factors mentioned if not others be bearish for this sector. Such a disconnect with reality is also shown by PBR one of the largest companies in all of South America not moving up on the news that Trump and Lula will meet to try to resolve their differences and even more importantly that Ibama, the Brazilian regulator, has finally okayed what PBR has been waiting for years o achieve, permission for drilling in the potentially super oil rich equatorial margin. It seems like certain big money interests believe wrongly after all this time that the stock is simply an attractive dividend “bond” so to speak. The counterfactual is often overstated political risk, a perspective that at least partially denies the actual technocratic independence long the legacy of Brazil’s rough political history. Yes, the government controls a majority of PBR shares—but the situation is much more complex for better and for worse than that ultimately.
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