We are in a Market Correction triggered by Tariffs on countries having export trade surpluses with the US. The formula used by the Trump administration was a surprise because it targets every country looking at their ratio of Imports to Exports. China was hit with an additional 34% tariff and immediately retaliated imposing reciprocal 34% tariffs on US exports to China. Other countries have said they will retaliate as well so a Trade War is underway, and a Recession is now very likely.

We must consider if orchestrating a Recession is not an intentional policy initiative? The US has $36.5 trillion in debt and paying our debt service at 4-5% costs over $1 Trillion/Year. With the need to refinance $8 trillion in debt this year and concerns about sustaining the Dollar’s reserve currency status, a bold player might use their relative strong position to force a worldwide recession to both weaken competitors and get interest rates down. Certainly, the speed the administration is moving along with D.O.G.E. initiatives and the audacious tariffs could mean this is calculated policy and Step 1 is to prioritize getting long-term interest rates down to control finance costs?

Step 2 would aid the economy with fewer regulations and tax cuts later this year to arouse the animal spirits of businesses. A controlled recession would lessen inflation fears and allow the Fed to add liquidity to supply credit.

Step 3 would be market intervention in the indices to lift public sentiment. Of course, the world’s real problem is too much debt and general wealth inequality. Thomas Piketty, the French Economist and author of “Capital in the Twenty-First Century,” a book about the historical dynamics of wealth & income, argues the US and China need to swap roles. Piketty argues Free Market Capitalism requires Income Redistribution, aka taxes. China recognized their need to reign-in their Tech industry a few years ago but apparently is intent on keeping wages low to maintain their export price advantage. The Trump administration recognizes the need to bring manufacturing back home, but there is no thought of redistributing income. So, we have half-solutions on both sides without recognition that the real problem is the US gave up rewarding hard work and craftmanship in favor Financialization—sitting back sipping Mocha Lattes with the Kardashians while making money trading stocks.

This means whatever the US game plan, we are interconnected people and it’s unlikely countries will de-industrialize with a hegemonic US stratagem. Already we see BRIC countries trading away from the US dollar fearful the US might confiscate their Reserves or not pay interest on their US Treasuries while the EU is perturbed with the flip-flop in US foreign policy, so they are curtailing reliance on the US. Our assessment is not to buy the dip but to keep our hedges and be patient. Later, we will harvest these and use sidelined cash to buy the bargains when the uncertainty has abated.