Trump Could Be a One-Term President Thanks to Mexican Tariffs

“Tariff Man” strikes again. In a surprise tweet Thursday afternoon, President Donald Trump announced that, beginning June 10, the U.S. would impose a 5 percent tariff on all goods coming into the U.S. from Mexico “until such time as illegal migrants coming through Mexico, and into our Country, STOP.” The tariff is scheduled to rise incrementally to a hefty 25 percent through October.

As I’ve explained elsewhere, including in an interview this week with Kitco’s Daniela Cambone, tariffs are essentially taxes that are paid by U.S.-based importing companies, which then pass the extra expenses along to the end consumer. As such, tariffs are inflationary. Historically, faster inflation has boosted investor demand for gold, and indeed, the price of the yellow metal crossed above $1,310 an ounce on Friday for the first time since April 11.

Gold miners also increased sharply on Friday. The NYSE Arca Gold Miners Index jumped nearly 4 percent in intraday trading, the group’s biggest one-day gain in two years. The S&P 500 Index, meanwhile, lost some $1.5 trillion in market cap in the month of May.

gold miners surge on market volatility
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Investors also sought protection in U.S. Treasuries, whose yields fell to a fresh 2019 low. This pushed the already-inverted yield curve between the 10-year and three-month Treasuries deeper into negative territory. On Friday the yield curve sunk to 17 basis points (bps), its lowest level since well before the financial crisis. An inverted yield curve has preceded every U.S. recession over the last 60 years.

Treasury yield curve inversion falls even further into the negative zone
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Many successful, ultra high-net-wealth individuals (UHNWIs) favor municipal bonds, not only because they’re tax-free at the federal and often state and local levels, but also because they’ve managed to perform well even during equity bear markets. According to the first-quarter asset allocation report for Tiger 21, a peer-to-peer network for UHNWIs, members had an average weighting of 9 percent in fixed income, which includes muni bonds.