Market Reactions & Economic Uncertainty: A Deep Dive with Matthias Richter

Yasi Zhang: Welcome back to the show. The past week, the US stock market has been on a wild ride driven by major policy shifts and escalating trade tensions. It all started on April 2nd. The President Trump announced sweeping 10% tariffs on all imports alongside targeted duties on goods from 60 countries, sending shockwaves through the markets and triggering a sharp sell off.

But just a few days later, a surprising reversal. The administration hit pause on most of those tariffs for 90 days, except for China, where the rate shot up to a staggering 125%, and that sudden change sparked a powerful market rebound, showing just how reactive investors are to policy shifts and geopolitical headlines.

In this episode, we are unpacking what happened and why the market moved the way it did. What does this tell us about the current state of investor sentiment? Are we headed toward economic turbulence, or is it just another shakeup in an already uncertain landscape? So stay tuned. Today, we are diving deep with my guest, Mattias Richer, a very experienced financial advisor for private investors and the founder of Financial Imagineer, a blog educating people about personal finance and understanding money mindset.

Welcome to the show again, Matthias.

Matthias Richter: Thank you for having me, Yasi. It’s a pleasure.

Yasi Zhang: So we had a little chat before, so there are three major questions that everybody needs to ask. and I’m going to go through this questions one by one and then I hope through the questions the audience would understand a little bit better about the current situation.

I will start with the first question about trade war, which is, what is the most important currency in the world?

Matthias Richter: That’s a very interesting question because what currency do you believe is the most useful for you? And currencies, if you look at it, are just pieces of paper.

We all have them, but, in the end, you cannot eat them. You cannot do anything else with it. Then, to trade with other people, you trade goods and services against your paper of money with a number on it. So, in the end, the correct answer is this. You know, that may be surprising to many.

you may say, oh, it’s the US dollar, it’s the yen, it’s the euro, whatever, the pound. I don’t think it’s one of, these, I think the most important currency that we have here on this planet is trust between us humans. because without trust you cannot plan ahead. You cannot have ideas and count on each other.

And the plan. Bigger things. You can do a lot of things by yourself, but when it comes to slightly more complex things than, for instance, integrating an iPhone, or like many other goods in our daily use, they come from so many different countries and without trust, all these ideas are worth much less than before.

So I would say the most important currency in this world is trust and. you just explained what has happened in the last few weeks. It’s amazing how actually this trust can be measured in swings on the actual currency market. And, just giving you an example, this morning, I also looked again at, usually one of my favorites to look at, the US dollar against the Swiss Franc.

I’m not saying the Swiss Franc is a superior currency, but it’s more like a safe haven, which means if things get nasty, people get nervous, and they will pile money into the Swiss Franc. It’s like a flight to safety. And the US dollar originally was also traditionally a safe heaven.

This time around, what has happened was the US dollar dropped a lot, like earlier this year. One US dollar was at 92 90 3 cents, Swiss Franc. Now, yesterday the, low was reached at 83 Swiss Franc Cents. now it recovered somewhat to 85. However, that’s not the whole story. That’s the actual rate of today.

But if you look forward. That’s the more interesting part. You can always say there are expectations and forecasts from economists; there’s also a forward market, a futures market. You can buy US dollars two years or five years from now, and if you would buy US dollars two years from now, you only have to pay 75.

Sense Swiss Franc today is stunning, more like four 14, 15% lower than right now. And this is the value of trust that you can see there because it’s nothing else. And maybe I can get very technical about it, but I. In, in, in essence, what is quite interesting now is the long-term interest rates on the US dollar side; they have started to go up, which is nothing else than probably fewer people or fewer governments and central banks wanting, that’s, number one, wanting to invest into US treasuries, which are the US government stepped that is, sky high.

If you are so in depth that you need some people to invest in your debt, they’re selling this debt, and if fewer people buy the debt, then the price of the debt comes down, which means the yield needs to go up, which means the market is demanding a higher risk premium for all this debt, and this is something that is happening at the moment.

Also, another thing if, currency or trade wars happen, that’s also something maybe people don’t think about it immediately. You have actually less demand for US dollars. So if there’s less trade, you have less demands for US dollars. So also there, the demand goes back and that’s, very interesting here to, to highlight for instance, the European Union.

80, what is it? 83% of trade of the European Union is not linked to the us. Which is a very high number. So basically only 17% of trade, of the European Union is linked to the us. So there, there will be a lot of companies that say, yes, of course we need to continue to trade with the us It’s the largest, most important market in the world, but a lot of companies don’t need to.

