Week 1 (Dec. 1 – 9):
The market is trying to price in the Trump trade protectionism policies. It has been doing that since January of this year. The only other politician advocating trade protectionism is Bernie Sanders. This tells you that such a negative supply-side policy is going to be no good. Let’s hope that Trump comes to an accord with the Chinese and the EU before we have a global recession. In the meantime, do like that banks are doing and hold cash (ICSH and JPST) that currently pay about 2.5%. The problem was never the Fed raising rates. The Fed must now re-evaluate continuing to raise rates because of the negative effects of trade protectionism which are showing up sooner rather than later.
Trade protectionism is analogous to promoting lazy and fat kids at a school track meet that are otherwise not competitive. The good athletes must now miss the track meet and stay in school to do extra homework (e.g., they face retaliatory tariffs). Only competitive exporting industries will invest and add jobs but retaliatory tariffs make this impossible. Import competing industries are the lazy fat kids that are not competitive. No one will buy their stock nor will there be more investment and hiring even with trade protectionism. Net job loss and higher prices for producers and consumers will be the only results.
This is consistent with supply-side policies that either increase or decrease the misery index (inflation plus unemployment). Pro supply-side policies reduce the index while anti-supply side policies like trade protectionism increase it. (Forget the Philips curve that assumes a trade-off between inflation and unemployment. It is less relevant old school Keynesianism that assumes the government can manage the economy. I’ll bet the Fed and Trump cause a recession instead.)
Of course, lets not forget that Bernie Sanders would combine trade protectionism with more business regulations (Like Obama) and higher taxes (Hillary) with the idea that we’ll all be better off under socialism. Let’s hope the market never has to price in those policies as well. But don’t hope too much. Socialists are now the only environmentally oriented candidates and they will get a lot of votes as a result. Too bad the republicans can’t pull their heads out of the sand about global warming. Eventually we all face its consequences and must deal with it. Don’t want to think about the wrecked economy we’ll have if socialists are the only ones taking action.
Week 2 (Dec. 10 – 14):
If you are still in equities or bonds, you must feel as though you are stuck in the La Brea tar pits. Soon you will be dead. If, on the other hand, you have heeded my advise, you are in cash (e.g. ICSH or JPST) and safe. Only those who are safe will be in position for future opportunities. Unfortunately, skeletal remains recovered from the tar pits are many. And that’s the way it is for the second week of December 2018.
Week 3 (Dec. 19 – 20):
Things looking this bad, including the government shut down, can only mean its time to look at buying some stocks and funds. You might look at MBUU as a growth stock and XLV as a fund to consider. For dividends, consider PTIAX. These are all Zacks #1s.
Week 4 (Dec. 24 – 31):
Trump trade policy headwinds are the only problem causing market uncertainty. Moreover, it is the only problem the Fed has with normalizing its balance sheet by selling credit assets. In other words, Trump is in the way and not the Fed. Given that is the case, the steep sell-off in the markets has created some opportunities. I would take a look at stocks such as JLL, SNE, and RUSHA for growth. Consider the ETF HDV for dividends and growth. Purely dividend growth stocks are DM, GNL, and BRG. These are all Zack’s #1s with good value, growth, and momentum scores. Happy New Year and Good investing!
