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.

Taxes can be forward shifted on to consumersthrough higher prices only if consumers have completely inelastic demands in the long-run.  They don’t.  Raising prices to cover the tax on imports will result in less consumption by consumers at the higher prices.  Surplus inventories will result when less is bought through retail.  Retailers will then have to lower their prices to deplete the excess inventory.  Retailers, in turn, will purchase fewer imports as a result.  Thus, if foreign sellers want to sell a greater amount to the U.S., the border tax will end up being backward shifted on to them when they are forced to lower their prices to sell more.  In the end, some higher prices will be paid by U.S. consumers but at least part of the burden of the tax will fall on foreign sellers that have lowered their prices.

As for the dollar, fewer imports being bought at lower prices means fewer dollars circulating in the foreign exchange markets.  That will cause the dollar to appreciate and a stronger dollar is a deflationary factor inside the U.S.  Not only will imports become less costly because of the backward shifting of border adjustable taxes, but also because of the increased value of the dollar. Thus, it seems that retailers and consumers in the U.S. really have much less to fear from a border adjustable tax than one might gather from watching the news commentary.

Also, the BAT can be applied only to final goods. That is, to only those final goods made entirely in a foreign country. Intermediate goods that are inputs to U.S. production that are made in foreign country’s or that may cross the border several times before becoming a finished or final U.S. good can easily be exempted.  

There are a few negative consequences aside from the small forward shifting of the tax onto U.S. consumers. A BAT is an anti-trade policy because it will not only reduce imports, it will also make it harder to export because of the upward effect on the dollar exchange rate. Thus, total trade is reduced, but by only a little. It is also a beggar-thy-neighbor trade policy because it benefits our producers at the expense of foreign sellers through the backward shifting of the tax burden. Still, because it is not a violation of any trade agreement no foreign nation or producer can go to the WTO and demand it be overturned.

Because of the increased tax revenue, the U.S.would gain the benefits of lower corporate and income taxes that will have expansionary supply-side effects such as greater investment, more job creation, and less capital flight.  If some government money collected from the border tax can then go towards infrastructure investment, supply-side effects from increased levels of productivity will induce economic growth that carries further into the long-run.

(Note:  Forget the Keynesian short-run expenditure multiplier effects from increased government expenditures.  The supply-side effects of increased productivity are the main benefit. This is because all expenditure multipliers quickly go to zero.  In other words, Keynesian expenditure
effects from government expenditures, even those on infrastructure, are more like a July 4th fireworks display as opposed to the supply-side effects of a whole year’s worth of increasingly productive work, saving, and investment.)

The post The Border Adjustment Tax (BAT) is really GREAT! first appeared on MarchéEconomics.

The post The Border Adjustment Tax (BAT) is really GREAT! appeared first on MarchéEconomics.