And then there will be less demand for US dollars, which again will be like a function of this trust that the first question brings within, and therefore. that will be very interesting how this continues to show here because if the US dollar’s value is dropping because of such secondary effects, which you can call out, like fallout effects of this policy, the US consumer doesn’t just have to pay the tariffs that are slapped on all the I import goods, but also the purchasing power from the US is going down, which also adds, again, more inflation on top of it.

Yasi Zhang: Sorry, very long

Matthias Richter: answer.

Yasi Zhang: On the other hand, if the US dollar starts to depreciate, it won’t make it. Wouldn’t it make it cheaper for US goods to be exported to other countries and increase exports?

Matthias Richter: Exactly. Yes. So that’s the case. however, now if some countries they think about making counter tariffs, it, it has to drop by more than that to make it or keep, it attractive, the same attractive level that it is now.

Yasi Zhang: Yeah, I see. Actually, in the end, the policy is supposed to increase the number of terrorists, but maybe the US people who are living in the US might get hurt by that.

Matthias Richter: eventually. Yes, because their purchasing power will go down, and I’ve seen a lot of memes and people making AI videos on the internet in the last few weeks.

There was one, made like where you see a couple of, US workers in factories assembling t-shirts or Nike shoes. And then the comment was like, I don’t wanna, I don’t wanna make the Nike shoes. I wanna, I just wanna wear them. And the other thing is, how much will this cost? as very well in Asia, in many countries, not just China, maybe, I guess the salaries have come up quite a lot.

But in Vietnam, Cambodia, and Bangladesh, the assembly line workers are paid almost nothing. And if you bring this, if you, if of course the, maybe there are different things they wanna bring into us, but this is just a very extreme example. If you bring all these things back to the US and bring these jobs back, first and foremost, the US has a very low unemployment rate at the moment.

So where do you bring, where do you find these workers that want to do this job? And how much do you have to pay them if you also, at the same time, you actually want to have less immigration? in the US as well. So there will be less workforce to do more jobs if that’s the idea. Also, it’ll need more electricity.

So last week I saw Trump and his team, they just, allowed a lot of coal mining again, and, the coal production will be going up and there will be a lot more coal power coming back to the grid, to make it competitive. however, the, salary part will be the most crucial one here.

Yasi Zhang: And we talked about the currency here. And the other concept we need to introduce is the tri dilemma. And can you tell us a little bit about what this Tri Dilemma is and how to resolve it?

Matthias Richter: Tri Dilemma, is an economic puzzle that, doesn’t really seem to have a clear answer as such. With the current world order, which is the actual problem of it, and maybe.

It sounds fairly complicated. Maybe I want to keep it simple. Imagine you are playing Monopoly with three friends and you play this game maybe for half an hour and then all of a sudden another three friends stand at the door and they say, Hey, we also wanna play with you. Can we join the game? then of course you say yes, but imagine now these three guys that wanna join the game, they don’t have any money.

So what do you do? You need to give them monopoly money. Where does this money come from? It comes from the bank, of course. And now, if the bank is just somebody that doesn’t play, it’s easy. The, banker hands out some starting money to all the new players. I. However, they joined the game, mid game, which means others have already invested.

They’re higher up the food chain. They, have all the, infrastructure, the assets, and now the new guys get a little bit of money. So that’s, maybe the, base scenario to look at it. how does it work in reality? you can imagine now one of the big players now is the US. And at the same time, they are the bank.

So they need to hand out this money to the new players, which are countries that maybe are not participating in trade, for 50 years, but maybe just have joined this game 20 years ago or 30 years ago. There’s a lot of countries they were not so much active in, in, in world trade. For instance, China. And when they join, of course, whoever has the bank need to also give them some of this cash and you can say, this is Monopoly money.

In our case, it’s US dollars. And you just, you don’t just give it to them because they decide to join the game. You give it to them against payment of goods and services and the dilemma. It says that if you are the host or the provider of the global reserve currency or of the reserve currency as such, by default, you will end up having trade deficits because one of your major exports is the currency itself, which you can print and by, by printing this cache and basically just trust again.

We are back to trust. You print it out of nowhere. Others will deliver goods and services to you against payment for this. So, the final dilemma says it’s an inherent flaw in this system and setup. If one of the countries is the provider of the reserve currency, they will have.

