Economy is OK, but nerves are rattled by Ron Finke

I saw recently the Princess Bride movie will be presented this next weekend on Xfinity, Netflix, or some outlet. One of my lifetime favorite movies, it includes a scene in which the hero must transport his love through the Slough of Despond. It is a treacherous place with fire swamps, ROUS¹ and quicksand ready to take one down.

This is a bit like the current stock market feels. After such a strong second half of 2017 and into January, the S&P 500 finished with only a first half gain of 2.65 percent including dividends. The Dow Jones 30 lost .73 percent while the US Aggregate Bond Index lost 1.62 percent. So much for supposed safety.

Official unemployment is down to 3.8 percent and company revenues and profits are still rising. That trend is expected to continue for months. So what is the problem? Have we entered a much more dangerous place than most think?

The MSCI World Index (excluding the US) dropped by 3.77 percent. Most countries are running at good speed. But all are fearful of the disastrous effects of a tariffs-induced trade war. President Trump is making good on his promise to even the playing field when it comes to other countries’ taxes placed upon our exported products.

If one compares just the applied weighted mean (an adjusted average), the US looks pretty low, down in the neighborhood of 1.7 percent, according to the World Bank².  This compares to 1.6 percent for Canada and 3.5 percent for China.

But you know that quip about figures not lying, but liars can figure? We might apply that here. The comparison is complicated by not just the amount of tax (or duty), but other costs (or duties). These can include bureaucratic requirements, fees, licenses, and such.

This is one argument leveled at the US. It is hard to imagine that we are more difficult to engage in business than other countries, but I am sure it is possible. I wonder if critics include our trade sanctions and technology restrictions upon exports to China, Russia, or Iran.

On the one hand, we don’t want to be patsies allowing others to compete unfairly with our industries. But one principle of which I am certain is this. More trade is better than less. Countries should specialize in providing those products and services that for which they are best suited, whether by climate, skill, education, soil conditions, etc.

Students of history will remember that new high tariffs in 1930 shut down world trade and every country suffered for it. It is this fear I believe is weighing on Mr. Market’s mind, holding stock prices from the next uptrend. Other than this, full speed ahead.

On a personal note, if not for our protection of dairy and peanut farmers, I might eat even more peanut butter and chocolate ice cream sundaes and concretes. Wait, that might not be such a good thing after all.

Past performance is no guarantee of future results. Advice is intended to be general in nature. General market performance numbers from Market Watch, First Trust Advisors L.P., July 2, 2018.

¹Rodents Of Unusual Size.

² See https://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS.

July 5th, 2018|Categories: Business, Economy, Government|