🗞 The Truth About Tariffs

WHILE YOU POUR THE JOE… ☕️
One Exit

Whenever the market gets this crowded, such as the classic movie theatre analogy, the one available exit will become a tight bottleneck as everyone tries to exit on a bad news event. 💥 

With this in mind, I want you to look at (and internalize) the fact that there is now more retail capital crowded in the market than ever in the past five years.

And, if you’ve followed our breakdowns in the macro view, then you understand that there are plenty of tail risks present in the market today, which might trigger this run for the only exit that’s available. 📉 

Speaking of running for the exit, let’s get on with today’s email 📧…

THE WRONG BET
What’s the Deal With Tariffs

Judging by the way that the FX market has behaved lately, the view is definitely not good, for some. 👀 

“Call an ambulance… But not for me” Type of moment.

You see how the Canadian dollar has devalued this much over the past two quarters? You can’t tell me that the market hasn’t been expecting tariffs to come through for a while now.

On that note, I do think that the market is pricing in the wrong narrative to come from tariffs, which we refer to the classic “following the textbook” mistake.

Look, we’re not experts on tariffs, but here’s what we think:

Because exports have outpaced imports for two months now, we think that overall industry in the United States is getting ready for a lower dollar regime coming up. 💵 

This goes hand in hand with President Trump’s plans to bring back jobs and business activity to the real economy, which would also call for two main shifts in today’s market:

1. We need a lower dollar so that these tariffs can be offset by more demand for our relatively cheaper exports on an FX rate.

2. Bonds will have to rally as equity markets deleverage from their record-high valuations, bringing Trump the lower rates he’s already asking for.

If these two were to happen, then this is where the export/import spread makes sense.

Tariffs will make it more expensive for the current importers in the economy to keep business flowing. Now most think that these higher prices will be directly passed down to consumers in a tit-for-tat manner. 🥊 

However

Here’s where the lower dollar and lower yields environment could change that:

This spread (between bonds and dollars) has reached historically wide levels, so a convergence not only makes technical sense, but also fundamental.

If you can fathom that narrative, then you’re not too far from knowing that this environment would help small domestic businesses to start developing supply chains and capacity domestically, so that these large internationals don’t have to pass down costs so much. ✅ 

That would also help margins at the large cap net exporters like Caterpillar (which is why the stock is at 90% of its 52-week high now). 🔥 

This is exactly why the industrial manufacturing sector is starting to break out in price action, current EPS growth forecasts for 2026, and forward P/E premiums. 🔼 

Of course you would’ve already spotted this theme before the breakouts even happened after watching our YouTube video on the whole thing.

From here, I’d say watch out and hang on, because we’ll be drilling into these industries further to bring you our best stock picks and ideas. 💡 

TRADE OF THE WEEK
Reverse Cliff

If you’ve followed us for a while, then you should be as excited as we are about this market / volume profile setup in shares of Cleveland Cliffs stock. 🔥 

An American steelmaker with legs on it to run higher this year, we think that the $9.5 a share to $10.75 range offers a potentially great entry opportunity. 🤑 

Of course there are other things to consider before pressing the buy button, such as how the market feels about it right now.

Comparing Cleveland Cliffs stock to other close peers in the steelmaking industry, it becomes evident that it’s current 45% of its 52-week high makes it an asymmetric bet compared to its massive EPS growth forecasts for 2026.

This way, you are getting a fantastic risk/reward ratio in a stock that could bring you double-digit upside if not more.

Which is the sort of returns that help global macro hedge funds outperform the market, and the subject of our next YouTube video coming up. 💲 

Anyway, we’d consider riding Cleveland Cliffs stock to as high as $14 on an initial price target, that’s 36.7% upside from today’s level by the way. 🔥 

And as always, we aren’t too far from what Wall Street analysts are thinking, as they’ve landed on a consensus valuation for $17 in this case, which could become our secondary exit target if push comes to shove. 🫰 

NOW GO AND MAKE IT HAPPEN
Don’t Fool Yourself

Of course, there are still plenty of people in the market, and Twitter especially, condemning us for pushing this scenario, believing that these tariffs will result in inflation.

We sent them today’s book recommendation 📖 ,which discusses the importance of considering narratives (more than data) in these situations.

To your success,

G. 🥃