Zero Dimensional Chess

Authored by Peter Tchir via Academy Securities,

This administration had delivered on the border as the voters wanted. I wanted to start with something positive.

Today, I’m sure we will hear some hot takes about how the administration is playing 5D chess which everyone who doesn’t think tariff approach will work, is simply to simple to see.

I think they have just exposed themselves as playing zero dimensional chess.

Reciprocal tariffs, to almost anyone I talk to meant:

• You tariff me at X% on ABC good, I now tariff you at X% on ABC good.

I would argue that at least 90% of market participants and countries thought that was the definition of reciprocal tariffs.

Apparently, the calculation was:

• Trade Deficit with Country / Imports from that Country

Then the U.S. took 50% of that (rounded up) and called that reciprocal.

I guess they wanted a “big” or “huge” “simple” number for each country? That is all my little mind can come up with.

I DO NOT SEE HOW YOU “NEGOTIATE” WITH THAT

That is such a weird calculation that it is incredibly difficult to figure out a starting point for negotiations.

The government pulled back tariffs on potash (they should have read our T-Report from two weeks ago and saved themselves the trouble).

I bet the administration will cancel the tariffs on chips from Taiwan.

• Markets will briefly rally as this was self-inflicted wound.

• Markets will then sell off, because a mistake so obvious as this demonstrates, that there are probably so many mistakes in here, that countries will wait and watch the policies implode before coming to the table (Americans, as we have learned, HATE inflation and that is coming, since there were big tariffs, virtually everywhere).

• I though Chinese solar had 100% tariffs (initially under Trump and bumped up under Biden) do those come down now? (sounds stupid, but who the heck knows given the policy!)

I do not see countries coming to the table in a rush.

I see inflation spiking as it takes time to bring manufacturing back and there is no one to turn to who didn’t get whacked (making it far more likely tariffs get passed on).

Bottom Line

Rates will come down a bit – economic problems – but not as much as expected because inflation will rise and foreign buying will dwindle.

The lows are NOT yet in for stocks. I cut some shorts here, but remain bearish on the Nasdaq 100 and S&P 500 – though will be watching for bounces.

I will be adding specific chip makers with a U.S. foundry presence (and plans to build that are underway).

While I recommended reducing all global holdings a week or more ago, I will be adding back China holdings here – despite the new tariffs, I see them benefitting.

Good luck, hopefully I’m wrong, but this was worse than I expected, and I was on the pessimistic side to begin with.