'Insane' Tariffs Would 'Destroy' Living Standards Says Expert
U.S. Retreats From Tariffs on Canada and Mexico
TABLE OF CONTENTS
Market Recap: Doug Casey on how ‘insane’ tariffs destroy living standards
EQUITIES: Steve Diggle on why the Nasdaq is set up for a 2000-style crash
ECONOMY: Steve Hanke on Fed’s rate cut, economic slowdown in 2025
ECONOMY: Fed will launch a ‘bazooka’ after market crash, says Matt Piepenburg
COMMODITIES: Rick Rule on why he is optimistic about Canadian oil and gas
CRYPTO: Markus Thielen on why Bitcoin will reach $122k in the short-term
MARKET RECAP
Latest News. On Saturday, February 1st, The White House announced that, effective February 4th, the U.S. would be rolling out 25 percent tariffs on Mexico and Canada, and a 10 percent tariff on China.
The executive action also would have imposed a 10 percent tariff on Canadian energy.
Markets reacted badly to the news on the morning of Monday, February 3rd, with the Dow down over 500 points and the S&P down 1.6 percent.
However, stocks recovered following news that U.S. President Donald Trump had worked out a last-minute deal with Canada and Mexico, which involved both countries devoting more resources to policing their borders and stopping the illicit flow of fentanyl.
In return, The White House agreed to pause tariffs for 30 days.
Doug Casey, best-selling author of Crisis Investing and Founder of the Crisis Investing newsletter, called the trade conflict “stupid and unnecessary and destructive.”
Casey was speaking on February 3rd at 2pm EST, before Trump rolled back tariffs on Canada.
“What’s going to happen is we’re going to see a significant drop in the standard of living,” he said. “If [The President] wants to get rid of U.S. trade deficits, what needs to happen is U.S. taxes and regulations need to eliminated. That would reduce the cost of production in the U.S., and people would come to the U.S., instead of running away from the U.S.”
Casey predicted that the end result of a trade war would be no trade between the countries involved in it.
“Just as Trump has attempted to punish Canada, Trudeau… thinks that he can now punish Americans [with tariffs],” he explained. “What’s Trump likely to do? Well, you punish me, I’ll punish you more. And there won’t be any trade between America and Canada… or any other country.”
However, Casey said that tariffs by themselves do not cause inflation, since they only raise relative prices, and not the overall price level.
“Tariffs don’t increase inflation,” he said. “What increases inflation… is an increase in the money supply. What tariffs do is they increase the prices of individual items, not the general price level… and people can buy less of those items, and they can use their money to buy something else.”
Market Movements
From January 27th to February 3rd, the following assets experienced dramatic swings in price. Data are up-to-date as of February 3rd at 9pm ET (approximate).
Whirlpool — down 25.5 percent.
JetBlue Airways — down 25.3 percent.
Comcast Corporation — down 13.2 percent.
Palantir Technologies — up 11 percent.
Arabica Coffee — up 8.8 percent.
The following major assets experienced the following price movements during the same time interval.
DXY — up 1.4 percent.
Bitcoin — down 0.9 percent.
Gold — up 2.7 percent.
10-year Treasury yield — up 0.9 percent.
S&P 500 — down 0.3 percent.
Russell 2000 — down 1.1 percent.
USD/yuan — down 0.8 percent.
EQUITIES:
NASDAQ COLLAPSE CRISIS
Steve Diggle, January 31, 2025
Risks to market stability are similar to those in 2008 during the Global Financial Crisis according to Steve Diggle, Founder of Vulpes Investment Management.
Diggle made over $3 billion betting on volatility in 2008, and warned of an upcoming crash in the tech-heavy Nasdaq.
Diggle said that market volatility risks have risen due to central banks being constrained in their policy tools, alongside “untenable” asset prices.
