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Alright, welcome back to another edition of the Daily Dots. We're going to Friday, May 23rd. Going to be chasing you, flying solo for the day. Probably the last Dots until Tuesday.
So happy Memorial Day weekend to everyone out there. I'm going to go through the markets, have the news, and then walk through a few things I think are important today to include some speculation about where things might be heading with some of this news. S&P closed down 0.67. NASDAQ 100 down 0.93.
Small caps down 0.3. Equal weight down 0.4. MAG 7 down 1.4. You had the rest of the world, XUS, all-world XUS up 0.25.
We had oil up about 0.8. Nat gas was up over 2% on the day. You had gold up 2%. Silver up about 1.
Platinum up a little less than 1. Big news for me today, kind of the biggest market move to me was the dollar, which closed down 0.79. Now you're at 99.11. To me, 99.41 is a big level.
So we're now 30 cents below that. To me, if we close May, under that 99.41 level, it's a pretty big deal. As far as rates go, you're flat on the front end, and the two-year was down two basis points. You're now at about 4.51 on the 10-year.
So you've come off the top there a little bit, which should be helpful, but not exactly a big rally. They pulled out some stops to create this very small rally, which is sort of not impressive how much we rallied, how much yields have come down, given how much they've tried to do here in the last few days. For one, they sideline the sovereign wealth fund saying, I'm going to do that anytime soon. They're focusing on the debt, which is another way of saying, instead of monetizing the asset side of the balance sheet for a wealth fund, we'll monetize the asset side of the country's balance sheet to pay off debt.
Do I believe they're going to do that? No, but I think that's something they're going to say to try and cool off the bond market. They're also said taking treasuries out of the SLR, that way banks can buy them and not be penalized for holding them. It doesn't really count against them.
It can happen. They said that's going to happen soon, probably this summer. That's the kind of thing that you would think could be a significant boost. In fact, that's in today's setting.
That could be worth tens of basis points. So far, no. Now, when it gets enacted and banks start to buy, maybe. But I would be a little concerned with how much we have not rallied, given that.
As far as the news of the day, I think obviously the big news of the day, where it came from Apple and the European Union, President Trump threatened 50% tariffs on the European Union because the talks weren't going well. Now, that would happen on June 1st, but it didn't sound like imminent or definitely going to happen. I think he's trying to shake things up, get Europe to move. With that said, I'll explain here in a bit why I think that would be possibly a catastrophic mistake if we really followed through with that.
And, you know, there was some duration to it. But the other news was Apple tariffs, which the president said he was going to put 25% at least tariffs on Apple if they didn't bring their production back to the U.S. A couple things on that. One, they're not going to do that.
Two, there was already talked about a 25% tariff on phones. So the market reacted to this today, but to me, it wasn't really new. This would apply to, as you know, to themselves, like Samsung and others. Not just an Apple thing, really.
But the reality is Apple's not going to produce much in the United States in the next three years. Just not a thing. The Iran deal sounds like we're closer to that. Sounds like that is more possible.
Iran started to say it wasn't going well and it probably wasn't going to happen here in the last week or two. But now they're back to saying, oh, the talks we had today were pretty good. We might have a deal, you know, within a couple meetings. So I actually think this is going to happen.
I think the deal is going to look eerily similar to the deal that President Obama had with Iran. But I do think this deal is likely to happen. I think largely the reason behind it is Trump is close to the Gulf states and the Gulf states won it. I think at the end of the day, there's a big reason this is going to happen.
I think it's going to be a very good thing for us, for the region. And in a perfect world, it would open up Iranian investments for Americans, but I don't know if we'll go that far. I hope so, because I think it would be a tremendous place to invest long term. Back to Europe, though.
The reason I think this could be a very big mistake is, you know, I'm on the record, especially when some of these solo shows in the past, right around the time the Liberation Day tariffs went on, talking about how bad an idea that was. I think, obviously, at this point, the administration agrees because they largely sidelined all that. And then, obviously, I was very critical, as everyone was, honestly, of the 140, 150, whatever percent tariffs on China. Same thing.
They knew that they couldn't. That was not a sustainable thing. That would be catastrophic in the end, so they took them down. Same thing on Europe, but for different reasons.
And so, whenever it comes to the reciprocal tariffs, you're talking about really large tariffs on small countries that aren't going to buy much stuff from the U.S. anyways. And we do buy a lot of stuff from some of these countries for, you know, very cheap. It works out well for us as, you know, our consumers.
That was bad for those reasons. And the fact, if you want to take on China in a meaningful way, you need to get some stuff out of China and get it into some other less developed Asian economies. So, tariffing them heavily makes it harder to take on China. So, to me, that's why the reciprocal tariffs were kind of a bad idea.
Obviously, the Chinese tariffs are a bad idea because we import so much stuff from China, and a lot of it's actually pretty important stuff, not just for us to consume, but for us to manufacture things. EU tariffs are bad for a different reason. Obviously, we saw the stock market and the bond market and the dollar sell-off on the tariffs. That was what appeared to be what got the administration to change its plan and pull back on the tariffs.
