Markets in Turmoil

"Thanks President Trump"... something I'm sure no investors around the world will be thinking right now. His 'Liberation Day' tariff war caused the worst two-day stock market decline since the Covid-crash of 2020, 2000 points were wiped off the Dow Jones, $11 trillion in value was instantly lost on global stock markets. Trump has imposed a 10% base tariff to every country across the world, China has been imposed with tariffs of 100%+. Trump's view is that foreign countries have been ripping off the USA for decades. But the reality is that the world economy operates on a comparative advantage system. Clothes get manufactured in China because the labour is cheap, Resources are extracted in Australia because they are produced efficiently, NZ is an agricultural nation because we produce grass better than others. NZ cannot compete with China in manufacturing, so we don't. This is why Japan has posted trade deficits for a long time, because they geographically don't have the resources to sell to the world, like Australia does.

I read a report the other day that the NZ economy will benefit more from doing retaliatory tariffs, rather than doing none at all in response to Trump. In fact, the 20% tariff that Trump thinks we have our American imports, is total fiction. Our net tariff on American imports averages out to less than 2%. So even the 10% tariffs on New Zealand are totally unfair. Chris Luxon is choosing not to retaliate, which is probably smart considering Trumps reaction to China's retaliatory tariffs. It'll likely most hurt out beef exports, as the USA imports most of our beef. But companies such as IkeGPS may also get stung, as they are a majority NZ-owned business operating solely in the US. Infratil own a significant portion of Boston-based Longroad Energy. But they will be fine as Longroad is an American business, and Infratil is just an investor in the company. I have been surprised with Fonterra's little reaction to Trump's tariffs. Fonterra are a key supplier to Premier Protein, America's number one ready-to-drink product. Ultimately though, these costs will be passed on to the consumer. I think the diversified nature of Fonterra's export markets and the preference for the Asian markets, have protected Fonterra during the recent turmoil.

While we did see a significant bounce in the markets when Trump announced a 90-day pause, this resembled a typical bear market rally. It is notable that the greatest single day increases have come during bear markets. I remember that the most money I ever made on paper in a day was after a bear market rally in 2008, after which the market fell further for months. Back then I basically went into denial about the crashing markets and just sat it out. During the Covid-Crash in 2020 I did a lot of buying and selling, hoping to 'time' the market. This didn't really work; I would have been better off to just wait it out. Today, I have some cash on the sidelines and am planning on making a few lump-sum buys into the market over the coming months. I think one of the best concepts I have come across in the past, has been dollar-cost-averaging. It is about recognizing that we are all clueless as to the direction of the market in the short term, and we are better off to just keep buying into the market, every week or month. And over the long-term, we should all come out okay.