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Do not panic, sanity is on its way

The world's sharemarkets are falling, investors are worried and some folk are just downright panicking.

Some words of advice: chill out, stand back, grab some popcorn and play at being a spectator for a little while.

Is the world headed into a spiral of tariffs, taxes and dispair?

Nope.

What we're seeing right now is a whole lot of bluff and bravado as world leaders volley for position and place pride before pragmatism -- but this sort of thing can't last long. In fact I predict we'll be heading back to normal by the end of the month, if not sooner.

The reality is that these leaders know the harmful effects that tariffs will have on their own domestic economies and it won't be long before pressures from within their own countries force their hand to step back from the brink of a nasty trade war.

Right now it all seems to be about saving face and proving who has the most testicular fortitude but ultimately sanity will prevail and we'll see the current tariff levels significantly abated or even removed completely.

The only real worry might be if the whole process takes too long.

Trump has said that stiff tariffs on its trading partners will foster domestic production and boost the US economy. That might be true in the longer term but in the short to medium term it will simply put the brakes on all aspects of business in the USA.

Nobody is going to invest millions or more in building new production facilities in the USA simply because some arbitrary tariffs are making economic to do so. They realise that Trump could remove those tariffs as quickly and easily as he applied them. If he was to do that then suddenly those businesses that invested heavily in creating domestic production would see their investments utterly destroyed as the doors opened to cheap imports once again.

Who would dare to take such a risk?

I also doubt that any importers will be placing orders for products from heavily tariffed countries right now. They'll prefer to simply adopt a "wait and see" approach to Trump's tariffmania.

The effect of these attitudes will be shortages of many imported products and rapidly rising prices even for stock that was brought in before the tariffs came into effect.

With no stock, distribution and retail operations will cut back on staff, increasing levels of unemployment and company profits.

In short, the US economy could take a real hit, if the tariffs remain in effect for more than a few weeks. Once such a hit starts to take hold, Trump will have no option but to back down from his hard-nosed stance and that could embolden his political and economic foes.

If there's one thing Trump does not want, it's to appear weak or on the back foot so this makes it even more likely that he'll come out claiming to have struck "deals that are favourable to the USA" with his major trading partners and thus removing or significantly reducing the tariffs applied to them.

Now I'm no economist or financial genius but I'm pretty confident in my predictions. There won't be a financial armageddon of the type currently being predicted by so many in the mainstream media.

The situation with China is a little less clear but I still believe that we'll hear of a negotiated settlement with both Trump and Xi Jinping claiming victory without challenging the contradictory claims of the other. They understand the importance of avoiding a global economic crash and burn.

With all this in mind, I guess now would be a great time to invest in the sharemarket, buying up blue-chip stocks while they're low and banking on a significant resurgence in the weeks and months that are to come.

Only time will tell if I'm right or wrong but either way I'll revisit this column in a few months and compare prediction with reality.

Carpe Diem folks!

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