WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

NEW MERCH ALERT - WEALTHY RED - Limited Quantities Grab Yours today CLICK HERE

MARCH OF THE FALLING KNIVES…

The hardest thing to do is rationalize a falling stock market when it hits your emotion’s center mass like a falling knife. The thoughts of failure and losing money weigh heavy on your conscience, while you scramble emotionally for the answer to solve your problems.

Your first thought is to stop the pain by selling but the lost figures dancing in your head prevent you from taking action. After staring at the stock for what seems like all day, you somehow find calm in going down with the ship, saying to yourself, it will come back or so you hope.

As you search for stable ground, CNBC is playing in the background while you’re praying for breaking news to hit hoping for that red block with white lettering to cross the screen. 

You scroll your Facebook looking for balance. You even read the message boards searching for clues that might take your misery away, but nothing seems to help you escape the compounded feeling of a potential loss from the bear market when everywhere you look seems like it’s just getting started. 

This is the time when you come to reality with what you know and don’t know about the stock market and your ability or inability to make money in it. 

One thing is for certain—the honeymoon is over. 

You see, the market doesn’t care if you are new or you did the best research you knew how, because frankly…it’s not about you. Outside forces are having their way with markets while the market simultaneously tries to imagine the sweeping impact tariffs will have on boardrooms across America. 

The main issue is that a supply shock and tariffs may crush earnings projections, leaving CEO’s in limbo, held hostage by the unknown impact on their bottom lines. This will have a trickle-down effect as analysts who are also in the dark try to model out the best possible incomes. 

The combination of uncertainty and unknowns will pull the estimates down like a powerful magnet, starting an avalanche of selling until the market goes down enough for the value hunters to pull out the spears. 

If you are new to investing, these feelings are both frightening and unfamiliar, but if you have been through the dot-com bubble, the mortgage crisis, or the pandemic, this is nothing you haven’t seen before or experienced. 

This is the period where both the baby and the bath water are on the floor as the market struggles past its panic to find a bottom. 

No research in the world can help you when stocks in all sectors are imploding. It’s really all about time and having a little foresight and insight to know, based on the resiliency of history and the strength of the U.S. markets—this too shall pass. 

The key is not to personalize it; no one picked you or your account. Everyone is suffering the same fate. The only difference is that if you own poor quality stocks, your fate will be sealed. 

On Wall Street, there is an old saying, Never make a decision out of emotion or indecision, because 9 out of 10 times it will be the wrong decision. This is the time when research becomes your therapy. 

Rationalization and data become your only saving grace when you frame this period in the market as compared to the past catastrophic events in the market. 

When you compare it to the financial crisis of 2008, there was internal and structural damage to the financial system. This was due to the greed that penetrated the system, which created a bubble in the mortgage market. The tariff scenario is more policy than structural.

I remember it as clear as day. I owned a mortgage firm. There were loan programs that incentivized borrowers to buy homes with little to no qualifications. This was at a time when everyone was a real estate genius and flipping houses was a sport. 

If you had a credit score over 720, you could qualify for a “No Doc” loan, which was exactly as it sounded…no documentation and the house was yours. If you were self-employed and couldn’t prove income because of deductions, we had a “Stated, Stated” loan for you. 

All you needed was 12 consecutive months of bank statements showing the required amount of deposits to qualify. 

They even allowed homeowners to turn their homes into credit cards with the absolute certainty that they were going to lose the house later due to non-payment. These were the options—pay or pick a payment loan. A borrower with the right credit score could obtain a mortgage with four main options to pay. 

The first option was a 1% minimum payment option, which was less than the principal and interest it took to service the mortgage. The second option was an interest-only payment option.

The third and the fourth option was the fully amortized 15-year and 30-year mortgage payment that covered both principal and interest. 

Most borrowers chose to pay the 1% minimum payment option. This guaranteed that eventually the home would be the bank's because the minimum payment wasn’t enough to pay the interest, which at the time was around 7% to 8%. 

For a visual, imagine a borrower only paying the equivalent of 1% of the loan when the true interest was 8%; this meant that 7% was being pushed to the back of the loan. 