“[Firstly], the extent to which the central banks will feel comfortable continuing their money printing is limited because we’ve had this very significant 50-year high inflation,” he said. “And secondly… asset prices have now grown to a point, particularly in certain areas, where they just look untenable… It’s now a good time to start revisiting the idea of downside hedging because the chances of volatility have gone up, but the cost of hedging has gone down.”
However, Diggle said that the chances of another 2008 financial crisis are slim.
“I think it’s unlikely for two reasons,” Diggle explained. “One, the epicentre of risk now is no longer in the banks… The banking system is an awful lot more robust than it was in 2008… Secondly, the central banks are watching particularly the banks, but [also] general, broad pillars of the financial system, and stand ready to add liquidity a lot faster than they did in 2008.”
A “2000 Nasdaq collapse style crisis” is more likely to occur, said Diggle.
“We’ve now got some gigantic companies sitting on relatively small or fragile revenues,” he explained. “We also have a macroeconomic background with the new President in the United States who… has a fairly radical agenda and is very unpredictable.”
As an example of fragility, Diggle pointed to the recent crash in Nvidia stock, which was driven by DeepSeek, a Chinese tech firm which reportedly ran an efficient AI model on old Nvidia chips.
“When a tiny little 200-person company [DeepSeek] can cause the most valuable stock in the world to lose $560 billion in a single session… if that’s not a sign that things are fragile, then I don’t know what is,” said Diggle.
ECONOMY:
FED’S END GAME
Steve Hanke, January 30, 2025
Steve Hanke, Professor of Applied Economics at Johns Hopkins University, said, in response to the Fed’s rate decision, that the Fed failed to account for the money supply growth in its monetary policy.
The Federal Reserve on Wednesday, January 29th, held its key interest rate steady, after cutting three times in a row last year. The current range for the Fed Funds Rate is 4.25 to 4.5 percent.
Jerome Powell, Chair of The Federal Reserve, said in a press conference that the Fed needs to see “real progress on inflation” or labor market weakness before further rate cuts.
“[Powell] never mentioned the money supply growth, he never mentioned credit growth, and those are… the drivers that fuel for the economy,” Hanke said. “To hit the Fed’s inflation target… of 2 percent, Hanke’s Golden Growth Rate for the money supply, measured by M2, is 6 percent per year.”
Hanke went on to say that the current M2 money supply growth rate is only 3.9 percent, which is “too slow.”
He added that the Fed should stop its quantitative tightening program.
“The Fed is too tight,” said Hanke. “… A 25 basis point reduction [in the Fed Funds rate]… would be okay, not a big deal one way or the other. The big deal is quantitative tightening.”
At the current rate of money supply growth, the economy is going to “slow down” in 2025, said Hanke.
“The nominal GDP will go down because inflation will go down,” he said. “I think [inflation] will be dipping down, by the end of the year, below the 2 percent target actually, and I think the real growth will be slow.”
ECONOMY:
FED TO LAUNCH ‘BAZOOKA’ AFTER CRASH
Matthew Piepenburg, January 26, 2025
Matthew Piepenburg, Partner at Von Greyerz AG, said that the Federal Reserve would unleash a “bazooka” of stimulus following an upcoming market crash.
“You’ve got a very narrow, over-valued market by every indicator,” he said. “Eventually the laws of gravity will apply… The question is will the Fed wait for a crash to then pull out the bazooka?… Will we have a Nikkei ‘89 that stays down for a long time, or will we have another dip, buy the low, and see QE sustain this market?”
Saving the bond market would be especially important for the Fed in the event of a market crash, according to Piepenburg.
“If you don’t support an otherwise unloved U.S. Treasury, then bond yields rise, [which] means the cost of debt rises,” he explained. “Yields are the real interest rate, not the Fed Funds rate, and so if yields rise, that crushes just about everything but the U.S. dollar.”
The risk to the bond market is greater due to rising U.S. national debt, said Piepenburg.
