There are changes to my personal portfolio from July. Specifically, I’m dropping EPR and CCMNX and adding PHD and BSL. These changes are now reflected in the updated portfolio.

Most stock analysts are weak at Open Economy Macroeconomics and tend to look only at the initial static effect on GDP from increased tariffs on China announced for Sept. 1st. This abstract view underestimates the vastness of the negative macroeconomic consequences of Trump’s tariffs. First, there is the uncertainty effect of erratic tariff policy that decrease investment and economic growth, second, there are specific industry effects on agriculture and technology (for which technology is another future growth driver), thirdly, there is increasing inflationary pressure in general that also puts upward pressure on longer-term interest rates which further hampers growth, fourthly, there is the effect of drawing in the Fed to support the tariffs which reduce our ability to fight the next recession, and finally, there are the initial static effects on GDP the brokers are pointing out. Be prepared, not surprised when the markets suddenly tank. Personally, I think a direct restriction on capital expenditure in China would be a better and stronger approach than tariffs and failed negotiations.

For those thinking that Fed rate cuts will temporarily lead to a boost in economic growth and the markets, which is certainly possible, I have some short-term recommendations from Zack’s rank 1 stocks. These stocks are expected to have about 30 to 90 days of increased relative performance and include: MTRN, ARNC, ENVA, OMP, DVA, and MTZ. Zack’s 1 ranked dividend growth stocks include NGLOY, BBL, BHP, FSUGY, PAGP, ARCC, and BCE. Currently, the top ranked ETFs are PSJ, VIG, JKH, FNY, and VOOG.

Alternatively, you could just hold my dividend re-investment funds and disregard the entire upcoming recession, which is essentially the Warren Buffet approach. In any case, Good Investing!

August 14 portfolio update:

Given recent market weakness I am dropping some funds from my personal portfolio that have smaller amounts of assets under management (AUM). These funds are MGF, FMY, PCM, and FFT. I am adding ETY because it is based on both domestic and foreign stocks. I have updated the portfolio from the July Stock and Fund picks with these changes.

August 15 portfolio update:

I am giving up on any positive long-term gains from MIE, a midstream MLP fund and deleting it from my portfolio of income earning CEFs.

Weeks 3 -4 (Aug. 19 – 30):

Trump is on the skids, meeting his Waterloo by trying the negotiate with the Communist Chinese. The Chinese win by never agreeing to any kind of a deal because that will end Trump’s re-election chances. This opens the door for the next socialist who, like Obama, will be good for gold prices. I’d look at stocking up on GGN because it pays a high monthly yield thanks to its low price and may offer capital gains while the Trump administrations circles the drain and the new socialist regime try’s to make everybody better off by increasing demand for everything through income redistribution while at the same time failing to pay for anything (making their proposals look good only on paper) and thereby destroying real production and supply. In other words, get ready for really long lines, wait times, and inefficiency.

Here is my updated monthly paying income and DRIP portfolio that is pretty much good for any scenario and includes GGN. I also added a risk-managed Eaton Vance fund (ETJ) to the mix.

The table is meant to substitute for an immediate annuity in terms of guaranteed income, with the benefit that you get to keep you capital instead of paying it to the insurance company offering the stream of payments. The first thing after a symbol’s stars, more of which indicates greater safety, is the historic risk/ return so L/H means low risk high returns, for example. My July post explains more about the table. Feel free to use the table however you wish. For example, any of the income funds can be held as DRIP stocks if you just want all growth. You never have to sell the DRIP stocks either because they will just buy themselves up faster during a stock market sell-off. As always, good investing!

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

Tariffs on Mexico that would go in effect on June 12 will be bad for Mexico, US companies staying competitive by operating in Mexico and the stock market, dovish Fed or not. Estimates of the cost of tariffs on consumers is now twice as much as the benefit from the tax cuts. This erodes any net gains from all positive supply-side policies (deregulation and tax cuts) already enacted. Global growth forecasts have decreased substantially as a result. The ensuing recession is not yet near, but should not come as a surprise when it occurs.

In the meantime, the Titanic is still afloat. The typical June bounce should be good for a few more days and maybe until June 12th or so. Long stocks to consider are EGAN, NOA, MBUU, ENVA, and TGH. Dividend growth stocks are BKEP, BBBY, EVC, PAA, PAGP, and PUK. The best ETFs are consumer staples (defensives): XLP, FSTA, and UDC. And this is the way it is, June 5, 2019. Good luck!

Week 2 (June 10 – 14):

JPMorgan warns of a ‘Trump Recession.’ “The trade war has so far offset all benefits of fiscal stimulus and, if continued, may lead to global recession,” wrote Marko Kolanovic, JPMorgan’s global head of quantitative and derivatives strategy. “If this recession materializes, historians might call it the ‘Trump recession’ given that it would be largely caused by the trade war initiative.”

