Cumberland Advisors Market Commentary – Trade War and No Recession

Author: David R. Kotok, Post Date: November 18, 2019
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The United States has gotten itself into a trade war negotiations mess. (See “How Trump’s Trade War Went From Method to Madness,” https://www.bloomberg.com/news/features/2019-11-14/how-trump-s-trade-war-went-from-method-to-madness.)

Stop Digging

There is an old adage: “When you’re in a hole and it’s getting deeper, stop digging!”

Trump and Co. know they’re in a mess but don’t know how to stop digging, so they have been floundering while the adversary (China) outplays the US.

We don’t defend China. It is an authoritarian regime without electoral calendar constraints. And the United States has clear competitive and security concerns. That said, we think the US picked the wrong type of fight and must change its terms to win. We would simply separate intellectual property from soybeans and lobsters and washing machines. Be very precise on targets. And don’t punish Americans with a sales tax masquerading as a tariff.

Here’s one of Trump’s thousands of public pronouncements. Please view this video clip and decide for yourself about negotiations and credibility and consistency. Phase one is not a complete deal. We doubt there will be any longer term and comprehensive deal.

“Trump Says He Wants a ‘Complete’ Trade Deal with China – Bloomberg,” https://www.bloomberg.com/news/videos/2019-09-20/trump-says-he-wants-a-complete-trade-deal-with-china-video

We got into this mess because Trump succumbed to poor and patronizing advice. Here’s Navarro’s tariff launching speech to NABE. Navarro is an embarrassment to economic professionals, who now mostly consider him a pariah. His heels are dug in, and he is sinking his president. A year and a half into the tariff war, please listen and decide for yourself.

“National Association for Business Economics Conference, Peter Navarro Remarks | C-SPAN.org,”
https://www.c-span.org/video/?424924-3/peter-navarro-outlines-trump-administrations-trade-policy-economic-policy-conference

Here’s the original Lighthizer tariffs list. Please decide for yourself how well the White House has done with the policy application.
https://ustr.gov/sites/default/files/enforcement/301Investigations/List%201.pdf

Trade wars cost everybody. The IMF estimates that the US-launched global trade war has withered worldwide growth rates by about 1%. And the pain is growing daily.

Here’s the original launch by Lighthizer in March of last year.

“President’s Trade Negotiator on Steel and Aluminum Tariffs,” https://archive.org/details/CSPAN3_20180322_140200_Presidents_Trade_Negotiator_on_Steel__Aluminum_Tariffs

Our message for America’s president and his team? You’re in a hole. Stop digging!  Get to a truce. And then slowly try to stabilize things.

Our message for political challengers in both parties (three Republicans and many Democrats)? Talk about trade war policy. Take on protectionism. Take on isolationism. Stop name calling and get to serious discussion. And get the USMCA passed so Trump signs it. Capex and economic growth require it.

Meanwhile, investors have been celebrating the best outcomes even before they arrived. The Fed expands liquidity. Interest rates and inflation are low. US employment grows slowly. We don’t see a recession, only slowing growth rates. But the slow growth level persists as does the damage already seeded by the Trump Navarro trade war.

We are partially invested in our US stock markets ETF accounts. We have raised some cash. Our quantitative strategies have been fully invested since the end of August. They have changed and put profits in the bank.

Of course, a change may occur at any time.  For now we like banking some profits while more events unfold.

David R. Kotok
Chairman and Chief Investment Officer
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