These loans usually had a cap of 110% to 125%, which meant once the interest amount hit the cap, the interest was called due. This is where the crisis started to unravel, and people were losing their homes due to the lack of affordability. They effectively turned their home into credit cards and since the borrower was upside down in the home they were unable to refinance which meant the banks would eventually foreclose on the property.

The subprime mortgage market was the axe between the eyes of every low-end consumer with poor credit and the beginning of the spiral. 

Subprime banks like Countrywide would peddle option arm loans to consumers with lower credit scores. These consumers had very few to no options and wanted to avoid their interest rates jumping to outrageous rates. 

So, they chose the band aid option, which usually was a five-year arm, which when it adjusted, had the same effect as the pick-a-payment loan because the interest rate would not allow them (the borrower) to afford the home. 

The abuse of lending standards was the next level of fraud. People were so anxious to flip homes that they would buy a second home a mile away just to sell it before the ink dried on the loan docs.

People would attempt straw purchases with fake documentation just to get a piece of the American real estate dream. This was the castles in the sky theory that brought down the entire industry. 

These banks kept securitizing mortgage loans, packing subprime loans with prime paper loans and calling it triple-A paper loans. It was a matter of time before this ticking bomb blew up in Wall Street’s face.

Unemployment spiked to 10% in 2008, and the Fed took the Fed fund rates down to 0.

It eventually created one the longest bull markets we have ever seen, which started March 9, 2009, and lasted for 11 years. I used this example for the structural impact and what it looks like when we have a real chink in the armor of the system. 

Tariffs aren’t the equivalent to a structural and internal break in the system, although there can be supply shocks that may need a work around it’s more like a topical rash that can eventually be absorbed by the system. 

And while Chicken Little is screaming the sky is falling—until we see the world stand still or anything close to a global recession with visible data to prove, we are headed in that direction both domestically and internationally. Down stocks may seem like falling knives, when in reality, they may be actual golden opportunities landing in your lap. 

 WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

NEW MERCH ALERT - BILL GATES BLACK - Limited Quantities Grab Your Today CLICK HERE

THE DOLLAR IS THE WORLD’S 800 POUND GORILLA…

Have you ever stopped to wonder about the significance the dollar holds in the world and its importance as the primary reserve currency?

First, let’s explore what it means to be a reserve currency. This is a currency that is held in large quantities by governments and institutions as part of their foreign exchange reserves—widely used and accepted for international trade. 

Because of the economic stability of the U.S. dollar and its size and liquidity, it makes it a perfect conduit for international trade. The biggest factor is the trust the U.S dollar garners around the world as a safeguard of wealth.

Because of the dollar’s dominance, it exerts extreme economic power. The more countries that use the dollar to trade, the stronger its position becomes as a reserve currency.

Now, couple a dominant dollar with the largest customer in the entire world, and purchaser of goods, and you’ve created an economic powerhouse as a trading partner, which explains why we negotiate all trade agreements in U.S. dollars. 

The political capital the dollar carries allows the U.S. to influence international policy in the form of sanctions, restricting countries from accessing the U.S. financial system. 

As the world’s primary reserve currency, it gives the United States the power to put pressure on countries to comply with U.S. foreign policy objectives.

Oftentimes the United States has a personal interest. The trade-off is military alliance, energy, and/or world aid for cooperation. 

We have seen this time and time throughout history.

More recently, we’ve seen the power of the United States dollar influence during the Russia and Ukraine war when a number of Russian banks were removed from the SWIFT banking system (Society for Worldwide Interbank Financial Institutions).

The SWIFT system was created in 1973 and connects over 11,000 banks and institutions in over 200 countries.

The intention was to isolate Russia and prevent it from using the U.S. dollar or any other currency by cutting off its ability to sell its energy and agricultural products or trade in U.S. dollars. 

Some EU members were reluctant to remove Russia from SWIFT, both because European lenders held $30 billion in foreign banks' exposed to Russia and because Russia had developed the SPFS (Russia’s equivalent to the SWIFT system) a long with the obvious fact the EU was oil dependent.

Eventually, in a 6th round of sanctions, Russia’s largest bank, Sberbank, which accounted for one-third of Russia’s banking sector, was removed from the SWIFT system.

