Donald Trump tariffs: Global markets are in free fall, what should I do?

When deciding what to do with your super amid the stock market chaos, you need to ask yourself one question about Donald Trump.

Markets are collapsing. This is like one of those times where they tell you there’s a chance of minor earthquakes and then you see the entire neighbourhood collapsing into a cloud of dust. What should you do?

The ASX 200 began the week by going into absolute free-fall. I gasped when I cracked open the numbers on Monday morning. The market open was catastrophic, like the darkest days of early in the pandemic, or the 2008 Global Financial Crisis when banks were going broke left and right. And the day’s trading had only just started.

Things have improved slightly since Monday morning, but it was still one of the worst days in decades.

As bad as things may look on the ASX, Australia’s market is not even the worst in Asia as Japan and China crashed even harder.

Australia’s currency is down too, barely clinging on over US 60 cents.

This is a time of panic and the panic is likely to spread across the world.

Donald Trump woke on Monday morning (US time) to the catastrophic mess he created.

How do we play it? And superannuation

For must of us, the biggest financial asset that we can actually do something about is superannuation.

The official advice from super funds is usually not to panic. Don’t trade. Don’t fiddle with your settings and go to conservative or cash. If the price of your favourite investment fell to $90, and you sell it, you have $90 in cash. But if it rebounds to $100, you need to find an extra $10 in cash just to get back to owning what you used to own. That’s the sort of scenario investment professionals worry about, and the sort of thing amateur traders get caught out by.

The ASX 200 began the week by going into absolute free fall. Supplied

Probably that is good advice. They are investment professionals and you should probably listen to them.

However we should always consider the motivations of the people giving us advice. Are they truly neutral about us all pulling out our money? Are they acting in our best personal interest or giving advice in our collective interest? Is the advice they must shout to everyone the same as the advice they might whisper to one person?

If the market fall would be accelerated by everyone selling, they should probably tell us all not to sell.

And what about me? Should I toe the line? Is my job to give advice that reduces panic selling? Is it my job to tell you everything will be fine, just don’t touch your money? I have a responsibility to not provoke unnecessary panic, but my highest responsibility is to the truth, which is that we don’t know what is going to happen next.

Markets could be down 10 per cent today and up 10 per cent tomorrow.

The ASX 200 began the week by going into absolute free fall. Supplied

I believe there’s a chance of that. Trump is a numbers guy. I think he’s very dumb but cares very deeply about posting good numbers (TV ratings, crowd sizes, wealth, polling, stock market numbers). These are bad numbers. So my best guess is he will probably change course, caring more about winning than being consistent.

But that’s just a guess from afar. What if you think Trump is mostly stubborn? In that case you might expect he will stick to this failing strategy. And he does seem stubborn as well as stupid, so that could be a fair expectation.

A graph of the Australian stock market figures at the close of trading, in Sydney on April 7. (Photo by DAVID GRAY / AFP)

If you think he is stubborn, then you might expect tariffs to continue. He leaves the tariffs in place, even as they destroy the global economy. If that happens then the current market situation might be the best we see for quite a while, trading now might be a good idea. If you sell your favourite investment at $90 and then it falls to $80, you can buy back in and own what you used to own, and have $10 in spare cash as well.

What will happen to house prices?

Australians have a lot of super. But it is a drop in the ocean compared to the amount of real estate we own. Homes are not quick to trade, but nevertheless you might be wondering what will happen to house prices this year.

There’s two big effects and they pull in opposite directions. The first is the economy. If Trump ruins the global economy and Asia especially, dragging us down with it, unemployment will rise. That’s bad. People earn less and fewer people can afford homes. In a recession, house prices would usually fall.

Donald Trump. (AP Photo/Manuel Balce Ceneta)

Remember, we are very exposed to trade with Asia, and China is looking at 54 per cent tariffs on its trade with America, Vietnam 46 per cent. The effect on the global economy could be moderate but the effect on Australia could be severe via our exposure to Asia.

However, our interest rate will act as a buffer. The RBA is now expected to cut rates much sooner and much harder. The surging global uncertainty is a hammer on our economy but a lower interest rate is a shield that protects us. A lower rate will stop unemployment falling quite so far, and will also put a floor under house prices.

Overall the uncertainty is likely to be bad for housing markets in the short term. Few people will see this as a good time to buy. But of course history might see it differently and the few brave souls pushing on to make a purchase could get the deal of their life. That’s the thing about uncertainty – risks are higher but so are rewards.

Originally published as Donald Trump tariffs: Global markets are in free fall, what should I do?