Dear Reader,
It’s National Children’s Day, a day to slow down and appreciate the children in your life.
Since I have a 16-year-old daughter and a 9-year-old son, I try to do that every day, but today I’ll be a little more mindful.
Today, I want to talk about something Elon Musk posted on X in his public feud with Trump.
It’s just begun to spiral and caused a lot of conversation among my friend group this weekend.
Elon Musk says, “Tariffs will cause a recession in the second half of the year.”
A lot of folks have asked, “what do you think about this, Dylan?”
My answer is, maybe.
What I can say is it really depends on a few different factors.
Are the tariffs kept high?
I know we raised the steel tariffs to 50%, which I support even though it sends the average price of cars up by some estimates $1,500 per car.
I support that because for national security we need massive steel capacity in this country.
Remember, in World War II it was our ability to outmanufacture our competitors that really led us to win.
The backbone of that is steel.
One thing I’ve really been keeping an eye on the past month or two is our rare earths.
We’ve talked about this a lot over the years, and put out a special report on it.
Most people think rare earths are just used in EVs, but that’s not true.
They’re used in regular cars. They’re used all the time.
They’re in magnets for small motors that control AC, windows, etc.
They’re used in catalytic converters. A whole bunch of things.
You can’t build a modern car without rare earths, period.
Some people say they’re more important than chips, semiconductors, for modern cars.
You just can’t build without them.
And China controls over 90% of the refined supply.
Now, since President Trump began his trade war, China has reacted to that by using their rare earth leverage.
So anybody who wants to buy rare earths from them - Ford, GM, Suzuki, you name it - they’ve been saying, “you need a license.”
And they’re only giving licenses to their friends.
They’ve been blocking the U.S. from getting rare earth elements.
This is what has put so much pressure on President Trump to reverse, or walk back, his very aggressive trade policy with China.
Now, foreign automakers have been vocal about the rare earths problem.
But American automakers, afraid of angering Trump, have been very quiet.
Quietly, Ford shut down a Chicago factory for a week last month that made Explorer SUVs. They idled the plant for a week.
Suzuki’s idled plants.
There’s a bunch of this kind of stuff happening on the down low that’s not being widely reported in the American press.
It’s being reported in outlets like Detroit Auto News - industry rags, which I read.
So, Elon said there would be a recession in the second half of the year.
If factories continue to shut down, yes, I agree.
But this raises a bunch of interesting questions.
One is, how do we get rare earths without basically walking back our entire trade policy?
The other question is, did the President know this before slapping these tariffs? Did he just think China didn’t have any leverage on us with rare earths?
A lot of people in positions of power are asking themselves these questions.
Right now, there’s a lot of questions.
Here’s our report on the rare earths situation.
But in terms of the actions one can take to prepare for a potential recession in the second half of the year…
I can tell you, personally, I’ve sold a lot of positions. I’m sitting on a lot of cash.
Not cash sitting in a bank - as I mentioned last week, that’s one of the two worst places to put your money (the other is long-term treasuries)...
I actually keep my “cash” in mutual funds that invest in short-term treasury instruments - 30, 60, 90-day (under 1 year) U.S. Treasury T-bills.
I have my money there because it’s very liquid.
You get paid a decent rate over 4%, and I’m just waiting for opportunities to come as they come.
Here’s my report on the four steps to take to prepare for recession, including my favorite mutual funds.
The market is still pretty expensive.
But there are pockets where you can find opportunity.
I don’t think the market has really priced in the trade war or the budget bill.
That’s all I have for today - just wanted to give you some thoughts to chew on this Monday morning about rare earths and the hidden price of tariffs in this country.
Remember, domestic automakers are afraid to anger Trump. So we’re not really hearing about their struggles with this.
You’re going to hear it from me, because as stewards of our own money we have to be completely practical and rational in our investment operations.
Have a wonderful Monday.
See you tomorrow.
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