he US Can Win a Trade War

The US Can Win a Trade War

The tit-for-tat tariffs and war of words over trade imbalances has created the very real possibility of pushing the world into a global trade war.  This will have massive repercussions that could radically impact our economy, our markets, and your investment portfolio.

The conventional wisdom is that all of this is “bad”… bad for markets, bad for stocks … yet several hundred billion in actual tariff’s have already gone into effect, and the sun still came up.  The potential for a looming trade war would typically bottom the market, yet stocks remain within an elevated fixed range.

What’s going on here, is this Trump’s “Art of the Deal,” or someone playing a very strong hand in the game of poker?

 Free trade has been the cornerstone of conservative economic orthodoxy for 70+ years.  When practiced liberally, and through American hegemony, it benefits and has benefitted the entire planet.  Today however, with a large public debt, vanishing industrial base, changing great power interests, and allies who take advantage of US markets, there is little “free” about free trade for the United States.

And trump’s policies seem to be working:

1)  China’s stock market has been down over 20% in the last few months.

2)  The Chinese yuan is down 7% since March.

3)  German car manufacturers have asked the government to eliminate tariffs on US cars – their competitors!

4)  Canadian tourism into the US increased since March, and Canadian agricultural stocks slid when tariffs announced.

US trade policy with our allies as well as China has entered a new era, the outcome of which is past the horizon and unknown at this time.  But it is improbable the US would lose in a battle over free trade and markets:

 

I. Top 3 Reasons the US Can, and Probably Would, Win a Trade War with Everyone Else

  1. “They need us more than we need them.” A childish way to frame the debate perhaps, but true nonetheless.  The party with the trade deficit has the advantage in any trade war, since his side is less dependent on making money from exports than the party with the trade surplus.  Furthermore, most of the trade deficit is in the form of US manufacturers outsourcing – meaning foreign countries are typically exporting US brands back into the US, assembled abroad – demand for US brands would remain in the marketplace … we have things people want, most of our competitors do not.
  2. “U.S. markets are more diverse than competitors.” Mexico is driven by agriculture and manufacturing but is largely a corrupt failed state…..Canada has a diverse economy but smaller constituencies more easily impacted by economic downturns … China and Europe are driven by export growth … ALL, whether they have marketplace diversity or not, still pale in comparison to the deepest markets in the world – the United States.  Changes in any one dominant commodity, say oil for Canada, agriculture for Mexico, autos for Germany, or telecoms (Apple) in China, and you would have radical shifts in the politics and the budgets of those countries.  In the US, it would be painful for some in that particular industry, but would be a minor blip on the larger US GDP number.
  3. “We don’t have free trade today, so fair trade is a victory.”   China steals … everything; Europe, Canada and Mexico all have barriers to their markets which prevents US access, as compared to easy access to US markets; and, the hollowing out of US manufacturing is a direct national security threat.  That is not fair trade.  Fair trade is selling a car in my country, so I get to sell one in yours.  As it stands today, Germany can export cars to the US with a 3% tariff, while US cars are slapped with a 10% tariff.  This occurs across all export markets with all countries.  We do not and have never had free trade – to suggest we did is simply not accurate.  All Trump is doing is attempting to re-balance the trade system to modern circumstances.

This unbalanced trade regime was a byproduct of post-war American hegemony and the policy decision to rebuild the world after World War II.  Allies against communism were the priority at that time.  While China remains communist and many countries are authoritarian, the global threats to the US are substantial, but not the same, as they were in 1945.

Trade wars can make us less prosperous.  They can, in the long run, run the risk of recession or worse.  But not everyone loses equally … their can be a winner … and based upon the data and simple economic reality, the US would find it hard to lose this battle over global trade.

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SCOTUS Pick Brett Kavanaugh … Something for Everyone to Like

SCOTUS Pick Brett Kavanaugh … Something for Everyone to Like

President Trump nominated his second Supreme Court Justice this week, naming Brett Kavanaugh to replace the retiring Reagan appointee Anthony Kennedy.

Whether or not Kavanaugh gets confirmed is another issue – the left was lining up to oppose him even before he was chosen.  The extreme nature of the “Resistance” is not a healthy reaction within our democracy, but is a right of speech that we enjoy.

According to Reuters post-election polling, “Supreme Court nominations” scored as the number one reason – among many – that voters chose Trump over Clinton, getting the highest response of all issues at 26% (the economy was second at 22%).

