Bloomberg P&L Podcast: Boris Johnson, AI, Fed with John Authers, David Kotok, and others

Bloomberg P&L Podcast: Boris Johnson, AI, Fed with John Authers, David Kotok, and others

John Authers, Senior Editor for Bloomberg Markets, will discuss why U.K. Prime Minister Boris Johnson’s Brexit strategy is in tatters after UK government loses majority in parliament. David Kotok, Chairman & Chief Investment Officer at Cumberland Advisors, on markets and current investment outlook. Chris Condon, Federal Reserve Reporter, will discuss what’s a busy day for Fed speakers, and also why Boston Fed President Eric Rosengren is unconvinced the central bank needs to cut interest rates at this month’s Fed meeting. William Quigley, CEO of the WAX (Worldwide Asset eXchange) and co-founder of Tether, discusses issues surrounding Facebook’s Libra and why blockchain apps aren’t being adopted.

Running time 29:16

Cumberland's David Kotok on Bloomberg Radio

This is a Bloomberg podcast.

LISTEN TO PODCAST HERE: Bloomberg Audio

NOTE: Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.


If you like podcasts, check out this one from 2015 featuring David Kotok talking about his background and Camp Kotok with Barry Ritholtz. They also talk about the history of Cumberland Advisors since its founding, and delve into fundamental principles of investing and valuation.


Links here
https://itunes.apple.com/us/podcast/masters-in-business/id730188152?mt=2

And here
http://www.bloomberg.com/podcasts/masters-in-business/




Yahoo Finance Highlight: David Kotok on why washing machines are an important reference point in the trade war

Yahoo Finance Highlight: David Kotok on why washing machines are an important reference point in the trade war

 

Yahoo Finance - David Kotok discusses trade war

Watch the embedded video from Twitter & Yahoo Finance below.

 


 

 


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Trump’s trade war with China is starting to get out of hand

Trump’s trade war with China is starting to get out of hand

Market Commentary - Cumberland Advisors - Currency Risk Quote (David Kotok)

Excerpts below.

By Matt Egan, CNN Business
Monday, Aug 5th 2019

New York (CNN Business)The US-China trade war has always been serious. Now it’s starting to get scary. China allowed its currency to drop sharply on Monday to the weakest level in more than a decade. And China announced its companies have halted purchases of American agricultural goods. This comes after US President Donald Trump vowed last week to impose tariffs for the first time on a wide swath of US consumer goods from China.
 
China’s currency move raised the specter of a currency war, where major countries race to devalue their respective currencies.
 
“It’s the currency risk that is the most volatile, hardest to see and the fastest reacting,” said David R. Kotok. “That’s the left hook that can knock out the boxer.”

 

Read the full article here: CNN Business


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The Market Expects the Fed to Do Its Duty

Excerpt from Bloomberg.com article,

The Market Expects the Fed to Do Its Duty

by John Authers
June 14, 2019

The market expects. President Donald Trump’s threat to impose tariffs on Mexican imports has come and gone, but the market remains convinced that the prospects for the Federal Reserve have changed utterly in the last two weeks. If the fed funds futures market is to be believed, the odds now favor three 25 basis point cuts between now and the end of the year. Nobody gave such an outcome the time of day until a few weeks ago

 

Cumberland-Advisors-David-Kotok-In-The-News

“Vincero!” Or, Trump Sings Pavarotti

Finally, a moment of inspiration brought to you indirectly by David Kotok of Cumberland Associates, along with a slightly painful memory. Kotok headlined his latest market missive “Turandot,” after Puccini’s last and arguably greatest —  but incomplete —  opera. It is set in China. The analogy works, Kotok says:

“Why do I start a commentary about China and the Trump Trade War by invoking an opera to serve as a metaphor? The reason is that there is a history lesson.

“Puccini wrote the entire opera except for the final duet. He died on November 29, 1924, before completing the text. Franco Alfano was commissioned to complete the opera, but conductor Arturo Toscanini did not like the result. At the opera’s premiere on April 25, 1926, Toscanini stopped in the middle of the third act and announced to the audience, “Here the opera ends, because at this point the maestro died.” (Source: Richard Russell, executive director of Sarasota Opera)

“The operatic drama underway features Trump and Xi. The setting is China and also Washington. Instead of the three riddles of Turandot, we have tweets back and forth between the US and in China. Sadly, though, the current version is not a comic opera. The closing duet is not yet written.”

It does seem to be a good precedent (Trump used the song at campaign events). More concerning, we lack a Toscanini-like figure to call the whole thing off if the conclusion the two leaders come up with is not to his satisfaction.

