@theMarket: The Trump Trade Bluff
This week, our fearless leader upped the ante on the tariff tiff with China. It went like this: Trump announced his list. China announced theirs. And at the end of the week, the president sees them one better. Aside from the volatility, it is causing in the stock markets, not much besides headlines has been accomplished.
Are you seeing the pattern yet? Think back to Trump's schoolyard diplomacy with Kim Jong-un, the leader of North Korea. First, a furious exchange of tweets and name-calling between the two. That was followed by saber-rattling on both sides. More test missiles. Naval ships steaming toward the Peninsula. The media spent days explaining the "what ifs" while stocks went up and down.
In the end, the two neighborhood bullies now appear willing to play nice and meet at the end of the month. I fully expect our president to come out of the meeting extolling "Fatty the Third" as his newest and dearest best friend.
Now compare that to the tariff turmoil. Tweets, counter tweets, threats, etc. are flying this way and that; but so far, it's all smoke and mirrors. Investors here in the U.S. are still reacting like puppets on a string, but elsewhere governments and stock markets are disengaging from these Trump tactics.
Take Thursday night's announcement. Trump ordered his trade rep, Robert Lighthizer, to "consider" an additional $100 billion in trade tariffs against China. By the time he does all that studying, a few months will have passed. In the meantime, things change and there is no guarantee that any recommendations will ever see the light of day.
However, like the puppets we have become, Thursday night's futures market for the Dow Jones Industrial Average fell by over 500 points. Corresponding drops in our other indexes also occurred. But here is where foreign investors parted ways with our traders. Japan's stock market traded up slightly at first and then dropped by a small amount at the end of the day. Some markets, such as Hong Kong and India, finished higher. By the time we opened for business on Friday morning, the losses in our own averages were pared back by more than half.
Like a dog whose bark is worse than its bite, global investors and governments are beginning to realize that what comes out of the Twitter-in-Chief's mouth (or his Twitter account) is neither policy nor necessarily even the truth. As such, investors would be well advised to ignore his pronouncements. Granted, that's hard to do because the president will go to great lengths to stay in the center of the spotlight, no matter what he needs to say or do to accomplish that goal.
Nonetheless, do not act on his statements. Next week, earnings season begins, and analysts expect good things from Corporate America. Wages continue to gain (2.7 percent on an annual basis), according to the latest non-farm payroll report, although the number of jobs gained (103,000) was 90,000 short of expectations. From a macroeconomic point of view, things look good and are gaining momentum.
As for the markets, I expect volatility will continue. Right now, the S&P 500 Index is caught in a 100-point trading range and will probably not break out of it until the middle of April at the earliest. Cushioning the market somewhat, as I expected, is the tax cut. U.S. dividends increased in the first quarter to a record high. Corporate buy backs are also recording the same kind of gains, as most corporations reward their investors by passing along their tax savings, rather than investing them in jobs or capital spending (as the legislation's authors promised). That makes owning stocks a good bet for the future.
|Write a comment - 0 Comments|
The Independent Investor: Free Trade Vs. Fair Trade
In today's world, talk of tariffs is part of daily news headlines. Politicians use terms like "free" and "fair" almost interchangeably in discussing trade to justify their position for or against tariffs. Maybe it's time to review the difference between the two concepts.
While they may sound similar, free trade and fair trade are often at opposite ends of the pole. Free trade is a world where the gloves are off. It allows international cut-throat competition where the marketplace can drive the cost of products way below the price where anyone can make any money. Free trade makes things cheaper including the money we earn to produce those goods.
Fair trade, on the other hand, is in the eye of the beholder. What may seem fair to you or me, maybe the opposite from someone else's point of view. That's because fair trade places all kinds of restrictions on producers of goods and services. Overall, fair trade tends to make goods more expensive. That's because it costs more money to guarantee a minimum wage or make sure that a coal mine or steel mill's working conditions are safe.
However, throughout history and into the present day, both concepts are abused quite often. Take our country's attitude toward trade. After World War II, for example, North America was the only continent left standing. Europe, Asia and everywhere in-between had been decimated by warfare. Our allies needed help and free trade seemed to be the best answer to rebuilding the world in the shortest time possible.
It was the age of Japanese transistor radios, cheap autos from Europe, and U.S. industrial and food products that could be purchased with extremely easy terms. America opened its arms to anything the world could export to us. The purpose was to rebuild and increase economic growth worldwide for both the winners and the losers. All we required was an adherence to democracy.
We accepted free trade, while allowing our partners to re-build on the foundation of fair trade. The purpose was to allow agriculture, industrial production, and the consumer to recover in war-torn regions. We deliberately looked the other way as countries like France, Germany or Japan set tariffs on our cheap imports to protect their own struggling dairy or textile businesses.
Over the years, we all got used to this kind of lopsided arrangement. After all, America was the leading economic power in the world by a wide margin. We could afford to carry the world's weight on our shoulders.
