The potential impact of steel and aluminum tariffs … Ray Dalio sounds the alarm on deficit spending … will Musk and DOGE be successful in cutting waste? Before we jump in, a quick note: Our InvestorPlace offices are closed on Monday in honor of Presidents’ Day. If you need help from our Customer Service team, they’ll be happy to assist you when we reopen on Tuesday. Also, Happy Valentine’s Day! Yesterday brought word of new “reciprocal” tariffs As we were going to press yesterday, news broke of “reciprocal tariffs” from President Trump. Here are more details from The Wall Street Journal: President Trump on Thursday signed a memo on reciprocal trade, directing federal agencies to study how to adjust U.S. tariff rates to match existing duties and certain economic barriers enforced by other nations. The order stops short of actually imposing the tariffs immediately, as many foreign capitals feared, and instead directs the Commerce Department and the U.S. trade representative to deliver reports on the steps to be taken to achieve reciprocal trading status. Commerce Secretary nominee Howard Lutnick said those studies should be completed by April 1. As we noted in yesterday’s Digest, the markets responded favorably to the delayed timing of the study and potential implementation. The hope is that these reciprocal tariffs are a negotiating tactic, meaning they’ll ultimately be avoided. However, that doesn’t mean we won’t see any tariffs between now and then. On Monday, President Trump imposed a 25% tariff on all steel and aluminum imports One week ago, we turned to Thomas Yeung, the lead analyst in Eric Fry’s flagship newsletter, Investment Report, to analyze the potential impact of tariffs on Mexican and Canadian goods. Thomas’ takeaway was to hold onto stocks with tariff exposure. The game plan was “wait and see.” So, what about the 25% steel and aluminum tariffs announced on Monday? Is this another threat that Trump will use only as a negotiating tactic? (The levies don’t kick in until March 4.) Is “wait and see” still the takeaway? Here’s Thomas: The steel import duties are more likely to go through. America imported just 23% of its finished steel from abroad last year, and we could cover as much as a quarter of any import shortfall with greater domestic utilization. Current U.S. capacity utilization rates sit at 74.4%, according to the American Iron and Steel Institute, and have regularly risen as high as 80% during periods of shortage. Therefore, we may see a 25% steel tariff go into effect, or some lowered figure once negotiations begin. Now, on one hand, this could enable higher pricing and stronger profits for domestic steelmakers. On the other hand, if you own companies that require steel rather than produce it, these tariffs – if implemented and sustained – could be a problem. Here’s S&P Global: The $11 billion (additional) hit on import costs is negligible in a $29 trillion economy, but the effect of tariffs would not be limited to the prices of imported steel and aluminum. The downstream users of steel and aluminum, such as the construction and auto industries, will be affected disproportionately… All else equal, the tariffs would increase costs to automakers, food processing and packaging including can manufacturers, construction projects including homebuilding and infrastructure, and possibly defense contractors. | Recommended Link | | | | If you think AI is slowing down, think again! In fact, AI is now entering a whole new frontier that Nvidia’s CEO Jensen Huang calls a $100 trillion opportunity. And today, Wall Street legend Louis Navellier – the man who called Nvidia before it bolted 37,000% for those who held on – is issuing Strong Buy recommendations on 7 under-the-radar stocks, each of which he believes have 1,000% upside potential. Go here now for the shocking details. |  | | Diving deeper into aluminum Let’s return to Thomas: Aluminum is more of a puzzle because America has so little primary domestic production (i.e., aluminum not made from recycling or scrap) … In addition, the aluminum supply chain is heavily linked between the U.S. and its northern neighbor. Canada exports roughly 75% of its raw aluminum supply, while the U.S. re-exports half of its downstream aluminum products back to Canada, which includes semifinished products and scrap. That means tariffs on aluminum will have an outsized impact for relatively little gain. Keep in mind how many industries use aluminum. Here’s a partial list: - Autos, aerospace, rail and public transit, boats and ships
- Beverage cans, food packaging, cosmetics, and pharmaceutical packaging
- Windows and doors, bridges and structures
- Smartphones, laptops, TVs, and computer monitors
- Home appliances, power transmission lines, solar panels, and electric vehicle batteries
- Weapons and armor, 3D printing manufacturing, and medical devices
If aluminum tariffs are implemented and sustained, this one could hurt. Thomas and Eric hold an aluminum play in their Investment Report portfolio. Here’s Thomas’ bottom line, which may influence your own thinking if you own aluminum stocks: We continue to suggest taking a wait-and-see approach to [our aluminum position]… We prefer to wait for Trump to make a move before adjusting our defense to match. Switching gears, one of the world’s wealthiest hedge fund managers is worried If I was a doctor and I was speaking with you about your condition, I would say to you, this is now very, very serious. So says billionaire Ray Dalio, founder of Bridgewater Associates. Dalio was speaking with CNBC’s Dan Murphy at the World Governments Summit in Dubai, referencing our government’s financial condition. Here’s more from Dalio: What you need to do is cut your deficit from about 7.5% of GDP to 3% of gross domestic product, and you can do that. There are certain things that you can do that cut it in a certain way that’ll make it much healthier, so the real problem is a political problem. Now, although Elon Musk and the Department of Government Efficiency (DOGE) are allegedly finding wasteful government spending to eliminate, the impact is likely to be limited. That’s because three of biggest line items in the U.S. federal budget are Social Security, Medicare, and Medicaid, and those are largely off-the-table for any meaningful cuts. From ABC News last month: House Speaker Mike Johnson said Tuesday that cuts to Social Security and Medicare won't be part of the legislative package being worked out to fund President-elect Donald Trump's agenda. As you can see below, Social Security, Medicare, and Medicaid make up almost half of the federal budget. 
