Ed Yardeni: This almost seems like Liberation Day 2. Liberation Day 1 was on April 2nd when the President introduced a whole bunch of tariffs on all the trading partners around the world. And then he pushed the deadline out to July 9th. A few days ago, he announced that the new deadline is August 1st. And then he went back and threw all of these tariffs at various countries. So, we are kind of where we were when we started with the April 2nd Liberation Day tariffs.
The markets seem to be much calmer about it because the perception is that the president changes his mind, and that the President is negotiating. It is not a very pretty thing to watch, but hopefully this thing will be resolved by the end of this summer and that’s what the markets are anticipating.
How do you believe that the markets will digest this over the course of the period because for now, this seems to be much calmer but we have all witnessed what happened back in April and May not just in the US markets but even the Emerging Markets were reacting to that. Do you believe that as and when the impact of these tariffs on the global economy are digested, the markets will react in a negative way?
Ed Yardeni: Well, sure. If there continues to be a re-escalation of the trade war, it is a negative for the global economy. It is a negative for the US economy, and it is a negative for global stock markets. But the perception is that we are still very much in a negotiation phase. The president is somewhat frustrated that he could not get his 90 deals in 90 days, that is what Peter Navarro, his trade advisor was touting as a possible scenario. But so far, there have only been two deals and there is still plenty being discussed. So, it is a very fluid situation.
On top of all that, Trump said that on Monday he is going to be announcing what he is going to do about Russia. He is not happy with Russia’s response to his attempts to create a ceasefire with Ukraine. And there is some talk about him imposing some pretty severe tariffs on countries that buy Russian oil. Obviously, that applies to India and China. So, it is all getting quite messy and confusing. But the markets have learned to cope with it and the markets are betting, and I agree with the view that this is not going to last for many more months.
Trump really cannot afford to have a recession later this year going into next year when the mid-term election next November could very well cost him and the Republicans very thin majorities in both houses of Congress. So, the market is right that this issue will pass and that he will move on to other things like campaigning for Republican candidates for the mid-term congressional elections.
Where do you think this number could stabilise going ahead because the April tariff on EU was 25%, right now it is 30%. This largely seems like a negotiating tactic. Do you believe it could come back to 25% or go to even 20%. Is that a possibility you are pencilling in right now?
Ed Yardeni: It is very hard to make a conclusion based on what Trump says because he says a lot of things and they are not always the same. They can change day after day.
Right now, he has suggested that even that 10% base tariff that everybody is supposed to pay might be raised to 15% to 20%. He is obviously very happy with the amount of revenues that are coming in as a result of the 10% tariff. The risk is that he becomes a little bit too aggressive in his perception of how much money tariffs can raise without fully realising the extent of trade frictions it creates, exacerbating a trade war which is not good for anybody.How are you tracking the cues that we are getting from gold as well as the dollar index because gold is once again seeing a bit of a surge? Do you believe that more is yet to come and along with that, what is your take on the dollar index?
Ed Yardeni: I have been bullish on gold ever since it rose above 2000. It looked like an important breakout towards new highs. We have been making new highs. We are over $3300 per ounce now. I have been bullish on gold to fundamentally because the foreign central banks of countries that we do not get along with, that do not like us, do not like our way of doing things, and have decided to buy a lot of gold ever since Russia invaded Ukraine and we froze the assets of the of the Russians.
So, there has been a lot of demand from central banks. But then, there was the geopolitical situation, the trade war, and all these things have benefited gold. The flip side is that it has been a negative for the dollar. But I am not that negative from here. The dollar is down 10% so far this year and that is about it. There is still a lot of demand for dollars from foreigners who continue to do a lot of business here as well as recognise that our capital markets are still the most liquid, probably safest capital markets in the world.
Maybe if you want to be really safe, you go to Switzerland but that is a fairly limited currency.