The underlying reason for predicting a recession is that Pres. Trump does not understand foreign trade. He is an isolationist and wants tariffs for any reason. He actually stated that his tariffs produce a comparative advantage in trade. This statement reflects his ignorance. Comparative advantage results from having the lowest opportunity cost for a given exported good or service. There are two different causes, either of which is sufficient. First, endowments of minerals, oil, low-cost and productive labor, or land suitable for given crops, etc. vary from country to county. Second, know-how and technology in production vary greatly from country to country. For example, Arkansas has a lot of hard-pan land for growing rice and the best rice growing technology in the world. Consequently, Arkansas has tow sources of comparative advantage resulting in the lowest unit cost of rice in the world which allows it to export rice at a high profit. Moreover, many if not most rice producers in Arkansas are millionaires. Thus, wages by themselves do not explain comparative advantage. Unfortunately, Trump’s tariffs which lead to retaliation make it less profitable and more difficult for Arkansas to export rice. In other words, Trump’s tariffs have decreased Arkansas rice growing comparative advantage, reduced wealth and economic activity related to growing rice, and made Arkansas rice producers worse off. Similar negative effects from Trump tariffs are spreading far and wide among many other producers as well.

If Trump had put tariffs on Mexico into effect on Monday the markets would have sold off dramatically. There was little gained from threatening them and the harm done to US manufacturers using high bang-per-buck (productivity divided by wages) Mexican labor to stay competitive, such as the automobile industry, would be disastrous.

Instead of tariffs that risk recession because they are nothing more than chopping a whole in the other end of a canoe, the ban on doing business with Huawei is the route the Trump administration should take with any high tech US firm doing business in China. That is, just ban US high tech firms from doing business in China. China is a communist country and as such must steal technology. Trying to make any kind of deal with them to not steal technology is a fools errand. Trump will end up with China simply finding another method to steal US technology. Ceasing business in China does not remove their need to steel, but it makes it harder to do. That is far better than making a deal and leaving the door wide open for China to develop another method of easy technology theft.

The current business cycle is already indicating a near top which will, with Trump’s tariffs, soon lead to a downward trend. The stock market will peak soon after the business cycle (economy) and then sell-off quickly as it predicts the ensuing recession. There is still time to invest, but you must keep an eye on the inevitable path the business cycle and stock market will take. Consumer staples ETFs such as XLP, FSTA, and UDC are your best bets. Good Investing!

Week 3 (June 17 – 21):

The overall economy is weaker thanks to tariffs and investors tend toward defensive positions. This creates a possible opportunity going forward. The opportunity is based on the fact that Pres. Trump has one path to a second term: First, the Fed must cut rates, probably in July. Second, there must be a trade deal with China that follows the rate cut. The first condition is likely, the second is anyone’s guess and may come only after another round of tariffs on Chinese exports. If the rate cut and trade deals both happen, the market will go up and positioning oneself a bit more aggressively now may pay off. That said, consider the following Zack’s No. 1’s with VGM = A scores: ERIC, NOA, MBUU, RIO, CSL, and HIBB. Dividend growth stocks are: PAGP, PHI, GEO, APAM, RIO, and BBL. The best ETFs for more aggressive positioning are PXMG, JKH, PSJ, VIG, VOT.

Keep in mind that any trade deal with China is a political move rather than anything substantive. The Chinese will still steal our technology. Moreover, just like Obama ruined economic growth by regulating markets that he did not understand, Pres. Trump does not understand international trade. He is more likely to continue his misguided tariff polices (analogous to Obama’s over regulation) until global and domestic economic growth deteriorate into a global recession. Luckily, this may be a consequence that is still a few years away. In he meantime, good investing!

Week 4 (June 24 – 28):

You have two ways to play the market, either wait for Trump to fail with the Chinese and the markets to fall or hope for a deal so that the markets will go up. A Fed rate cut will probably occur in July regardless of the China pissing contest. My view is that Trump’s failure to negotiate for a mutually beneficial outcome and strengthen global friendships and instead rely on making enemies and trying to win at others costs cannot be expected to succeed. That leaves the Fed to add liquidity to the swirling toilet bowl and slow down or mitigate the stock sell-off. Thus, until a see a post sell-off situation or a completely different geo-political environment, I am playing it safe. For those with a more optimistic outlook, consider the growth stocks NOA, TGH, MBUU, RIO, DIOD, HBB, and KELYA. Dividend growth stocks to look at are: ABR, APAM, CMP, EPD, EVC, GEO, NCMI, and SUN. Growth oriented ETFs are JKH, IWP, and FNY. These will also be excellent investments after a sell-off. In the meantime, good Investing!

The post June 2019 Stock and Fund Picks first appeared on MarchéEconomics.