Tariff threats have made some companies irresistible…
Tom Yeung here with today’s Smart Money.
“BE COOL! Everything is going to work out well,” President Donald Trump posted on Truth Social on Wednesday morning. “THIS IS A GREAT TIME TO BUY!!!”
It turned out it was. On Wednesday afternoon, the president announced a 90-day pause on all “reciprocal” tariffs on non-retaliating countries. American markets surged 9%, and Asian ones jumped even higher.
Eric had anticipated possible meaningful reductions to the new tariff regime. That’s why, despite the market noise and headline headaches, he recently added a high-quality athletic apparel firm in his elite-trading service The Speculator that would benefit from the delay of tariffs.
The company in question imports a large quantity of its products from Vietnam, and it had become priced like a coiled spring waiting to go off on any good news. Here’s what Eric wrote to his subscribers…
The “Black Swan” tariff event is causing the selloff, not any fundamental flaw with the brand itself.
Therefore, if the swan simply flies way, the share price could soar….
If that change occurs, the new U.S. tariffs on Vietnamese imports could disappear entirely as well. I think that’s a bet worth taking. No one wants this trade war, especially not the Asian countries that produce so much of the clothing we buy here in the U.S.
He’s been proved right so far. Shares of this firm surged double digits on Wednesday as the bulk of tariffs on Vietnam (and just about every other country besides China) were postponed. Only 10% tariffs have gone into effect.
But I know many of you are still worried about what can go wrong.
So, in today’s Smart Money, we’ll take a quick look at what could happen in the worst-possible outcome.
Then, I’ll share the three ways that the smart money is approaching this new normal… a “will-he-won’t-he” market, where tariffs still might be around the corner.
After all, Eric’s bet on that high-end apparel maker isn’t the only investment he’s recommended in recent days.
Let’s take a look…
Imagining the Unimaginable
Many financial disasters have been attributed to a “failure of imagination” of things that could go wrong.
The 1997 Asian financial crisis was triggered when Thailand devalued its currency relative to the U.S. dollar. That single act caused a cascade of events that led to a stunning 83% decline in nearby Indonesia’s gross national product and the resignation of two world leaders. The Bank of Thailand certainly did not foresee that outcome.
Closer to home, the 2008 global financial crisis was caused by a similar lack of imagination. In this case, American banks and insurers failed to anticipate how mortgage-backed securities could become worthless if a real estate slowdown triggered thousands of defaults all at once.
The savings and loan crisis of the 1980s and ’90s… the dot-com bubble burst in 2000… the Covid-19 pandemic… history is full of unexpected crises that only needed a little bit of imagination to predict.
Today, we’re faced with a new potential meltdown. Trump’s “will-he-won’t-he” game of tariffs are triggering immense amounts of fear and uncertainty in financial markets. There’s also no guarantee that his 90-day pause on tariffs will remain in effect.
Bond markets remain wary. Over the past several days, 10-year government bonds have jumped from 3.8% to 4.5%, even though the opposite should have happened. (Usually, falling stock prices should cause yields to fall as well.)
This is an ominous sign. The last time the Treasury market gapped up this way was during the Covid-19 pandemic.
We’re also seeing some massive unwinding of leveraged bets – often a sign of an impending financial crisis. Over the past several days, according to the Financial Times, hedge funds have been forced to close out “mega-leveraged Treasury arbitrage trades, like it did in March 2020.”
“The most violent move in the last six weeks has been that swap-spread trade coming to a violent conclusion,” said Ed Al-Hussainy, a rates strategist at Columbia Threadneedle, in an interview with Bloomberg News. “This tells us that banks are now looking to raise and looking to preserve cash.”
That means the experts are still worried about what comes next. President Trump has proved he’s willing to take the stock market to the brink of a bear market, and if high tariffs ultimately do come in, we could see a sudden surge of inflation… and perhaps even stagflation.
The smart money is cutting back their riskiest bets because they’re now imagining a possible outcome where this brinkmanship creates this disastrous outcome.
So, how is Eric preparing his paid-up subscribers for this future crisis that might not happen? After all, we know that panic selling often happens right at the bottom of the market.
We’re approaching this in three ways…
Taking the Show on the Road
Eric’s tariff-surviving strategy is best shown in his Fry’s Investment Report portfolio.
1. Blue Chip Companies.
The first is to invest in blue-chip companies with limited downside and significant upside. Here, companies like Corning Inc. (GLW) stand out, which Eric recommends in Fry’s Investment Report. This upstate New York company has been innovating since its founding in 1851, and brought us products like Pyrex glassware for the kitchen and Gorilla Glass for smartphones.
Corning is now riding a new once-in-a-generation wave of demand for fiber-optic cable for AI-focused data centers, and it recently announced plans to build the only solar panels made with wafers and cells made in the U.S. Although the company fell after “Liberation Day” last week, it ended Wednesday 10% higher.
2. Oversold Stocks.
The second is buying oversold companies that were caught up in the tariff panic. One very recent addition to Fry’s Investment Report was selling at 16 times forward earnings when he bought it last week… well below its 31X historical average.
Even after its double-digit gain on Wednesday, shares till have plenty of upside just to get back to “average” valuations. Every sports better will know that a bet with a 1-in-2 chance of a 30% loss and a 1-in-2 chance of a 100% gain is a wager you should make every time.
3. Tariff Winners.
Finally, we’re looking at stocks beyond America that are less affected by Trump’s “will-he-won’t-he” policies.
Earlier this year, Eric established two new positions in countries seeing a turnaround in fortunes. These two nations only export 1% to 3% of their GDP to the U.S. and have fundamental factors that could help them “zig” even as American markets “zag.”
Then on Monday, Eric introduced a new company in Fry’s Investment Report that falls into this third camp. The firm, which produces 100% of its products in Canada, is seeing a revival thanks to the “Buy Canada” movement. The 90-day pause on global tariffs won’t change the way Canadians see U.S. goods overnight.
As a bonus, this firm is also protected from potential future tariffs, because its products are covered by the U.S-Mexico-Canada Agreement (USMCA) that President Trump signed during his first term. So, even if tariffs on Vietnam and other countries are put in place after this 90-day pause, this Canadian firm should be able to keep exporting its goods to the U.S. tax-free.
Now, I’d like to tell you more about this “heads-I-win, tails-I-don’t-lose” company. But to do that, you’ll have to subscribe to Fry’s Investment Report.
In the meantime, we remain optimistic that U.S. stock market will pull through the recent crisis as it always does. But with bond traders beginning to imagine the worst-case outcomes, a little bit of strategic buying will go a long way in protecting your portfolio from the next inevitable reversal.
Regards,
Thomas Yeung
Markets Analyst, InvestorPlace
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