The “resistance” to Kavanaugh may be misplaced.  Unlike Gorsuch, who evidenced Justice Scalia’s influence in his rulings and was a devout adherent to originalism – the area of jurisprudence that believes the Constitution should be followed to the letter, and should represent a “strict construction” of the text as it was written – Kavanaugh’s paper trail shows a moderate conservative approach to the application of the Constitution to fact patterns before the Court.

Resisting Kennedy’s replacement should therefore give liberals caution.  Sometimes he has gone their way, and like Kennedy, his DC establishment credentials may make his career that of a swing vote on the court as well.  Make no mistake, Kennedy was a conservative, appointed by Ronald Reagan who adhered to conservative beliefs most of the time.  He was more heterodox in his approach on certain social issues such as gay rights, which made his vote often seen as a swing vote on the Court.  But for the left, that may be the best they get under the Trump presidency.  Kennedy was conservative with middle of the road social values … Kavanaugh may end up the same.

Hoping the mid-terms give them control of the Senate is a big gamble for Democrats.  If they block Kavanaugh, but lose the Senate again in the November mind-terms, Trump’s second choice won’t be a moderate conservative, but a hardcore conservative further to the right than Kavanaugh and possibly even Gorsuch.  It is a huge gamble considering that Kavanaugh has something for everyone to like:

I. Top Three Reasons Republicans Should Love Judge Kavanaugh:

  1. “His dissent in Heller confirms 2nd Amendment commitment”: Even Judge Kavanaugh would reject the idea of absolutism, he has come pretty close in his Heller dissent.  The Heller decision, made in the DC Federal Court of Appeals where Kavanaugh served in 2006, was an affirmation of the District’s gun control laws.  So stringent they served effectively as a ban on any form of gun ownership.  Eventually overturned by the Supreme Court, Kavanaugh stated in his well-documented dissent that not only was the DC ban unconstitutional, but that restrictions on any form of gun ownership would not pass Constitutional muster.
  2. “Ardent defender of the 1st Amendment”: The precedent used to support the Robert’s court ruling in favor of Citizens United could be found in the 2009 case Emily’s List vs. Federal Elections Commission.  In that case, Kavanaugh wrote for the majority that citizens have right to use money to express speech, and supporting advocacy groups falls within the scope of First Amendment protections.
  3.  “His dissent in United States vs. Askew takes a limited view of 4th Amendment protections”: Conservatives who favor law and order policies such as stop and frisk and broad definitions of probable clause will support Kavanaugh’s length record of support for law enforcement.  In the Askew case, Kavanaugh ruled that even if the authorized search of the alleged perp is limited in scope, law enforcement is still entitled under the Constitution to continue the search on the subject person more broadly.  In the case above, when drugs were not found on the defendant, Kavanaugh dissented in saying the police were within their rights to unzip the coat of the subject where they found an unregistered weapon.

II. “Top Three Reasons Democrats Should Love Judge Kavanaugh”:

  1. “Obamacare as a tax was the creation of Kavanaugh”: The DC Circuit Court of Appeals first heard a case known as Seven-Sky vs. Holder that under normal circumstances would be a footnote in legal history.  Judge Kavanaugh’s lengthy 65-page dissent included the first legal reasoning that the Obamacare individual mandate penalty was a tax, and should be treated as such.  This was the legal and intellectual text and language Justice Roberts would use in affirming the Obergfell case and therefore confirming Obamacare as constitutional.
  2. Illegal Immigrant minors have a right to an abortion”: Judge Kavanaugh dissented in a 2017 case which allowed an illegal immigrant minor, 17 years old, to receive an abortion while in detention, but only to the fact that she was a minor and the state had her in detention without parent consent.  He did not invalidate abortions for a minor, abortions for illegals, and many court analysts believe this will provide the wiggle-room to not overturn Roe v. Wade.
  3. “Military commissions still fall under Federal Statutes”: Under Hamdan vs. Rumsfeld, Kavanaugh’s majority opinion ruled that US military commission trials are required to follow federal statutes which memorialize and encapsulate International Laws of War.  In other words, if the US has signed a treaty, or enacted a law, which governs battlefield conduct, and that encapsulates international agreements, then our existing military commission trials (MCT – under the Military Commission Act of 2006, MCA) must abide by those guidelines.  Salim Hamdan was Bin Laden’s driver, he ran errands for him, but no evidence was presented that he participated in the planning or execution of terror acts against the United States.  Under international law, material support does not constitute an act of war, and his conviction could not stand under Federal Law.  Conservatives were angered, liberal cheered, but it was probably the correct call under Federal statutes defining military commissions.