“The rest of the world is catching on that the U.S. is too massively in debt,” he said. “It’s a bad credit from a bad issuer… [The U.S. government needs] more support from the Fed if they really want to cut some of the expense of interest.”
Piepenburg also said that the U.S. is unlikely to reduce its debt until it cuts military spending and entitlements.
“The only way to really cut spending is to do something severe in the military budget or the entitlements,” said Piepenburg. “You have the optics of the DOGE, but the real spending cuts are going to have to come from politically difficult areas like the military, like entitlements. They’re massive.”
COMMODITIES
’ECONOMIC DILEMMA’ FOR INVESTORS
Rick Rule, January 24, 2025
Rick Rule, President and CEO of Rule Investment Media, said that political constraints had limited the development of oil and gas over the past few years, especially in Canada.
“[Canada] could be a much larger exporter of oil and gas,” he said. “The problem hasn’t been technical, it’s been political. [Prime Minister Justin Trudeau] decided there was no business case for Canadian natural gas, despite the fact that it sold for $2 a million BTU in Alberta, and $14 million [Canadian dollars] in Rotherham or Shanghai.”
However, a change in political regimes both in Canada and the United States would lead to benefits for the oil and gas sector, said Rule.
“I think that we’re headed into a period that is extraordinarily bright,” he said. “Canadian [oil and gas] will do better than most, because the governmental constraints to the production and export of both Canadian heavy oil and Canadian natural gas are really, really, really changing… At the same time, the transmission infrastructure blocks in the United States, that occurred during the Biden era, are likely to be gone too.”
Despite an escalating trade war, with Canada threatening to cut off energy supplies to the United States in case Trump implements tariffs, Rule said that he is not concerned.
“This is a non-starter,” said Rule. “This is Mr. Trump pandering to his base.”
When it comes to inflation, Rule said that the CPI Index is a “flawed” measure, and that true inflation.
“The idea that the basket of goods and services that you consume… has only gone up by 2.5 or 2.6 percent compounded in the period 2020 to 2025 is farcical,” he said. “The underlying depreciation in the purchasing power of the U.S. dollar is probably more like 7.5 or 8 percent.”
CRYPTO:
BITCOIN’S NEXT PRICE SURGE
Markus Thielen, January 26, 2025
Markus Thielen, CEO of 10x Research, predicted that in the short-term, Bitcoin would hit $122k.
“When you look back over the past 12 months, we have been moving in $16k to $18k increments,” he explained. “So the fact is that we’re sort of… struggling around this $90k to $106k range, so the next $16k range is going to be $122k.”
He said that the Chinese New Year could be a “big catalyst” for buying, as a lot of Bitcoin demand comes from China.
“When you look back in early 2014, actually 90 percent of all Bitcoin trading was in China,” he said. “So the Chinese New Year that we’re going to have next year might be a big catalyst.”
Thielen said that over time, Bitcoin had kept its purchasing power, and has functioned as a “store of value.”
“[Bitcoin] is of course too slow, or too small really, to be a monetary currency,” he said. “So Bitcoin is not a currency but it is a store of value… Bitcoin is a gross operating business with a network effect that keeps on growing.”
When it comes to the policy idea of a Bitcoin strategic reserve, Thielen said that there is “no reason really to doubt” that it would be implemented.
“I think [Trump] is quite in favour of this view of a strategic Bitcoin reserve, and all [the U.S. government] has to do is not sell [the Bitcoin they already have],” he said. “I think it’s just a matter of time until they announce it.”
WHAT TO WATCH
Monday, February 3, 2025
Construction Spending — The amount spent on construction over the prior month.
Wednesday, February 5, 2025
U.S. Trade Deficit — Monthly U.S. trade deficit data will be released.
Thursday, February 6, 2025
Bank of England rate decision — The Bank of England’s Monetary Policy Committee will meet to make an interest rate decision.
Friday, February 7, 2025
Unemployment Rate — The unemployment rate, the share of jobless in the labor force, will be released.