Week 1
April is starting off well. Still have doubts about Trump’s trade policies, especially towards Mexico. The China problem centers around forced technology transfer, or simply technology theft by a communist government. We should never have let any of that happen. But Mexico is simply a producer with higher bang- per- buck labor resources. Any resources value per dollar is its productivity or value added divided by its price. That’s the same principle as when we expect consumers to spend their next dollar on the highest bang- per- buck items defined as marginal utility divided by price. Producers are doing the same or getting the most for their money with Mexico’s labor. Mexican value added by labor is at least as good or higher than that of UAW workers and the wage rate is lower. Its a competitive market place and we should expect producers to try and beat their competition by as much as possible by allocating their productive resources so as to reduce costs and make the most money. There is absolutely no reason not to recognize the comparatively greater value of Mexican labor in the auto industry. To not recognize the efficiency gains and instead threaten tariffs on Mexico is completely missing the point about allocative efficiency gains from foreign production and trade. This is not presidential behavior, but the kind of mediocre intellect expected of those without any education . . . which are also Trump’s constituents. Not being able to separate Trump from the intellectual depravity of his non-competitive and isolationist constituents is troubling.
With that said, the coming election in 2020 places political constraints on upsetting the market with more tariffs or failing to finalize a trade deal with the Chinese that addresses intellectual property theft. Thus, there is hope for market stability and for the bull market to continue. Assuming we can stay long, consider FSUGY, HSII, KMDA, and KLYCY for growth. Dividend growth stocks include AVH, CAPL, AYR, IMBBY, IPG, and LKSD. ETFs to consider are PSJ, PXMG, XSW, and IGN. Good investing!
Week 2 – 3:
Trump still doesn’t understand the economics of trade any more than Obama understood the nature of a market economy. Trump is ruining our economy through tariffs just like Obama ruined our economy with too many socialist based market regulations. If and when there is a recession, it will probably occur through negative effects on trade, just as we were heading into a recession at the end of Obama’s eight years. A Trump recession is not hard to see. Trump’s tariffs have already made it impossible for the Fed to reduce its balance sheet any further, leaving us vulnerable to the next economic downturn. The mechanics of a trade related recession occur through reducing economic activity because of new tariffs. Less economic activity will occur both domestically and abroad. Eventually jobs will be lost globally and domestically. Once that gains momentum, nothing will stop it from becoming worse, especially not the Fed. Of course, Trump will be pointing fingers at the Fed for reducing its balance sheet and raising rates, but the whole problem will be Trump.
Enter the socialist Bernie Sanders, probably after the next election. Bernie should write a book about why socialism doesn’t work. He clearly doesn’t understand why competitive market economies do work. He is not academically qualified to tell anybody anything about comparative economic systems. He just has a big ego and wants followers to drown in a sewer of poverty after succumbing to his sweet song of how everything we want will fall out of the sky at no cost. In reality, you have to give up something to get anything that is real. What will be given up to fund universal healthcare or Medicare for all and free college? Bet will be very vulnerable to attack because of a deeply weakened military at the very least. What about the wasted resources of free college which allows more students to complete valueless degrees. There goes a bunch of human capital down the drain. Moreover, what jobs will these students be able to get from a ruined market economy that is racked by higher taxation and socialist regulation? Will we have to go to guaranteed government jobs? If so, how much well will be lost overall? Bet everyone will love socialism then.
In the meantime, we still have a little room left in the bull market run, but probably not too much. Growth stocks to look at include AVID, EZPW, GIII, and CRMT. Dividend growth stocks include BKE, CAPL, PSXP, and WPP. The best ETFs are IGN, PXMG and FXL.
As for current market strategy. The market is again toping out in most sectors. Look for another pullback like at the end of 2018. I was 100% cash during that time and had money for the recovery that started at the very end of 2018. I’ll be looking to do that again, and fairly soon . . . say 3 – 5 months or so. In the mean time, good Investing!
