SPECIAL REPORT: Tariff Trauma -- What We Know So Far About Why The Markets Are Bleeding

**Adam Taggart** (0:02)
All right, we should be live. If we are indeed, welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Taggart, welcoming you here for a special report following the yesterday's Liberation Day tariff announcements by Trump and the carnage that has ensuingly reaped on the markets. We are joined very fortunately by portfolio manager Lance Roberts here. Hey, Lance, how are you doing?

**Lance Roberts** (0:27)
I'm doing fine today.

**Adam Taggart** (0:29)
Good. All right, folks, look, we got a few minute late start here. We're having some technical issues on Lance's end with the audio. If that comes up again, we'll find a workaround. Just be patient with us. Also want to give Lance a huge thanks. This is a very busy day for folks like him in their industry when there's so much chaos going on in the markets. And Lance, I really appreciate you dropping that to just spend some time with the audience here. We're going to do a quick summary of what we know so far, and then we'll open it up to questions from the live audience, and then we'll go from there. And of course, folks, we will be doing a very deep dive on all this in this week's weekly market recap airing on Saturday morning. So what we can't get to today, we'll get into depth then. All right, Lance, well, look, I guess my question for you first and foremost is, Trump, he telegraphed that he was going to be doing reciprocal tariffs. He couldn't have talked a bigger game about Liberation Day. Why are the markets so surprised by the scope of the tariffs?

**Lance Roberts** (1:27)
Because, A, first of all, it's much larger than anybody anticipated, and B, these have nothing to do with reciprocal tariffs. So when you actually dig down into the data, yes, there are other countries that have tariffs on us. Absolutely. Japan, for example, they have a 700% tariff on rice. So if they import US rice and it's a dollar a pound, it's $7 in Japan. So what was expected was is that if there was going to be a reciprocal tariff, an example of this rice situation, they say, great, we're going to put a 700% tariff on Japanese rice. If you want to import Japanese rice into US, we're going to tariff it. That's what the markets were expecting. What came out, though, was something entirely different, and something that nobody had really anticipated, which was just basically taking the trade deficit between countries and just saying, well, half of that is a tariff. So again, this had nothing to do with tariffs, ultimately. It just had to do with the trade deficit. And there's countries that we should run a trade deficit with. Trade deficits aren't a bad thing. It's just how they were used in this case took the markets by surprise. So these were just these were much worse tariffs than what was anticipated. And that's the bad news. The good news is that these tariffs were much worse than anticipated, which means that basically there's nothing but upside here. So if the administration comes out and says, hey, we've negotiated with this country or that country to resolve the tariff issue, and we're reducing the tariff there, then that leaves some upside for the markets.

**Adam Taggart** (3:07)
All right. So I've spent a fair amount of today listening to, the members of the Trump administration that have been on the airwaves. As you can imagine, it's been a really busy morning for them. And to your point there, Lance, Scott Besson, US. Treasury Secretary, said, hey, you should look at these as a ceiling, meaning these terms are only going to get better for countries as they work with us, unless they do retaliatory tariffs, right? And then we're going to retaliate again. So again, it's hopefully a ceiling, but not necessarily, right? We're going to talk about this, but just maybe cut into the punch from a market perspective.
Do you think then that maybe this is a good buying opportunity here, or like this is the worst the news is going to get in the short term, and therefore, there's only things that will please a deeply oversold market from here?

**Lance Roberts** (3:59)
Yeah. So that's actually kind of, I guess, if there's a point of some good news here to speak up from the market standpoint is that, first of all, this didn't hit with markets at all time highs. So we had already sold off over the last several weeks. Markets are decently oversold here. Valuations have come down decently on a lot of positions. So this is obviously a much unanticipated impact from these tariffs, and it's going to lead to a revision in earnings. So again, all markets, so step aside of everything for just a moment. None of this matters. The tariffs don't matter. You know, the economy doesn't matter, and none of that matters just at the headline basis, right? What matters ultimately is, is okay, great, you put on tariffs, but what's the impact of forward earnings? Because the way the markets price is they say, okay, at 18 times earnings at this, because of this tariff, what do forward earnings look like? So if I put an 18 multiple on that, what does that give me in terms of a target for the market? So that those earnings are going to come down sharply because of these tariffs, assuming that nothing changes, right? So assuming that changes, earnings are going to come down a little sharply. Then the markets can assign a valuation multiple to that, and then markets can start to recover. So, you know, fortunately we've already had a valuation reduction. This isn't coming at the peak of the market, it's coming more towards, you know, a corrective process, which may limit some of the downside to this. So in the next few days, you know, so part of the good news coming out of this announcement is at least we know what they are, right? We got the worst case scenario. This is as bad as potentially it'll get in terms of tariffs. So now I can take these tariffs and I can say, okay, great, what is Apple going to pay in terms of these tariffs for their, you know, for their products that are coming in from China? We know it's a 34% tax. We can now look at Apple's earnings and say, okay, what does that mean? And start pricing in Apple. That's what's happening today, obviously, the price of Apple down, because they're trying to price in this new earnings level for Apple or Microsoft or Google and video, whatever. And it's interesting because some of these companies aren't down nearly as much as you would expect because they've already declined 15, 20% from the recent peaks.