Fast forward to today. Yes, we are still No. 1, but China is a close second. Europe over the past 50 years has forged their own powerful economic union and yet some of our trade deals have failed to keep up with these changing economic circumstances. Part of that problem, I believe, has been the U.S. practice over the past several decades of exchanging economic benefits for geopolitical influence.
How many times in the past have we given massive amounts of foreign aid in the form of trade deals, or gone along with outrageous tariffs on American imports just to achieve some dictator's promise to forsake communism or socialism and follow our brand of democracy? Clearly there is, and has been, a long list of unfair trade practices by just about every country in the world, including our own. I do not believe free trade exists in the world today. But recognizing that our steel and aluminum industry may need some relief from some other country's dumping practices is not the end of the world.
It appears to me that the present turmoil in the financial markets simply reflects something new and different and to some, a therefore dangerous turn of events. Because it has been so long since our country has stood up for itself in the trade arena, those invested in the status quo fear any change at all — even if it is to our benefit.
I commend the president for addressing this issue. Could he have found a better way to do it? Sure, but then again, I'm not the person sitting in the hot seat. Getting a better deal at the trade table is long overdue for this country, even if in the short-term, it might upset a few apples in the cart.
|Write a comment - 0 Comments|
@theMarket: Will April Be Better for the Markets?
It has been a tough month for stocks and February wasn't much better. Granted, it was a small price to pay for last year's great gains, but, as in life, all good things must come to an end. Will April bring more of the same for us or can we hope for something better?
Much depends on White House initiatives, "Spanky's" (the President's new nickname) tweets, and the world's response to the administration's trade war initiatives. None of the above is certain, and, as readers know by now, the markets hate uncertainty.
This quarter, both the S&P 500 and the Dow Jones Indexes have seen a nine-quarter win streak come to an end. As of this week, the stock market has lost 40 percent of the gains it has enjoyed since Donald Trump's election victory. You could say "easy come, easy go," or you could be concerned that the other 40 percent could disappear just as fast. I am of the camp that those gains will stick around, largely because of the economy's underlying strength.
Could we see further downside? Technically, a case can be made for another 200-point decline in the S&P 500 Index to 2,462. It would first need to slice through support at 2,532. The evidence for that bear case is no stronger than that of the bull case. This week, we brushed, but didn't touch, the 200-day moving average, which is always a line in the sand for bulls and bears. Below it, we're in trouble, above it, green lights ahead. We have tested this level two times so far this year. Will a third time be the charm, and if so, for whom, the bulls or the bears?
Clearly, this year's winner thus far has been volatility. After months and months of declines, the VIX has risen and it has done so with a vengeance. Anyone (other than the professionals) attempting to trade the daily moves of the markets has ended up in a padded cell somewhere. The out-sized moves both up and down have been led by the technology sector. That's a bit of a problem for the market.
The technology sector, which has led the market's advance for the last five years, appears to have rolled over. The FANG stocks (everyone's go-to group of gainers) have run into regulatory trouble. Facebook's involvement with the surfacing Trump campaign scandal, involving Cambridge Analytica, has caused the whole group of social media stocks to fall under a cloud of suspicion.
Investors and traders alike, are concerned that world governments are on the verge of adopting new and more restrictive rules and regulations on these companies with far-reaching results. None of which will be positive for their stock prices. As a result, the NASDAQ, the tech-heavy index, has had its worst month since January 2016.
Certainly, there are good things that may be lurking just over the horizon. The North Korean situation is turning promising. Meetings between "Fatty the Third," (the popular name for Kim Jong Un among the Chinese citizenry) and our own "Spanky" Trump, as well as Prime Minster Abe of Japan and South Korea's President, Moon Jae-In, are encouraging. All these meetings are happening in April.
So far, the tariff talk from our trading partners has been conciliatory and their language deliberately low-key so as not to set off another tirade of tweets from our Tweeter-in-Chief. As I have written before, I do not believe that Trump will go over the deep end on a serious trade war unless provoked. The problem is that no one knows when and what will provoke him.
|Write a comment - 0 Comments|
The Independent Investor: Financial Planners Held to Higher Standard
The Department of Labor's fiduciary rule looks "iffy" at best, thanks to a March court ruling. The 5th Circuit Court of Appeals says the agency exceeded its authority in insisting that financial services firms act as fiduciaries when giving advice to most tax-deferred savings accounts. However, some financial advisers are ignoring the courts and are going the extra mile for their clients anyway.
Over the last couple of years, I have written several columns on this issue. A "fiduciary" is someone who puts your best interests above his own and that of his company's. It is a concept that the financial community does not want to see implemented and has gone to great lengths to squash all attempts to do so.
President Barack Obama, recognizing the enormous lobbying power of the financial sector, tried to do an end-run around the financial community, the SEC, and Congress by urging the Department of Labor to implement a fiduciary rule. He almost succeeded, and then came Trump. Although our "populist" president talked a good game during the campaign, he quickly succumbed to the influences of Wall Street and ordered the DOL to "review" its regulation. The rest is history.
However, while brokers and other wealth management advisers, (as well as the annuity and insurance industry) are breathing a collective sigh of relief, one entity, the Certified Financial Planning Board (CFP), is ignoring the decision and going the other way.
