Tariff Wars: What Should Long-Term Investors Do?

Welcome to Financial Fluency - a newsletter designed to boost your understanding of financial terms and provide you with investment ideas for long-term financial success.

Note: In this week’s newsletter, I intended to talk about how to gain exposure to Bitcoin without actually buying the asset directly. However, I think that the global financial situation took precedence this week, so I will return to Bitcoin next week.

In today’s newsletter:

• A Look at the Markets: S&P 500, Global ETF, Bitcoin & EURUSD

• Tariff Wars: What Should Long-Term Investors Do?

• Quote of the Day: Keir Starmer, UK Prime Minister

• What I’m Watching: Raoul Pal, Real Vision

• Word of the Day: Soft Power

• Whenever you are ready, here is how I can help you

A Look at the Markets: S&P 500, Global ETF, Bitcoin & EURUSD

S&P 500

$SPX ( ▲ 1.81% ) 

The last green candle shows the market’s positive reaction to the 90-day pause in tariffs.

The current drawdown puts us back at around the same levels as July 2024.

Vanguard FTSE Global ETF (Accumulating)

As with the S&P 500, the last green candle shows a positive reaction to the 90-day pause in tariffs.

Bitcoin

$BTC.X ( ▲ 2.16% ) 

In recent newsletters, I have been warning of a potential drop to $72,000. My predictions cannot be precise but perhaps the recent drop to $74,500 was the drawdown that I had been waiting for.

Have we reached the bottom of this current pullback? Only time will tell!

I am still looking for a break above $92,000 to be bullish.

EURUSD

$EURUSD ( ▼ 0.01% ) 

Comparing the performance of the EURUSD in the current Trump presidency with the beginning of the first Trump presidency shows remarkable similarity at this early stage.

I first looked at this chart in the newsletter on the 14th of February 2025.

Tariff Wars: What Should Long-Term Investors Do?

Staying Calm When Markets React to Policy Changes

One reason I don't create YouTube content is because of the pressure to use clickbait thumbnails to attract attention.

If you go on YouTube now, you'll see titles like "Stock Market Crash!", "Do This Now!", or "He's Really Worried!" But if there has already been a crash, it's usually too late to act. And often, the person in the thumbnail isn't actually "really worried" when you listen to their full video in context.

In this newsletter, I’d like to explore three reasons to be pessimistic and contrast them with three reasons to be optimistic.

3 Reasons to Be Pessimistic

1. Uncertainty around tariffs. Tariffs aren't new, but the scale and global reach of last week’s trade restrictions were unprecedented. This is reflected in the Economic Policy Uncertainty Index: Trade Policy (shown above), which is at record highs. This kind of uncertainty affects short-term traders and investors - and we don't know when or how it will end.

2. The unpredictability of a second Trump presidency. Trump's policies extend beyond just trade. He has already brought international uncertainties related to situations in Ukraine and Gaza, as well as controversial deportation policies within the US. He has also created tensions with allies including Canada, Mexico, and even Greenland. What might another four years bring?

3. Loss of US soft power. Soft power means influencing other countries through culture, values, and foreign policy, rather than through military or economic force. If the US loses global trust, that could affect its long-term role in the world and, therefore, in the global economy.

3 Reasons to Be Optimistic

1. This isn't an uncontrollable global crisis. Unlike the global financial crisis or COVID-19, the current tariff situation stems from policy decisions, not unpredictable events. These decisions come from one person who is known to change direction. In fact, as I am writing this, a 90-day pause for most tariffs has been announced with many tariffs reduced to 10%. Trump pays close attention to stock market performance. With midterm elections approaching next year, he's unlikely to let markets decline for long.

2. Europe may become more independent As a European, I see the potential for Europe to trade more with former British Commonwealth countries like Canada, Australia, and India. Over time, my global ETF will reflect any shift in global performance.

3. The macro outlook is still positive Raoul Pal, a former hedge fund manager at Goldman Sachs, points out strong global macro indicators like rising liquidity and PMI (Purchasing Manufacturer’s Index - a measure of business confidence). He even believes there may be a trade agreement between the USA and China in the near future.

My Plan

I'm not selling any of my long-term assets. Doing so would trigger a taxable event (requiring me to pay capital gains tax) and reduce how much I can reinvest.

From a long-term perspective, this situation may even be a buying opportunity. While being in a declining market is not pleasant, neither is being out of a recovering market.

I’m continuing to invest in a global ETF that automatically adjusts to global economic changes over time.

Conclusion

When making financial decisions, think about your long-term goals and try to ignore short-term noise.

Of course, these topics are complex and can't be fully explained in a short newsletter. My goal is to give you a feel for how I'm thinking but not to oversimplify a complicated subject. Additionally, the political and economic situation may well have changed by next week.

So, far from using clickbait thumbnails to create a sense of doom or urgency, I think I will go for a walk!

As always, none of this is financial advice. Everyone should invest according to their personal circumstances, risk tolerance and financial goals.

Quote of the Day: Keir Starmer, UK Prime Minister

This is also good advice for long-term investors, in my opinion.

What I’m Watching/Reading: Raoul Pal, Real Vision

An in-depth assessment of the current global financial situation.

Please note that the views expressed in this video are contrary to many financial commentators.

Word of the Day: Soft Power

Soft power - compound noun - uncountable - a persuasive approach to international relations, typically involving the use of economic or cultural influence rather than military force.

Compound noun

Soft power is a compound noun - a noun consisting of two words that function as a single unit. Similar to "bear market," "soft power" is written as two separate words while functioning as a single concept in political and diplomatic terminology.

Whenever you are ready, here is how I can help you:

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Disclaimer:

This newsletter is for informational and educational purposes only and should not be construed as financial advice. The information contained herein is generic and does not take into account your individual financial circumstances. You should always consult with a qualified financial professional before making any investment or financial decisions.

Additionally, the authors and/or publishers of this newsletter may hold investments in securities or other financial instruments mentioned herein. These are included for illustrative purposes only and should not be taken as a recommendation to buy or sell such securities or financial instruments.