Europe has the power to do grave damage to our markets in a way that China never could. We need stuff from China, but we need capital from Europe. And to go through the numbers, and to me, if these don't kind of blow your hair back, they're not paying attention. In the U.S., so, Zach and I have talked at Nauseam in the last couple of years about the power of passive investing, the flows that come from 401ks and IRAs.
The totality of money in 401ks and IRAs that are in the U.S. stock market is $9 trillion, a little over. The totality of European money in our stock market is also $9 trillion. So, you have almost the same exact dollar amount of money invested by all U.S.
401ks and IRAs as you have European money in our stock market. And they have $3 trillion in treasuries. So, yes, maybe they don't take all the goods from us that we want them to take. And so, we feel like we're getting ripped off in that way.
And they sue us, and they tax our tech companies. All true. I think it's worth trying to get some concessions on that stuff. And I think Europe will give us some concessions on that stuff.
But even if they were ripping us off on stuff, we're kind of ripping them off on capital. That's a lot of investment they don't have for themselves. And, I mean, obviously, there's ramifications for that. But more to the point, if you own $9 trillion in someone's equity market, $3 trillion in their debt, you have pretty significant leverage over them.
Obviously, our market is a big deal to them for being able to sell cars and pharmaceuticals, all these different things that they export to us. But, you know, $9 trillion is pretty important. That's $12 trillion. And the total is over $14 trillion they haven't invested in the U.S.
Because they have another 2 plus trillion in corporate bonds, you name it. And to put that in perspective, China has less than a trillion in treasuries and just over 1 trillion in stocks. So, Europeans have more than 8 times as many U.S. stocks as the Chinese do.
So, the Chinese don't have much leverage over our financial markets the way that Europe does. So, point being, if this turned into a nasty thing and it really were over 50% or higher tariffs for a few months, and the relationship started to break down, the buttons that you could push are buttons that would be dramatically bad for us. Inflows, those passive flows we talk about, the average from U.S. retirement accounts, those average about $40 billion a month.
And, you know, in a bad scenario, I don't see why Europe couldn't just say, mandate that their interest take out, you know, $100 billion a month. And they could sign that in sort of like repatriation quotas and be like, you have to get $100 billion out of the U.S. every month. Break it down by countries and how much each country had to do to the point where, you know, you got $40 billion coming in from passive and you got $100 billion going out just for European outflows.
And then, obviously, that would make our market go down. It would make our dollar go down. That would make other countries repatriate because they wanted to get out of the way of it. Point being, our markets would, frankly, collapse if they did that, especially if they did that aggressively and it was more than $100 billion a month or whatever.
So I think some care needs to be taken with negotiations with Europe. I think the 50% tariff, if it's used as a threat or used maybe for a month or two or something, like, it can end up not being a big deal. But if it turned into a, you know, a real match of wills, I think that would end up being very bad for our markets. Now, this falls directly in the high impact, low probability bucket.
I don't think the probability of anything going that way is high. But clearly, the impact is massive. So it has to be in the back of everyone's minds, I think, for risk. And as you guys know, risk management is kind of our hallmark, which means I have to think about things like this.
On the Apple tariffs, I think they're going to end up having 25% tariffs. And I think I wouldn't be surprised if that just kind of sticks for a while. That means they'll probably have to jack up prices of the phones, 10, 15%, eat some margins. We'll see how that goes.
Now, if they go above, you know, 25, 30%, get higher, that becomes different. I don't think they'll bring manufacturing back because I just don't think that's realistic at all. But the ramifications for 30 plus are different than 25. So that would be interesting.
One other piece of news for the day, significant, was there's an executive order that came out from the president on basically streamlining and getting nuclear power plus stuff and onboard in a major way in the U.S. And we knew this was coming. And despite that, URNM, the uranium ETF, is at 12% today, which tells you the fact that we knew the order was coming. But the order was so good for the nuclear industry that it still moved the price that much.
It does a lot. So right now, the Nuclear Regulatory Commission sometimes takes a decade to give a license for a project or a new design or whatever for a reactor. This tells them they have to do these things in 18 months. That is a huge, huge deal.
It orders the NRC to do some significant restructuring of their staff in the way they do things. The order says that you build nukes on federal land. It says the Department of Energy and Department of Defense kind of get their own fast lane to build nuclear plants. They get to bypass some of the regulations and red tape to do so.
And they can do this even for data centers. So that all may turn into a thing. It encourages the Department of Energy to use their loan guarantees for nuclear. Like, it heavily encourages.
It doesn't just go to, you know, building nuclear plants or whatever. It's also about mining and conversion and enrichment. Basically, the entire fuel cycle, the entire nuclear supply chain is kind of covered in this. It wants it all to go faster.
It wants it all to be more subsidized. Way less regulation. To the point where they're talking about even, like, the regulations around, like, the thresholds for radioactivity being lowered, which would get things built faster, no doubt. That surprised me.
There are levels of this that I wasn't expecting it to go. And that is definitely one of them. And it speeds up R&D and testing both as well. So this is a pretty comprehensive pro-nuclear move that should really help rebuild the U.S.
supply chain and fuel cycle in a meaningful way and a lot faster than I think a lot of this thought was going to happen even yesterday. So at the same time, this requires all these agencies to follow through. It requires the private sector to take advantage. So we'll see how it all goes.
