Are Tariffs Going to be Good?

The Right Investments are Crucial

“We’ll run out of shares to buy and debt to pay down long before we run out of natural gas to produce.” -Nick Deiuliis, CNX Resources

Macro

The tariffs instituted by Trump are advantageous for our core portfolio holdings in the medium term. To realize his overarching agenda of Making America Great Again (MAGA), it is imperative that Trump implements policies that devalue the dollar in relation to our international trading partners.

While some tariffs serve merely as instruments of negotiation, others are likely to persist for years, akin to the tariffs imposed on Chinese imports, which President Biden continued post-Trump’s initial term.

To encourage the reshoring of U.S. manufacturing and bolster exports while reducing reliance on imports, a weaker dollar policy must be adopted to align with Trump’s vision for revitalizing American industry.

Upon taking office, Trump faced a dollar index at nearly a 25-year high against a basket of foreign currencies, marking a fortuitous moment that someone is going to change course on this.

An excessively strong dollar was likely soon to act as a destructive force on both asset values and the global economy. A depreciating dollar will be beneficial—not only for our assets but also for broader economic health.

To facilitate a weaker dollar policy, the United States must begin to relax its debt-to-liquidity ratio, which carries large implications for investment strategies. With national debt exceeding $36 trillion, the Federal Reserve will soon need to enhance liquidity as current reserves/liquidity dwindle (specifically within the Treasury General Account) and through the front-loading of T-Bills by Secretary Yellen.

Applying Occam’s razor: it is fundamentally impossible to pursue a weak dollar strategy without the Federal Reserve transitioning from a quantitative tightening (QT) approach to quantitative easing (QE), especially given that other nations have already begun easing their monetary policies.

This creates an environment of excessive dollar strength. In light of the prevailing market liquidity dynamics and that Trump needs a weaker dollar, FMT believes it is inevitable that the Federal Reserve will pivot toward QE. The implementation of tariffs will provide a more compelling and forgiving rationale for members of the Federal Reserve to adopt a more accommodative monetary stance.

Bitcoin

Bitcoin is the most responsive to expansions in the monetary base (QE) and liquidity initiatives. It serves as an early indicator of liquidity shortages and as a bellwether when liquidity is injected into the financial system.

Given our debt-based economic system, money supply expansion is an inevitable outcome. Understanding this principle, makes fluctuations in bitcoin as easy to deal with as a leisurely stroll in the park. In essence, money expansion is intrinsic to a debt-centric system; the only variables are timing and magnitude.

While Trump’s tariffs may introduce some chaos into economic landscapes, they will undoubtedly act as a catalyst for the Federal Reserve’s transition from QT to QE. No event tends to favorably impact bitcoin’s upward trajectory as well as the relentless grind of fiat money printers.

Quantitative easing tends to invigorate market sentiment and awaken a new wave of bitcoin adopters. The advantages offered by a decentralized and globally neutral network like bitcoin, powered by tangible energy sources and a finite supply cap, are simply highlighted during monetary expansions.

Until the next easing cycle by the Fed—which should not be far off—I anticipate volatility; however, I expect 2025 to be quite favorable for bitcoin, aligning with its historical performance trends.

Furthermore, while not yet realized, it appears that U.S. intentions to adopt bitcoin as part of its strategic reserves are progressing. Should this materialize, it would create dual catalysts for 2025: a weak dollar policy coupled with nation-state game theory.

FMT holds firm in its belief—and our forecasts have proven remarkably accurate—that bitcoin will yield approximately 32% annualized returns through 2034 (accounting for all significant dips). Such performance would continue to surpass even the most esteemed money managers.

Natural Gas Producers

I started this letter with an insightful quote from CNX Resources because I think it’s profound. CNX recently disclosed its fiscal results for 2024, surpassing free cash flow expectations by $30 million while projecting $575 million in free cash flow for 2025 compared to $330 million in 2024.

With this guidance, CNX has returned to an impressive free cash flow yield. With 149 million shares outstanding—having repurchased 36% of its total shares over recent years—the FCF yield stands at 12%. I anticipate CNX will have another really good year again, and they will remain relentless on their long-term share repurchase strategy. Over the long-term, I believe CNX will retire 90%+ of their shares and this should result in a 1,000%+ gain (yes, 1,000%, but it will take time).

Despite my positive view, we divested some CNX shares in the $40 range and strategically reallocated those gains into Range Resources at lower valuations around $30 to diversify our natural gas exposure. The timing proved advantageous.

In conjunction with a weak dollar policy and an environment conducive to manufacturing growth in the United States—the tariffs serve merely as icing on the cake for our natural gas outlook, which I will refrain from reiterating here.

Suffice it to say that surging electricity demand (driven by AI, electric vehicles, bitcoin mining, and anticipated increases in U.S. manufacturing grid demand), coupled with new LNG takeaway capacity coming online, positions us favorably with our well-structured producers.

Chinese Tech Firms

When we acquired our Chinese positions, Trump’s aggressive posture towards China was already integrated into our investment thesis. With China’s savings rate at 44% of GDP, even if Trump escalates tariffs against China further, it necessitates that China pivot towards increased domestic consumption irrespective of new tariffs imposed—this reality seems well understood by the market. Even amidst significant volatility in U.S. markets recently, our two Chinese positions have shown resilience and have gotten bid.

There is also growing recognition that Chinese technology firms can compete in AI. Given their attractive valuations relative to U.S. large-cap tech firms, I am confident that our Chinese investments will significantly outperform their American counterparts in 2025. Global capital flows appear constructive for China, and Trump’s weakening dollar strategy will help facilitate necessary easing measures from the People’s Bank of China (PBOC) to address their real estate challenges.

Fannie Mae and Freddie Mac

Since 2019, under then-Treasury Secretary Steven Mnuchin’s guidance, efforts have been underway to allow Fannie Mae and Freddie Mac to retain all profits during conservatorship in preparation for privatization. With $140 billion in retained earnings and Trump appointing Bessent at Treasury and Bill Pulte at FHFA—both proponents of privatizing these Government-Sponsored Enterprises (GSEs)—the pathway for privatization is clear and does not require congressional approval.

Another Occam’s razor: after permitting Fannie Mae and Freddie Mac to retain their net income and build capital reserves, can anyone genuinely believe Trump would suddenly reverse course back to socialism?