The CFP Board, according to its website, is "a non-profit organization acting in the public interest by fostering professional standards in personal financial planning through its setting and enforcement of the education, examination, experience, ethics and other requirements for CFP®certification." Currently, there are 69,500 members, which represent barely 20 percent of financial advisers. However, they represent the creme de la crème of CFPs so now you know where to go when shopping for a financial planner.
The CFP Board just announced that starting next year, their members will be required to give advice under a new "best-interest" standard in all aspects of financial advice. I asked Zack Marcotte, a 28-year-old, registered investment adviser, who is sitting for his CFP certification this year, what that means to you, the investor.
"The new rule just makes it that much more important that you look for a Certified Financial Planner when evaluating financial professionals. What this all boils down to is if something is recommended to you, it's because it's best for you and not meant to line someone's pockets."
Under the old rules, a financial planner was required to act as a fiduciary when he or she was involved in doing a specific financial plan for their clients. However, financial planners can sell their clients a whole shopping list of services from insurance to brokerage services that were not part of their fiduciary duties. And there was the rub.
It is well-known within the industry that for many financial planners, the actual financial plan itself, is a loss-leader. The idea is to get you, the unsuspecting client, in the door, do the plan for a nominal fee, and make the big bucks by selling you annuities, life insurance, or brokerage services. That changes next year.
By raising the bar, all certified financial planners must act in the best interests of their clients when providing all financial advice. That is great news for consumers. The CFP will be required to recommend only using a brokerage product, annuity, or other insurance product, if it is in the best interests of their clients.
I believe that over time, more and more consumers will seek out only those, like young Zack, who are required by law to act as a fiduciary in all their financial affairs. Hats off to the CFP Board and to all those who have the true interests of their clients at heart.
|Write a comment - 0 Comments|
@theMarket: Trump's Trade Wars Sink Markets
World markets declined again this week. Despite world condemnation, which included most of America's economists and corporations, Donald Trump unilaterally forged ahead in implementing his own brand of protectionism. Investors fear the consequences.
While tariffs on imported steel and aluminum are still being negotiated, the president has upped the ante and is now pursuing China. The United States has long accused China of stealing our intellectual property. The Chinese, of course, have denied that and so, for years the discussions went round and round — until now.
On Thursday, our president announced his intention to slap $60 billion of tariffs on 1,300 product lines of Chinese imports. As a result, all three averages experienced a major market sell-off. Investors and corporations alike fear China's response. The media is spewing out lists of companies that will get hurt the most by a Chinese trade war. One of the most vulnerable areas is America's breadbasket.
China imports a lot of food from us. We are, in fact, China's second-largest trading partner in the agricultural area. Investors are worried that China could hit that sector hard. That makes sense since that area of America is where Trump's base is strongest.
The Chinese are well-schooled in American politics. Remember the response of our European trading partners on steel and aluminum tariffs. They responded by threatening tariffs on export items important to Paul Ryan's and Mitch McConnell's' home states. But unlike steel and aluminum workers that together only amount to a few hundred thousand jobs, a Chinese tariff on soybeans, for example, could decimate our farming sector. What better way to retaliate against our country and attack Trump personally where it hurts — in the support of his base approaching the mid-term elections.
Republicans are already worried about keeping their majority in the House come November. Recent election contests have not gone well for Trump or the GOP. Political strategists believe that if the Democrats do re-take the House, they most certainly will begin impeachment proceedings against Trump.
It does not matter whether that effort will succeed, only that Trump will be so tied up (think Nixon) in defending himself from the Russian probe, sexual harassment lawsuits, etc. that all legislative progress (including his trade war) will halt for the remainder of his term. That would suit the Chinese just fine.
In addition, it is entirely possible that a Democratic-controlled Congress will rollback a sizable chunk of the tax reform act. Thus far, there is no evidence that the tax cut benefits anyone but the Republican's corporate campaign contributors and the wealthy. There has been no pick-up in investment nor jobs beyond what would have normally occurred.
Given that the tax cut is not popular with most Americans, (especially in states with an income tax), the stock market could be in for a shock in the second half of the year depending on who wins the House. These dynamics go a long way in explaining the volatility in the stock market.
For most of last year, Trump claimed credit for the market's advance, boasting that the averages were a clear signal of his approval rating in the country. Of course, he ignored the fact that over half the population cannot afford to be in the stock market. But this year he has been strangely silent when it comes to the market's decline.
As the White House becomes a revolving door where experience and knowledge are on the way out and "Yes" men are on the way in, investors are beginning to realize the potential downside of an amateur in the White House.
I am still of the opinion that much of this tariff talk is simply Trump being Trump. Unfortunately, what may have worked well in a real estate deal, or naming a winner in a reality tv show, does not work all that well in the global arena.
"Breaking a few eggs" in bringing in a new casino or selling a building was all well and good, but using similar tactics on a global scale can generate very different consequences. Let's hope you and I do not end up in the frying pan. In the meantime, hang tough, stay invested, and grin and bear it.
|Write a comment - 0 Comments|