Trump’s trade war

Over the weekend, the G-7 group of nations met to denounce the recent actions of the United States. This coming Friday, these same leaders convene in Quebec. President Trump will attend and seems determined to face them down. Ever since the Trump Administration announced plans to raise tariffs on imported steel and aluminum by 25% and 10% respectively, our allies have been livid. Some are referring to the upcoming meeting as the G-6, plus the United States. You’ve got to hand it to the president, he doesn’t back off, but given the circumstances, maybe he should. I doubt that anyone in this country believes the present trade agreements we have signed throughout the years are even remotely fair. They should be renegotiated, but there are different ways of going about it. Unfortunately, Trump used a rather “trumped-up” excuse for his actions by claiming “national security” as justification for the tariffs. Given that the tariffs will be levied principally against America’s strongest allies, is it any wonder that the G-7’s response was what it was? They rightfully believe that the Trump Administration’s blatant attempt to circumvent the World Trade Organization (WTO) is illegal. As an example, Canadian Prime Minister, Justin Trudeau, responded to the claim by saying that “Canadians have served alongside Americans in two world wars and in Korea. From the beaches of Normandy to the mountains of Afghanistan, we have fought and died together.” “Canada,” he claims, “has treated our Agricultural business and farmers very poorly for a very long period of time.” How that squares with national security is anyone’s guess. My point is why confuse the...

Is it time to hedge your bets?

Over the last few weeks, the threat of rising inflation has triggered a great deal of concern among investors. Given that inflation has been at a low level for a number of years, their concern may be justified. Many market pundits were surprised by the wage data in the non-farm payroll report for December, which was released two weeks ago, Friday. In that report, wages jumped far more than most expected coming in at a 2.9% annualized growth rate. Given that our central bank monitors wages as one of their key indicators to gauge future inflation, that number sent the bond and stock markets into a tizzy. Again this week, investors received another inflationary surprise when the most recent Consumer Price Index (CPI) jumped 0.5% in January. The gains were broad-based in everything from energy to apparel. This news was not taken too well in the bond market where the U.S. Ten-year Treasury bond rose to above 2.9%, the highest level it has been in several years. Many economists believe that a further rise to 3% is inevitable. Yet, none of these numbers spell doom for the economy or even the stock market. From a historical perspective, both inflation and interest rates are still at incredibly low levels. But the markets tend to look ahead. What, they ask, will the rate of inflation be by the end of this year or next year? Here, things get a bit dicey. You see these recent inflation numbers do not reflect the impact of the $1.5 trillion tax cut, nor the increase in the nation’s deficit. Neither do they include this week’s...

How to handle a pullback

The stock market is in turmoil. Several hundred point swings in the Dow and other averages has investors on edge. The indexes are suffering 1-2% point swings per day. How are you dealing with it? Over the last several months, I have written several columns preparing you for this day. I thought it might be useful to give readers a refresher course on coping. Here are some useful tips on avoiding that worst of all reactions—selling on the lows. Number one: do not check your portfolio. The more often you do, the greater the probability that you will panic and sell. Every time you check your investments in a freefall decline like this one, you will feel terrible. The only way you can stop the pain (you will say to yourself) is to sell. Don’t do it. You see, we humans are really not built for investing. Our primal instinct when we face danger is to run. That fear and flee response has been saving our butts ever since the first sabre-tooth tiger chased us out of our caves. But putting some distance between you and that predator doesn’t work very well when it comes to investing. We are more comfortable thinking in the short term. No never mind that stocks may come back next month or next quarter, most of us can’t take our eyes or our minds off what happened today and what may happen tomorrow. How many of you remember the back-to-back declines we had in the first quarter of 2016? Not many, I would wager. For some, this is an opportunity. Given that many of...

There’s nothing sheepish about the price of wool

We humans have been using wool for thousands of years. It was the primary clothing material of the middle ages. But even today, new uses for wool are cropping up, driving prices to record highs. The primary use for wool continues to be in clothing production. The newest demand for this natural material is coming from sport’s companies such Nike, Puma and Adidas that are weaving it into sneakers. It appears that a new generation of consumers prefer natural over synthetic fibers. They want to know where their products come from and where they are going. Even old codgers like me are not immune to this trend. Six months ago, I purchased my first pair of wool shoes. Not only are they the most comfortable shoes I have ever worn, but the wool is both warm in the winter and cool in the summer. A client reminded me that weavers are also using increasing amounts of wool in their products as well. Actually, there are plenty of other uses for wool. Wool is the top choice for high-quality carpets, for example. You’ll also likely find it in the padding underneath that rug as well. Furniture, such as seat upholstery, as well as stuffing and covers are also made from wool. Blinds, curtains, cushions, even wallpapers, are often made of wool, as are blankets and wool-filled duvets. Wool is also coming into vogue in places like China. The growing affluence of its people and its manufacturing prowess make China an increasingly important market for wool. Australia is the world’s largest supplier of apparel wool (90% market share). China consumes about...
The market’s half-time report

The market’s half-time report

Financial markets worldwide ended the first six months of the year much better off than they started. Here in the U.S., the Dow and the S&P 500 Indexes both gained 8%, while NASDAQ delivered 15%. The Russell 2000, the small cap index, underperformed (up 4%) and the Transports gained 5%. All-in-all, it paid to be in large-cap, especially the large cap growth sector for the first half. At the same time, the Volatility Index continued to make new lows, despite the fact that at least half the investing population was/is worried and fearful of our new president’s agenda. All of the top 20 economies around the world are growing this year. That recovery is broadening out to include emerging markets as well. It’s the best global growth investors have experienced in five years. And economic forecasts have continued to indicate gains, especially in Europe.  While over in Asia, recession-ridden Japan has managed to gain ground (up 8%). Their economy is stronger than at any time in the last ten years. As a result, international developed markets outperformed our own stock market. The French market gained 15%, Germany 16%, while Spain and Italy also gained by double digits. Emerging markets have done even better, racking up a 17% gain. Individual countries like Hong Kong were up 16%, while China lagged (only up 12%). Most investors do not realize that the decline in the dollar since the beginning of the year had a lot to do with that overseas performance. As the greenback fell, the foreign currency-denominated stock prices overseas gained. Just this currency effect alone boosted foreign returns by 5%...

Are you ready for a 20% correction?

As the stock market makes new highs, investors tend to get greedy. They also begin to believe that what has happened in the recent past will continue to happen in the future. Actually, history shows the exact opposite. It is time to give the potential downside some thought. Hope burns brightly in the equity markets right now. Many on Wall Street believe that the Republican-dominated Congress, led by Donald Trump, “The working man’s president,” will usher in a golden era of strong economic growth and robust financial markets. The problem is that politics and investments make for strange bedfellows. At some point, I expect that the two will part ways and when they do, look out below. Now, with that in mind, have you given any thought to what you are going to do when the inevitable correction does occur? When your $1 million tax-deferred portfolio loses $120,000 in less than a month, will you panic and sell or will you hang in there or buy more? This is the time to plan your strategy—not when the markets are down eight days in a row and pundits are predicting the end of the world. Many indicators I watch are predicting that somewhere up ahead, investors should expect a substantial pullback. Stock market volatility, a sure contrary indicator of market strength, has been declining for the past 15 months. The Volatility Index is at historical lows right now. Then there is the law of physics. What goes up must come down. We are in our eighth year of a bull market. Memories of the 2008-2009 financial crises have faded. It...