Source: CBO.gov And don’t think that this black hole of spending is slowing down. Here’s the non-partisan thinktank, the Peter G. Peterson Foundation: Medicare and Medicaid…spending is projected to rise by 73 percent over the next decade and will exceed all other categories of federal spending in 2028. If we keep going down the line items of government spending, next up is defense. This one is interesting. Yesterday, Trump suggested the U.S. could massively cut its military budget: At some point, when things settle down, I’m going to meet with China and I’m going to meet with Russia, in particular those two, and I’m going to say there’s no reason for us to be spending almost $1 trillion on the military ... and I’m going to say we can spend this on other things. This could be a meaningful source of reduced government spending. But with plenty of War Hawks in Congress, it’s likely to be a tough fight. Beyond defense spending comes the interest on our national debt, which is going to remain elevated for the foreseeable future because the Fed won’t be lowering rates anytime soon. By the way, we haven’t even touched on our various entitlement programs (beyond Medicaid). Here’s what The Wall Street Journal wrote about this back in September: True, Social Security and Medicare are a drain on general revenue and will become big fiscal problems if not reformed. But…the real driver, the elephant in the room, is means-tested social-welfare spending—Medicaid, food stamps, refundable tax credits, Supplemental Security Income, Temporary Assistance for Needy Families, federal housing subsidies and almost 100 other programs whose eligibility is limited to those below an income threshold. Means-tested social-welfare spending totaled $1.6 trillion in 2023. Welfare spending now absorbs an astonishing 72.6% of unobligated general revenue (total revenue net of Social Security and Medicare payroll taxes and premiums and mandatory interest on the public debt) and is larger than the claims against unobligated general revenue by Social Security (4.1%), Medicare (23.5%) and defense (37.2%) combined. Bottom line: Massive spending cuts will require painful incisions into “lockbox” issues (to quote Al Gore), or they’ll require unpopular legislative changes such as pushing back the retirement age. Both paths seem unlikely, which brings us back to Dalio: I want to alert people. I want to alert government officials… I want to help, you know, and so I feel like the doctor, and then I would say… “if this doesn’t happen, and we have the equivalent of…an economic heart attack…then you know who’s responsible, because it can happen.” | Recommended Link | | | | One man is saying: FORGET most stocks. Because his strategy ignores 99% of stocks out there… And focuses on one — just one — to deliver gains of 85% in 14 days, 120% in under 3 months, and even 222% in just 8 days. In this video, he’ll tell you the name and ticker symbol, completely FREE. Click here to watch right now. |  | | What can you and I do to protect ourselves? No surprises here; we’ve answered this many times in the Digest. Make sure you own: - Top-tier stocks with pricing power to protect margins
- AI/technology stocks with strong earnings growth potential
- Gold—the go-to wealth preservation asset for millennia
- Gold miners—essentially gold with leverage
- Real estate—another proven wealth preserver
- Bitcoin—yes, it has stalled, but even a small allocation remains a wise move.
And, of course, watch your spending. After all, it’s hard to invest if you’re barely clearing any money at the end of the month. Before we wrap up… Let’s highlight the above bullet point of “AI/technology stocks.” Yesterday, legendary investor Louis Navellier released a new broadcast discussing AI’s Crossover Moment – that’s when AI breaks out of the digital world and into the real one, running self-driving cars, automating factories, and even building “digital twins” of entire cities. Here’s Louis with how momentous this is: This shift is massive. And investors who see where it’s headed right now stand to benefit the most. This AI Crossover Moment could create more wealth than any other tech boom in history. In our Saturday and Monday Digests, we’re giving Louis the reins so he can tell you more in his own words. Louis has identified seven under-the-radar companies primed for massive gains – the kind that can help protect your wealth against massive government spending. Until then, here’s the link to Louis’ free broadcast. We’ll keep you updated on these stories here in the Digest. Have a good evening, and Happy Valentines Day, Jeff Remsburg | 
No comments:
Post a Comment