Are Tariffs A Black Swan?

Jeff Malec profile picture
Jeff Malec

The days of sleepy summer headlines seem like a thing of the past lately. Everyone's talking tariffs, retaliation tariffs, and trade war. What sort of impact is the threat of a trade war due to these tariffs having on markets? Not to be too cute... but that all depends on the market. There's more than one market in the world of alternative investments. Some markets like stocks and currencies are treating the tariffs as rather binary events to be immediately bought or sold en masse, other markets like soybeans and metals seem to be letting it create a new market environment with different long-term price levels. Both types of reaction matter for investment models, quants, and traders.

Binary Tariff Moves = The bad sort of market volatility

In our Managed Futures / Global Macro 2018 Outlook, we touched on tariffs as one of the ways President Trump's... shall we say, volatility, could impact markets:

And perhaps more so now that we've all been sort of lulled to sleep by the drama in Washington not having any effect on markets. But that's not to say Trump threatening to pull out of something like NAFTA or placing tariffs on solar panels (predominately coming out of China) couldn't cause a market reaction.

Bottom line, the more ultimatums and deadlines we see out of Mr. Trump, the more binary market movement could become - with prices moving quickly to meet the new reality instead of building into a new reality over time.

Our worry was that bluster coming out of the White House could spell trouble for systematic models, and it seems that this year's numerous rounds of tariff threats have been doing just that from time to time. Take equities' reaction to the Trump Administration adding a third round of tariffs on China (at around $200

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Jeff Malec profile picture
Jeff Malec is the CEO and founding partner of Attain Capital Management ( - a commodity futures brokerage and research firm specializing in managed futures investments through individually managed accounts and privately offered funds. Please read the important disclaimer regarding managed futures below: Disclaimer: Composite performance records are hypothetical in nature, and the trading advisors have not traded together in the manner shown in the composite. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any multi-advisor managed account or pool will or is likely to achieve a composite performance record similar to that shown. In fact, there are frequently sharp differences between a hypothetical composite performance record and the actual record subsequently achieved. One of the limitations of a hypothetical composite performance record is that decisions relating to the selection of trading advisors and the allocation of assets among those trading advisors were made with the benefit of hindsight based upon the historical rates of return of the selected trading advisors. Therefore, composite performance records invariably show positive rates of return. Another inherent limitation on these results is that the allocation decisions reflected in the performance record were not made under actual market conditions and, therefore, cannot completely account for the impact of financial risk in actual trading. Furthermore, the composite performance record may be distorted because the allocation of assets changes from time to time and these adjustments are not reflected in the composite. Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history. Past performance is not necessarily indicative of future results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client's commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

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