Judge Kavanaugh is a conservative, but he is replacing Anthony Kennedy, who was generally conservative in his rulings throughout his career – so this is not a change to the ideological make-up of the court.  Trump’s choice does not alter the voting balance on the court, and in fact has several rulings which fall in line with both sides of the political aisle.

The Supreme Court makes decisions that affect our money.  Staying informed on their influence is important – they can impact markets which impacts your money.  Protecting your money should be a primary objective of your retirement planning process.

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Financial Crisis: Ten Years Ago, the World Changed

Ten Years Ago, The World Changed

A rolling crisis born of decades of mistakes finally erupted across the US financial landscape approximately ten years ago, with each month of that year highlighting a new and more ominous dilemma for US markets.

The Financial Crisis of 2008 goes by many names – The Great Recession (which doesn’t capture the magnitude of all that happened during this time), the Banking Crisis (which unfairly blames banks alone for the collapse) – any number of “titles” will most likely not provide an adequate description of what took place.

Exactly ten years ago during this month, July of 2008, the financial industry saw massive upheaval and government action which would have been unimaginable just a few years before.  But a lot had already transpired … decades of bad government policy and unwelcome government intervention into the marketplace had already distorted US real estate markets.  And now, 2008 saw the crisis unfolding almost nightly on the cable business channel.

  1. October 2007 –  Official beginning of the recession; Florida real estate market collapsing.
  2. February 2008 – Bush signs into law a tax rebate bill, and increases FHA loan limits and lowers down payment requirements as loan borrowing/lending is rapidly declining.
  3. March 2008 – Bear Stearns, with substantial exposure to mortgage backed securities, was bailed out by the Fed and eventually forced into a sale to JP Morgan Chase.
  4. April/May 2008 – Through the “Term Auction Facility,” the Federal Reserve lent a then record $150 billion to investment banks; the Fed Funds Rate was dropped for the third time that year – to 2%.
  5. June 2008 – Fed bank loans break the record again, lending $225 billion to distressed banks with massive loan losses from defaulting real estate.

And then, the calendar turned to July …

By now it was fairly evident that the traditional method of allowing banks and financial companies to file bankruptcy and/or reorganization had been disregarded, and throwing tax payer money at the failing institutions was the preferred method of stemming the tide of the crisis.  No one, however, was prepared for the events that occurred in July.

**The two BIG July 2008 events which headlined the ongoing financial crisis of that year:

  1.  “Secretary Paulson asks Congress for a $25 billion bailout of Fannie Mae and Freddie Mac”: Looking back, the numbers seem so small compared to the gargantuan debt and bailout numbers we have seen since.  However, at the time, it was a body-blow to the stock market.  Street guys knew (A) if the Feds were moving in it was probably already too late; and, (B) it was not going to be enough.  Instead of stabilizing markets, it rattled them further, and set the stage for what would become inevitable – the complete nationalization of the Fannie and Freddie marketplace.
  2. “IndyMac Bank failure … depositors angry”: In a prelude of what would come in the fall, IndyMac Bank was a mid-sized regional bank and the first traditional bank failure of the year (Bear Stearns being an investment bank and financial services company).  At the time, FDIC insurance only covered $100,000.00 of a person’s bank deposits (the crisis would lead to reforms later that would include an increase in FDIC coverage up to $250,000.00).  Angry depositors pushed the local police force to the brink, as they demanded access to the bank and access to their accounts.  The televised events spurred widespread fear of further calamity with other banks throughout the country.

IndyMac Bank failure … depositors angryIndyMac Bank failure … depositors angry

 

Many more dominoes were still to fall in that fateful year of 2008.  August and September would not be kind to markets, nor to many of the nation’s oldest and most famous banking institutions.  At the onset of the Federal takeover of Fannie and Freddie, and the beginning of traditional depositor bank failures in the Midwest, the public remained largely unaware of the declining stock market………most advisors were simply saying it was “time to buy” as stock prices fell.  “Buy low, sell high” – a long standing mantra on Wall Street – proved disastrously wrong over those remaining months in 2008.

Ten years ago was proof in our lifetimes that what goes up must come down, and many times we are too late in taking action to protect our hard-earned money.  Make sure you are not too late when the next downturn becomes a market collapse.  Call now for safe and simple principal protection products for your investment portfolio. (877) 912-1919