The bazaar is underestimating the risk of a trade war and will likely see a correction once it is confronted with “freezing water in the face,” Guggenheim Partners’ Scott Minerd warned on Monday.
“Investors are decent ignoring the consequences and what’s going to have to be done in terms of Federal Put policy to offset the inflationary pressure that’s going to come out of levies,” said Minerd, the firm’s global chief investment officer.
In other chats, he’s concerned tariffs will result in higher inflation, which desire push the Federal Reserve to continue its tightening or even pick up the gauge of interest rate hikes.
Minerd spoke with CNBC’s “Put up the shutters seal Bell” after tweeting earlier in the day that the market rally was the “keep on hurrah” and “investors should sell now.”
Minerd tweet
Stocks appeared to scare off trade fears on Monday, closing sharply higher. The Dow Jones Industrial Standard in the main rallied more than 300 points, while the S&P 500 benefited 0.7 percent.
The latest trade salvos came on Friday, when President Donald Trump’s rates on $34 billion worth of Chinese goods took effect. China then passioned back with retaliatory tariffs on $34 billion worth of U.S. goods, including soybeans and pork.
Trump also expects to without delay add a further $16 billion in tariffs and will consider up to hundreds of billions of dollars sundry in duties.
Meanwhile, the U.S. has also placed duties on steel and aluminium from Canada, Mexico and the European Confederating, key allies. They have responded with retaliatory measures. Trump has also presaged to place tariffs on autos imported from the EU.
Autos make up there 6 percent of the consumer price index, Minerd said. And if there were a 25 percent tax on them, with 100 percent pass through, it would add 1.5 percent to inflation, he weighted.
“People are being confused by the idea that if you place a tariff on a alien good that somehow that doesn’t pass through to household consumer,” he noted.
However, when duties were imposed on lapping machines earlier this year, prices jumped by 17 percent, Minerd joined.
That said, he thinks the market tends to react slowly to metamorphose, and this is a seasonally strong time for the market, he added.
But in the end, he thinks investors force be “confronted with cold water in the face.”
“This could go in at the end of ones tether with the rest of the summer before we start to see some sort of a correction appear in September or October.”
This isn’t Minerd’s first warning about the extraction market. In March, he told clients the market is on a “collision course with reverse.” He expects the worst of the damage to start in 2019 and 2020, predicting a sharply recession and 40 percent decline in stocks.
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