This had a severe impact on Sberbank’s ability to conduct international transactions, settle payments, or access foreign currency, i.e. dollars. 

Many of Russia’s international partners halted trade because of their inability to facilitate payments. This disrupted energy, agriculture, and manufacturing—leading to less exports. 

This proves on a minimum level how the coupling or decoupling of a financial system and its access to the world markets are all interconnected and crucial. 

The inability to sell Russian goods on the world markets led to a decline in the Russian ruble. The decline in the ruble created inflation as currency fluctuations made international goods more expensive—or, in this case, a devalued ruble made imported goods more costly. 

This highlights both the power of international trade as well as the prime positioning and influence the U.S dollar maintains as the world’s reserve currency. 

The natural question is…how do tariffs impact the dollar’s position as the reserve currency?

It could have a great impact on the cost of goods imported into the U.S. The U.S. global share of the world economy is roughly 15.6%.

Consider that the U.S. projected to produce 30.337 trillion in GDP as compared to the world’s GDP of 115.494 trillion. 

We are, without a doubt, the largest economy and the world’s biggest trading partner, and since our trade agreements are made in dollars and most countries trade in dollars, it would be detrimental to smaller countries moving to another currency. 

This would disrupt world markets and create instability as most of the world uses U.S. dollars to facilitate trade. 

A shift away from the U.S. dollar would also deter foreign investment due to the potential instability of a country’s currency. This also may attract the ire of the U.S. in the form of sanctions, limiting a country’s ability to transact in dollars in world markets. 

The U.S. dollar can be compared to Microsoft’s Windows because outside of Apple it’s very unlikely a computer will be sold without Microsoft Word and its suite of pre-installed products.

So, in this case, Microsoft has a monopolistic grip on the computer market just as the U.S. has on world markets. 

So, while tariffs will have an adverse impact on our economy in terms of potential inflation and supply disruptions, the impact on our trade partners will be much more severe if their largest customer decides to stop purchasing and build 100% domestically. 

On the flip side, if countries decided to sell their dollars and liquidated their treasuries this would have a huge detrimental impact on the United States as we are a debtor economy that depends on the foreign investments.

If our dollar is weak and and we lose economic stability, other nations will lose confidence in our currency forcing them to seek alternatives. While this is highly unlikely—because we aren’t just the worlds biggest customer but the worlds biggest military—so losing an alliance with such a powerful country may have partners second guessing any currency exits. 

Obviously, our debt is a major concern, so if countries like China and Japan start selling treasuries this will spook the bond market and banking sector causing economic instability in our financial markets.

This is a worse case scenario, but the reality is in a world dominated by dollars, the U.S. has amazing leverage over its trading partners; therefore, while the United States will suffer some bruises, some countries will feel like a major artery was severed.

 WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

NEW MERCH ALERT - WARREN BUFFET BLUE - Limited Quantities Grab Yours Today CLICK HERE

THE PSYCHOTIC NEGOTIATOR PART 2…

It has always been my position that President Trump was in full-fledged negotiator mode.

The sticker shock from liberation day created the desired effect. In fact, the tariff rates were so outlandishly outrageous that it forced countries to the negotiating table or risk such a devastating blow to their economy.

But the White House had to sell the sell deal, meaning they had to make the entire world believe that the tariff rates were permanent and not up for negotiation.

We saw this first hand as Peter Navarro appeared on CNBC multiple times laying down the first part of the plan, which was to reinforce the staunch position of non-negotiation and to push the “Eye for An Eye” agenda that the United States has been taken unfair advantage of and that counties would have to start paying their fair share.

And if this wasn’t enough, countries would have to come to the table with an offer on getting rid of their non-tariff fees and closing the trade deficit.

This type of pressure you see in mafia negotiations. Wall Street saw a bit of a bounce after Scott Bessent took over the negotiations.

Then there was the distraction between Elon Musk and Peter Navarro which almost seemed like a deliberate attempt to discredit Peter Navarro’s position with Elon calling Peter a moron and dumber than a sack of bricks.

While this music was playing in the background Sunday, April 6th, Bill Ackerman threw his two cents into the kitty.

The only thing with Bill is that he often doesn’t speak unless he has positioned his bet and he is looking to manipulate the markets in his favor.

