March 02, 2018
Here we go again!
Stocks tanked in the beginning of February and now the beginning of March is giving us a repeat performance.
It's another confusing moment for investors. Should you buy this dip because that strategy worked out pretty well last month? Should you have taken a quick profit on your dip buying last month and forget the whole concept of long term investing? You may also be asking yourself why you didn't take some gains last week. Well, only you can answer those questions, but you know deep down inside that these market gyrations aren't the best reasons to make long term investment plans. Those decisions still come down to the basics; your risk tolerance, financial goals, age, and rebalancing your portfolio.
If you just held steady last month, you might not even notice how volatile February was by the time you look at your February account statement. Now the question is if your March statement will give you a repeat performance of the one from the end of last month. Its 29 days away until your next statement and that is a pretty short term time frame, to be sure. So let's look to define the big issue that's driving markets right now and a few possible outcomes.
From a technical stock-trading perspective, the major averages are testing their recent lows put in mid-February. If the major averages bounce off those levels, market technicians, aka chartists, could interpret that to mean the lows have been put in during this period. If the recent lows are breached and stock market averages break to new lows, we're probably not finished with the current corrective phase.
From the point of the big news that you probably have been reading a crap ton about, steel and aluminum tariffs imposed by the Trump Administration, the details won't be announced until next week. So, the stock market is factoring in a worst case scenario; a global trade war that slows global growth. One of the bulwarks for global stocks over the last year is the current synchronized global economic growth scenario. So, no region is immune from a reversal of that. Trade protectionism has a history of not protecting countries who use it, whether a country is playing offense or defense.
So, we'll have either small, targeted tariffs or something massive. Or, something bigger than a breadbox and smaller than Jupiter. Not too helpful, I know. Just like going back to the 1950's so the coal and steel industries could rise again to what they once were won't be helpful either. And with an infrastructure spending plan soon to be announced, that we could all expect to use massive amounts of steel, the time for a tariff on imported steel is not now. We do produce 2/3 of the steel our country uses already and we could jack that up if infrastructure spending brings the market incentives to encourage that to happen. That's the way free markets work. At least, the way they're supposed to work.
We all know free markets don't truly trade freely. There are currency battles, trade battles, battles over budgets, spending battles, borrowing battles, etc. There is an active hand in every corner of the interconnected global economy; nothing exists in a vacuum. Our U.S. defense contractors are doing well not just because they are selling more goods to the Dept. of Defense, but also to other governments around the world; some of whom export steel to the U.S. Then the U.S. also exports automobiles to foreign countries; autos that are made from steel from those same foreign nations. You see, everywhere along the trade-chain, interconnectedness is baked in. No country produces all of the goods it needs, which is why we have trade in the first place.
As you can see from this chart, China is not even in the top 10 exporters of steel to the U.S. Is China pushing steel into South Korea and Mexico to hide the origin of the steel? Prove it and if the answer is yes, those bad actors are the ones we should punish with trade penalties. Get aggressive, but don't punch everybody in the face.
What are we left with? Anything Americans buy that has a steel or aluminum component will go up in price a little. I expect it to have a diminutive effect on consumer inflation. Inflation is mostly driven by wages, not materials. Percentage wise, the tariffs amount to less than a nickel deposit on a soda can. But we know that's not the really scary thing. It's the repercussions of more tariffs by more countries. What could be next, copper? The U.S. is basically importing inflation and exporting protectionism. How far it goes is anyone's guess. That's what the real worry is in all this.
And now, check this out:
It was a privilege to write this for CNBC, March 2, 2018
Here's the most alarming market message: So-called safe havens aren't so safe
-When it comes to stocks - any and all stocks - and bonds with a time to maturity greater than a year, there are no true safe-havens. They don't exist.
-I've seen this movie before. When interest rates rise, it's always the same group of conservative investors who were overreaching for yield who wind up getting burned.
Click the image below to read it:
|Click to read it
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