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- The Tariff Trap
Price will tell the story
Tariffs this. Tariff that.
People can’t stop talking about them and their implications.
For me, it’s simple.
Whether they’re inflationary or trigger a growth scare, price will tell the story.
Price always tells the story.
Energy is the Tell
When it comes to inflation, everything starts with energy.
It’s the first cog in the wheel.
The cost to build, move, and transport goods ultimately determines their price.
Affordable energy has fueled strong bull markets, while expensive energy has had the opposite effect.
When it’s cheap, it drives expansion, making production and transportation more efficient, keeping costs down, and supporting economic growth.
But when energy prices rise, they push input costs higher across the board, squeezing margins and slowing everything down.
Historically, bull markets have thrived in periods of stable or declining energy costs, while spikes in oil and gas prices have often preceded economic slowdowns or bear markets.
Energy is like oxygen for the market, too expensive and things start to suffocate.
Same Old, Same Old
I have to laugh at the energy experts.
Every move in this space sparks a 5,000 word dissertation on its potential impact.
But I keep it simple:
Uptrend – Innocent until proven guilty (Up).
Downtrend – Guilty until proven innocent (Down).
Sideways Mess – Show me, or I don’t believe you (More Sideways).
Right now? Sideways mess.
I wrote last June to wake me up when we sustain above $95.
Ironically, it’s still done nothing since.
I’m shocked 😉.
Energy & Rates
Let me be clear.
Higher energy prices aren’t something I want to see.
But they’re something I have to see if I’m going to believe in this inflation reacceleration that all these tariffs are supposed to cause.
Energy tends to lead rates, so if energy continues to move sideways and stays out of the inflation equation, that gives Powell more leverage in deciding what to do with rates.
Once again, I have to see it (via price) to believe it.
Just take a look at the relationship between energy and yields.
Once you see it, it’s drilled into your head.
Price IS the Story
Stories sell. They really do. And most people are in the business of doing exactly that.
As a market technician, I follow price, not stories.
So if energy is the tell for rates, it’s hard for me to see rates moving meaningfully higher from here.
I might be in the minority, but a growth scare is slowly gaining more of my interest meanwhile, the inflationistas are getting more and more time in my stand-up comedy bits.
Cheers,
Larry Thompson, CMT CPA