He wrote a post on Elon’s X stating that the president was at the risk of losing the confidence of business leaders and that he should pause his economic nuclear war as it could collapse the economy while damaging his support base the most.

Bill suggested a 90-day timeout while we negotiated with our trade partners. If not, business could grind to a halt.

Bill’s suggestion was the basis for the idea that started the rumor.

On Monday, when Kevin Hassett, Director of the White House economic council, was asked while appearing on Fox News by a prominent hedge fund manager, would Trump consider a 90-day pause on tariffs. His answer was, “I think the president is going to decide what the president is going to decide!

Less than two hours later, two social media accounts on X posted nearly identical messages that President Trump was considering a 90-day pause. The market had a positive knee-jerk reaction, but this set the stage for what was about to take place.

Whether it was coincidental, the president keeping his hand on the pulse, or a White House plot all along, we will never know. But if the White House wanted to see the impact of what this headline would have, Monday's reaction was all they needed.

On Wednesday, the 10-year Treasury yields started to move up, which indicated that the bond market was selling off.

And then there was the post that on Truth Social at about 9:37 am “THIS IS A GREAT TIME TO BUY!!!” DJT.

This was the tip-off because exactly 48 hours later, at about noon on the 9th of April, the news hit the tape. President Trump pauses tariffs for 90 days after 75 countries came to the bargaining table.

This sent the markets roaring—the S&P 500 was up 9.5%, regaining 4 trillion dollars of market cap in one session, which was 70% of what had been lost over the prior four trading sessions.

The tariffs on all countries that chose not to retaliate would be set at a base rate of 10% for 90 days while in negotiations.

China would be raised to a staggering 145% while nothing would change with Mexico and Canada.

All products covered under the USMCA deal would remain tariff-free. 25% on other goods would remain in place and along with a 10% tariff on Canadian oil.

Wall Street thought the 10-year peaking at 4.445% was the reason for the change of heart, but when asked why the change of heart, Trump stated using a golfing reference that investors were getting a little too Yippy.

But Wall Street thinks the real reason Trump caved in is that, typically, 10-year treasury yields drop when the stock market goes down, as investors flock to safety.

In this case, yields were going up while the market was going down, suggesting investors were selling bonds. This monetary shift supposedly got President Trump's attention, forcing him to take action.

Rising yields and liquidated bonds could start a credit crunch, much like the 2008 financial crisis.

Rising yields force borrowers to pause, since banks hold treasuries if institutions are selling bonds—it could weaken the banking system, causing losses, forcing banks to tighten their lending requirements, reducing credit availability.

At first, it was rumored that perhaps Japan was selling bonds, but Japan’s finance minister, Katsunobu Kato, on Wednesday ruled out using the country's U.S. Treasury holdings as leverage or a bargaining chip against U.S. tariffs.

 He stated:

"We manage our U.S. Treasury holdings from the standpoint of preparing for in case we need to conduct exchange-rate intervention in the future," not from the standpoint of bilateral diplomacy, Kato told parliament.

While there was truly no way to know who the large sellers or seller were, bond yields responded to the upside, which made it seem as if the bond market and the unpopular consensus pressured Trump into a decision to pause. While the tariff saga is far from over, we are happy to get a “W” in the win column if not only for a day.

Naturally, the pause has everyone asking will there be a short-term band-aid or a stride towards a permanent solution.

My thesis is that in order for Trump to give up his leverage, he must have had a big enough consensus in his favor.

What can’t be understated is that the U.S is the world’s primary reserve currency, and most countries transact in U.S. dollars. And more importantly, we are the world’s biggest consumer, and in Sales 101…the customer is always right.

And while there will be more surprises with China along the way, I feel the cadence of deals announced will relieve some of the pressure on the markets, especially if Mexico and Canada align with the U.S in the negotiations.

 WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

NEW MERCH ALERT - BUY THE DIP NAVY - Limited Quantities Grab Your Today CLICK HERE

Quick Links…

I’m Your Pusher Man…

China Strikes Back…

London Bring Is Falling Down… 

Thank you for reading, we appreciate your feedback—sharing is caring.

Kevin Davis Founder of Investment Dojo and Author of The C.R.E.A.M. Report