04/09/2017

7 Reasons Why There Will Be No Trade War

John Thomas, Seeking Alpha

Summary

  • There ain’t going to be no stinking trade war.
  • Markets came to this conclusion months ago.
  • You could see this in a whole host of different and disparate asset classes.

I am a firm believer in the wisdom of crowds. This means that markets made of millions of participants can see things well before any individual human can. The consequences for your portfolio can be earthshaking.

So, while the president campaigned on promises that he would immediately impose a 45% import duty on China and Mexico, here we are some 70 days into the new term, and absolutely nothing has happened. In other words, there ain't going to be no stinking trade war.

Markets came to this conclusion months ago. You could see this in a whole host of different and disparate asset classes.

Technology is the big one. The biggest victim of any trade war would be technology firms which operate the most globalized business models on the planet.

They design products here in the US, use child labor in China to assemble them for pennies on the dollar, free of wage, OSHA, environmental, health, and child labor concerns. They then sell them in the US and around the world for enormous profits.

In a world careening off the globalization cliff, you would expect Apple (AAPL) shares to get a pasting. Yet, the jewel of Silicon Valley has seen its shares rocket by 38.46% since the November 8th election, and an eye-popping 26.31% since January 1st. Remember, at $755 billion, this is the largest public company in the world doing this!

No trade war here!

Look elsewhere across the investment universe and you see the same thing happening everywhere. Emerging markets (EEM), whose economies are highly dependent on a functioning global trade system, have been soaring, up 20.50% since mid-December.

And what has been the best performing emerging nation? Mexico (EWW), the wall to protect us from it going out for bidding as I write this. The EWW is even beating Apple, up 26.83% in 2017.

Guess what? Not only is there not going to be a stinking trade war, there isn't going to be a stinking wall with Mexico either, just a token, Erector Set, pretend one. A budget balancing congress won't pay for it.

China ($SSEC) is posting respectable gains, up 7.5%. The Chinese currency, the renminbi, has been appreciating, not exactly the stuff that trade wars are made of.

What's more, stock markets in Japan (DXJ) and Europe (HEDJ) have been handily outperforming the US markets.

So where did the trade war go?

I'll list seven of the most obvious reasons.

Read full article



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