But to see UR&M be up 12% on the day, and I think I pushed it back to positive for the year because it was really struggling, it was very significant. One other thing I wanted to do before I close up shop here pretty early, get you out the door quick for your weekend, is kind of just, I mean, here we are almost at the end of May. You know, we're sneaking up on the first half of the year being over. Just kind of go through where we're at on the year on some of this stuff.
After today's weakness, you have the S&P 500 down 1.3% on the year. You have small caps down over 8. You have MAG7 down 6. Gold up 25% on the year.
You have gold miners up 49% on the year. The dollar down 8.7, which I know I say this every time, but for a currency to do that within five months, that is a big move. You have ex-US stocks, all-world ex-US up 13.4. So now the rest of the world is beating the US by 14.7%.
Pretty significant outperformance. Half-3 years of outperformance for sure. But Europe, using the EZU ETF, is up 23.8% on the year. I was surprised today, honestly.
Given what I just explained with, you know, if you're pushed back through all of the trillions of dollars of assets they own in the US, that would dramatically impact markets. So the fact that we were down less than 1%, the fact that most European markets were actually pretty decent on the day, that does strike me as a bit of whistling past the graveyard. I think it makes sense. Like, every time we have new tariffs, it turns out to be, you know, they stick around for two to three or maybe four weeks, and then they go away.
So the market just looks at it and goes, yeah, whatever. Like, these tariffs are not going to actually be a thing. So I'm not going to press it in. I'm not going to fall for this again.
I hate to get all, you know, psychoanalysis and game theory on it, but I do worry somewhat that the more the market doesn't react, the more incentive there is to keep kind of pressing. Like, if the market's not going to punch you for it, you might as well use that weapon a little more, a little longer. We'll see how it goes. So for all we know, Europe, you know, Europe comes back with one little concession that's enough to make us happy, and we all move on, and there's a deal soon.
So this could go either way. I think I understand why the market is refusing to let this go yet, to really sell on it, but at the same time, if this stays contentious and Europe decides to fight back with more than just tariffs against us, so far, they've got tiny hints about a capital war, but really they've just said, like, look, here's the stuff we'll tariff back if you guys do this, which would hurt us to agree, but it wouldn't be a huge deal. Whereas, if they come after us through capital, that is a huge deal. And speaking of that, like, one of the things we want Europe to do is drop their digital services taxes, which hit kind of the max seven companies, ends up being, you know, billions of dollars of taxes that our digital companies pay in Europe for operating.
The U.S. wants to get scrapped. Europe doesn't want that to happen. But back to, if it's terms of a capital war they start selling, that has an outsized impact on max seven just because of the way our, you know, capital weightings are in the S&P 500.
But the other thing they can do is ramp up those taxes. Right now, it's actually done at the member state level. The EU does not levy that. Like, each individual country does it.
They range from 1.5% to 7.5%. But, like, if the EU had a 5% digital service tax and just uniform, that would be $42 billion a year that would be mostly paid by max seven companies. So, same thing. Like, if you did a, you know, you add 1% every month.
month until this trade was over or whatever it's gonna ratchet that up you could end up being you see outflows that hurt max seven and then taxes that hurt max seven um now getting getting everyone in europe to agree on policy is very difficult which is probably one of the reasons that trade negotiations aren't going the way we wish um so you know it's not gonna be easy for europe to agree on starting with capital worth us but if things got bad enough i'm sure they could and that would be another kind of arrow in their quiver it would be to even ramp up those taxes more next thing you know max seven's getting hit in a very significant way which has dramatic impacts on our economy um and you know they're big rich powerful companies with a lot of lobbyists they bought a lot of favor with the president um so you know that would be a ineffective an effective strategy for europe to employ and it's hard to start to imagine they want to take some steps along those two lines of fighting back with capital instead of trade and with kind of singling out the max seven to squeeze them from both ends but hopefully this ever comes to that and we come up with some reasonable deal with europe um we can all move on and focus on uh other things other than tariffs for a while um but this does put back on the map the tariff risk and i think wall street got to the point where like okay well tariff don't matter anymore it's all gonna be 10 soon we just forget about that and i think today highlights the fact that no you can't really ignore tariffs yet um especially with the market doing well it kind of puts them back back on the playing field um obviously the markets sort of sell off in a major way you may as well start pricing pricing them going away back in but for now i think market is uh is a little a little more exposed to this risk than it's than it's letting us know right now um that's all i have for today and for the week we'll be back i believe tuesday have a great memorial uh weekend don't forget you can download subscribe at knowyourrisspodcast.com and as always don't forget to go find all the uh all the social media avenues around now especially youtube i mean that's where you can see our beautiful middle-aged faces um we're basically everywhere if it's if it's a social media platform we're probably on it and you can find us there um every podcast app that you can find you will be on there so go find us spread the word we'll be back tuesday cheers investment advice cannot be given without a client service agreement zach abraham is an investment advisor representative of truck financial and scc registered investment investment advisor capital management is marketing only does not carry a separate registration