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!

The post April Stock and Fund Picks first appeared on MarchéEconomics.

The post April Stock and Fund Picks appeared first on MarchéEconomics.

Monetary and fiscal stimulus aimed at the expenditure side of the economy had little effect.  Fiscal stimulus bills directed money at things with little pay-off as politicians directed the money toward their re-election prospects and their political cronies, and price increases absorbed some of the expenditure stimulus.  If the fiscal stimulus were directed at only infrastructure there would have been bigger expenditure multipliers plus a longer run supply-side effect through increased productivity.  Monetary stimulus piled up in the banks as excess reserves.  Banks didn’t want to loan at low-interest rates and excessive banking regulations reduced incentives to loan excess reserves even more.  Of course, business expectations for a pay-off to borrowed money were also lacking.  Thus, the monetary stimulus did nothing to stimulate economic growth.  Attempts to regulate prosperity such as increasing the minimum wage at the trough of the Great Recession in 2009 also retarded economic growth.  In fact, the labor demand curve had shifted so far to the left that the minimum wage increase occurred in the elastic range of the labor demand curve causing a decrease in total income to the entire group of minimum wage workers.  Naturally poverty rates increased and per capita income declined.  Moreover, economic growth rates during the supposed “recovery” phase remained below the economy’s long-run trend and became the slowest and weakest “economic recovery” ever seen. 

The slow rate of economic growth over the previous eight years means that anything looks better now.  Consequently, expectations on the business or supply-side of the economy have improved and the stock market has reflected this.  Also, recent data indicates that the index of consumer expectations from the Michigan Consumer Survey is improving on the expenditure side of the economy.  Yet, President Trump’s economic agenda has yet to be put in place.  The first part of Trumps agenda involves decreasing excessive regulations.  This will increase business or private sector investment because of increased expectations for greater returns.  This will lead to more hiring and will finally begin to put upward pressure on wages.  The shift of the labor force participation rate to an upward trend and individual  leaving under-employment in search of better jobs will initially push up the unemployment rate, but the unemployment rate is a lagging economic indicator and will eventually decline again after a real economic recovery finally begins to take hold.  The second part of the Trump agenda is a reduction in corporate tax rates and capital repatriation incentives will re-allocated increased capital investment into the stock market and the economy.  Whether this occurs will require a bill upon which congress must agree.  Trump and congress must hurry with their repeal and replacement of the ACA (Affordable Care Act or “Obama care”) quickly or fixing the tax code will begin to fall into questionable territory.  The last part of Trump’s agenda involves increased expenditures on infrastructure.  This is problematic because of Trump’s desire to build up the military.  Funding a military buildup and increased infrastructure investment, that mainly leads to a supply-side productivity increase and not a limited multiplier effect that will quickly go to zero, will require a tax code change that funds them both or it will not be “revenue neutral.”  Moreover, since our public debt to GDP ratio is about 105% at the moment, it is unlikely that increased deficit spending will occur. 

All of this suggests an increase in economic activity in all forms because of a decrease in burdensome and costly regulations.  This, in turn, supports increased earnings and a favorable long-run stock market.  On the other hand, if increased expectations that manifest themselves in the stock get too far ahead of economic reality there will be corrections and the stock market will be a bumpier ride.  Adding to the short-run risks are Trump’s desire to re-negotiate trade agreements and to re-allocate capital investment into less productive and therefore more costly production in the US.  Increased friction in international trade is not only less efficient, as is capital misallocation, but may cause periods of increased riskiness that lead to “risk-off” periods in the stock market.  Some have pointed to “Trump Stocks” such as those in the energy or banking sectors as the best long-run investments.  The banking sector is probably the best bet as regulations will decrease and interest rates will increase (due to the FED and increased private sector borrowing and economic growth).  On the other hand, energy futures do not reflect a big “bank for the buck” for investments in that sector.  Moreover, coal may never recover due to lower natural gas prices and cheaper oil.  Cheaper energy prices make it more difficult to find really explosive energy plays.  Technology is argued by some to be neutral relative to “Trump Tweats” — as opposed to the pharmaceutical industry — but higher returns among technology firms depend, to a large part, on free trade and exports.  Thus, technology investments must be carefully scrutinized as to how they are affected by trade disruptions.  That said, anything in the “internet of things” area and that might benefit from increased private sector infrastructure investment will be the best plays.  Moreover, things can become overbought quickly in this sector and the willingness to rotate out of “hot” stocks and into those just becoming “hot” is the best strategy.   

An example of the difference between global economic 
sectors that suggests the U.S. stock market is not 
getting too far ahead of itself includes the difference 
between some emerging market economies and the U.S. 
economy.  Since the beginning of 2017, broad-based 
measures of the stock markets in emerging market-based 
economies such as Argentina, Poland, and Brazil have 
increased at more than twice the rate of the broad 
based U.S. stock market. 

Similar to the U.S., Argentina and Brazil have recently 
elected new leaders that favor capitalism over their 
previously socialist governments.  Also, Poland's 
government is a right leaning "law and 
order" party.  Because of these political-economic 
similarities, the U.S. economy and its stock markets 
could respond similarly, with business and consumer 
expectations simply leading the way.  (The frequently 
mentioned "animal spirits" rationale is a Keynesian 
pejorative that means absolutely nothing, except that it
applies more to leftists who's animal spirits constantly
push for more bad government).

The post What about the Current Economy and Markets? first appeared on MarchéEconomics.

The post What about the Current Economy and Markets? appeared first on MarchéEconomics.