Trade deficits, and this is how it’s supposed to be. Because otherwise, if you don’t want to have trade deficits, you cannot ask others to buy your things. The game is always two-sided. It will not work out the calculation. You would have to give up the status of being the reserve currency of the world, which comes with a lot of power and has value as well.

Nobody talks about this at the moment in, in this whole, talks about tariffs. So, I would say that the whole thing at the moment that’s going on this route is not necessarily about tariffs. Tariffs are simply the weapon that is used, but this is a power game about who is dominating the game of global trade and the economy.

Yasi Zhang: But on the other hand, if the US wants to dominate the global currency using US dollars, it according to this Triffin dilemma, it’s like a double sided sword. then what is the benefit of tariffs? It is it is more than just on the. On the Tariffs part, maybe it’s more on the geopolitical and the global power, maybe there are other things they want to achieve from it, right?

Matthias Richter: Yes. Yes. very clearly. Yes. why, why this whole thing starts to happen now? That’s a very interesting point. When you look at history, we always have these, industrial revolutions. Right now we have started to kick off the fourth industrial revolution. So we are in a, transformation of the economy, and this time it’ll happen much faster than it happened the last few.

so we will have a, huge increase of artificial intelligence, of automation and so forth, and this will be scarily fast. and of course. People will lose out. Things will not be the same as they were five years or 10 years ago. There will be a lot of change in the system and whenever stuff changes, it’s the easiest to blame someone else for, all of that, what happens?

You can call this a scapegoat. So you say, oh, blame, who is the easiest to blame? It’s the foreigners, right? So from a. if you’re in a big country with a big market, it’s very easy to say it’s the other’s mistake, and then nationalism usually rises. So that’s very interesting. I read so much the last week, and I talked with a lot of people, so whenever there is an industrial revolution going on.

There is usually, in history, always a rise of nationalism and protectionism because people are afraid of what’s going on, and it has nothing to do with the bad foreigners wanting to take something from you. It’s simply that we are in times of change. There. Yeah. You actually could look at it from a different angle and say, Hey, if we are in a time of change, shouldn’t we invest and get ready for the future rather than trying to protect what has been before?

But that’s another story, for that matter. Therefore, we have this rise of the fourth industrial revolution, which will shift a lot. And at the same time, I guess when you look at the US, they have realized they don’t really have so much; they don’t have really so much industrial.

Capacity is not high anymore, which means the factories are not there as much. The supply chains are very internationally spread, and you have just seen what happens during times of COVID-19. What happens if a few countries don’t deliver anymore or don’t work? So probably it’s also some sort of preparation for times of crisis that you are ready to handle more and more things and disruptions going forward. There is also a certain military aspect to it. So Russia, for instance, is still very strong in gearing up its military from within because they have the whole supply chain for military things and so forth. However, in some other countries, there are certain risks because some of the most advanced computer chips may no longer be manufactured in your country, and you need them for the most advanced weapon systems.

Which if you cut this supply chain, will give you huge weaknesses compared to other places. So this thing goes very deep in a way. But I guess the essence of it would be to wanting to have some of these essential factories also back inside the country. So you are less dependent on what’s going on in the rest of the world, and you can be stronger from within.

Yasi Zhang: Yeah. And for individual investors. Like us, how shall we position ourselves in this kind of situation?

Matthias Richter: It’s impossible to quantify Trump. This is one of my big findings from last week, especially what happened again yesterday. So things will happen at very different magnitudes and speeds than we are used to, maybe from previous times.

Political leaders where things are handled, I don’t wanna say careful, but more slowly in a way. Slow some or conservatively, and it will be communicated more clearly. Maybe Trump is more the business guy who probably doesn’t wanna have everyone looking at his cards. So he will do more random things, maybe without wanting to protect what he did.

It’s, it was like a very. Huge impact on the whole world, but he’s probably gonna do things

very differently and faster than before. And sometimes he’s also more. Risk-taking compared to before. So, not everything that he will do will work out, but he will test and see, and eventually, he will pivot and change.

Yesterday, during the day that they were starting to have some talks of, some people cannot pay their debt anymore. There were some hedge funds breaking up. There was stress in the bonds system. the US 10 year rates started to rise a lot because in times of uncertainty people don’t want to invest anymore.

And most certainly, you don’t want to be pressured or asked to invest. You don’t want to decide. If you don’t know what’s going on, people will not decide. O will not make decisions, especially if it’s a lot of money. So if you’re a big boss of a company and you need to decide where you should invest for the next plant or the next factory when you’re not sure, and things are changing every two hours.

Maybe you just don’t do anything at all. So uncertainty and, a loss of trust is very bad for, the investment environment, not just of a personal, but also on a, corporate level. However, at the same time, you will in the next few years this huge opportunities from this fourth industrial revolution, which will happen at the same time.

So there’s huge opportunities. That you also shouldn’t be missing out. And for now, the US is still the most important capital market in the world. So there a lot of money will still be there. However, I already feel I have read even that, there were talks about some Chinese companies that have ADRs listed in the us There were talks about.

Should they disallow this kind of listing or, I think, a lot of things can break up like they used to be. And maybe the whole point of that is trying to really have the capital there instead of elsewhere. So a lot of things will happen. What investors should now do is focus on their long-term strategy.

one thing is you, in terms of. Uncertainty. Real assets will usually be better than nominal assets, like the example I said earlier on with the, just the US dollar. If you look two years ahead, you will see a 15% minus versus a Swiss rank at the moment. Again, like this is not a forecast, this is the actual futures market.

The best protection is to have real assets. Real assets are, for instance, real estate or shares in companies that really have cash flow and dividend shares, and you should avoid fixed income like debt, especially debt, because in times of. Higher uncertainty and less trust in history. Usually, this led to currency reforms, and currency reforms could be as bad as, on Sunday night, the government decides to cancel four zeros and call it the new Taiwan dollar, or the currency will disappear, and there will be a new one.

Turkish lira, and in the last a hundred, 200 years there have been so many, countries that changed their currencies, all the time. So that was a quite normal thing that it occurred, and I. Maybe here to, not to encourage people to take on debt, but that there’s good debt and bad debt, as we talked about before as well.

But if you have good debt, which means debt that is invested in a real asset such as a real estate and then a currency reform happens, you could be winning a lot, out of something like that because. Debt aligns you with all the governments in the world that are highly indebted at the moment, and they need inflation.

They need other things to happen there to reduce this debt. And the easiest way to reduce debt is inflation. So if we have more inflation, the debt nominally will be getting lower for them in, terms of purchasing power. And this means again, whoever invests in this debt will lose. The example before the US dollar in two years was 0.75.

great. You can say US dollar, give me 5%, interest if I buy the bond there. But if you get two years of 5% interest. you’re maybe up 10%, on your investment, but you lose 15 on the currency versus your purchasing power because of inflation and the rest.

Yasi Zhang: And I have a follow up question on this because I guess most of the, investors, they might invest in US dod, ETFs, stocks, et cetera, and then the home currency is not USD.

If the USD started to depreciate, would that impact their portfolio, or would it not because of other factors?

Matthias Richter: That’s a very essential question indeed. it, if you look at it, from a, yeah, an ETF is very diversified, The more, maybe I use it as the example of Nestle. Nestle is a Swiss company that, produces food and Nestle sells its food all over the world.

And Nestle is in Swiss Francs. for Nestle, it doesn’t matter so much what the currency market is doing because they sell food all over the world. So the same thing like if, you have an ETF with a lot of companies in there that have very international businesses for you, the US dollar, denomination doesn’t matter.

Either because, eventually they are just gonna raise the prices, they will maintain the margins. So if you have inflation, maybe the inflation is 5%, whatever, they will, simply pass this price increase forward to the consumer. In their respective currencies because they need to make sense, economic sense, out of their actions.

So in essence, it’s, a natural hedge where you don’t have to be worried too much about US dollars as the, thing you are measuring your holdings in. It’s the same like temperature. It doesn’t matter if you measure the temperature in, centigrade or Fahrenheit. It’s the same temperature.

It’s just different numbers that show up. And if you look at the long-term chart and you compare maybe the Swiss Market Index versus the standard and Poors 500, or the Dow Jones for that matter, because it goes back longer even, you will see the Dow Jones or S SP 500 usually perform more in terms of percentage.

Then, the SMI, however, if you add back the currency effect to this, they will be very aligned, which is quite interesting. However, a problem will be if, let’s say, you buy an ETF that only holds, I say now, US domestic businesses that only do business in the US with no effects on international trade.

There if the currency will go down, you will get hit by that if you don’t calculate and live in US dollars.

Yasi Zhang: Thank you so much for the explanation. Today’s session is a little bit intense. I will say it’s packed with a lot of information, a lot of in-depth, discussion about current situation and I hope the audience would, be able to take something valuable from it.

Thank you so much for being here today, Matt, and really appreciate your time.

Matthias Richter: My pleasure. Thank you for the opportunity. Thank you.