Perhaps more sadly, however, the trade war so far lacks any high moment of drama to match “Nessun Dorma” (“Nobody will sleep”), the show-stopping aria from “Turandot” that made Pavarotti famous and became the theme song for the 1990 World Cup in Italy.

(Ed note: On February 10, 2006, Luciano Pavarotti made his final public performance at the Opening Ceremony of the Torino 2006 Olympic Winter Games in his home country of Italy. Watch this interpretation of “Nessun Dorma” – from Giacomo Puccini’s opera Turandot)

Read the full article by John Authers at the Bloomberg website: www.bloomberg.com

 




More on Tariffs

Assessing the impact of the series of US tariff changes in 2018 and 2019 is difficult. The tariffs have been revised and updated over time. Indeed, MarketsInsider lists about 27 tariff-related events and announcements between March 2018, when President Trump announced tariffs on steel and aluminum imports from all countries, and May 23, 2019.[1] They have involved different countries and have impacted literally thousands of products. Sometimes tariffs have been imposed without allowing enough time for buyers of the products to arrange new suppliers or to make other supply chain adjustments. Still, it may still be possible to assess the impact of the tariffs based upon work done by independent groups like the Tax Foundation, the Peterson Institute for International Economics, and various Federal Reserve Banks.

Contrary to public opinion, the first round of tariffs on Chinese imports was not focused on consumer goods but rather mainly on intermediate goods and capital goods, which amounted to products worth about $32 billion against which tariffs would be levied. The following graphic shows the breakdown. In the case of these products, the importer paid the tariff and either absorbed the cost, negotiated a lower price from the China supplier, and/or passed the price increase on to the final goods producer as an input cost increase.

Policy changes in June 2018 added some products to the China import quota list and dropped others. For example, flat-screen televisions and aluminum were dropped, while tariffs were imposed on semiconductors and plastics. Changes were also made to components of other intermediate and capital goods. Not long after these tariffs were imposed, impacted countries responded with tariffs on US exports. The following table details those tariffs. The impact of China’s tariffs on US agricultural products is clearly significant. But interestingly, the impact was delayed, since much of the crop had already been planted and pre-sold. However, come fall, substitute crops in Brazil were planted and subject to sale to China. The real impact on US farmers didn’t show up until this planting season, when demand has dried and prices have been halved.

Since the initial rounds of import and retaliatory export tariffs have been imposed, many changes have been made in US policies, and the US has negotiated a revised trade agreement with Canada and Mexico, known as USMCA, which has yet to be approved by Congress. For example, the US lifted tariffs on steel and aluminum imports from Canada, Mexico, the EU, South Korea, Brazil, Argentina, and Australia in March, 2018. But then in June of 2018 the US removed the steel and aluminum exemptions for the EU, Canada, and Mexico, resulting in a 25% tariff on steel and 10% tariff on aluminum from those countries. Predictably, the affected countries retaliated with tariffs on US exports, detailed in the table above, that included whiskey, boats and yachts, motorcycles, blue jeans, corn, and peanut butter. Note that the tariffs imposed on most of these products and others listed in the table above impact farmers in the Midwest and manufacturers in Ohio, Michigan, and other states that supported the president in 2016. At first, it appeared that the US and China might agree on a compromise trade deal, but in early May 2019 negotiations between the US and China came to a standstill, and both countries have now imposed additional tariffs on each other’s goods.

Now, in an abrupt departure from normal trade negotiations, the administration has suddenly imposed a 5% tariff on all Mexican exports to the US as a tool to force the Mexicans to do more to stem the flow of asylum seekers through their country to the US. Furthermore, the tariffs would increase by five percentage points each month until 25% is reached unless Mexico deals with the immigration issue. Left unspecified is what steps Mexico should take, but more upsetting is that this apparent switch in policy seems to be absent a tariff strategy and puts the USMCA agreement in limbo. The uncertainty that this surprise policy has introduced is reflected in reactions not only from the US Chamber of Commerce but also from investors.[2] The Dow Jones index dropped over 350 points on Friday, May 31. Some have argued that the administration has exceeded its executive powers and that Congress should step in to address this issue. Indeed, key Senate Republicans have stated that they don’t support the proposals to impose tariffs.[3]  Stop-and-go, kneejerk government actions without a cohesive strategy have far-reaching economic implications for business decision making and are not good for the economy or for international relations.

Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
Email | Bio





5G, Huawei, Trade War, Shooting War

From the onset of the Trump trade war we’ve argued that the broad-brush tariffs advocated by Peter Navarro were damaging and that a very targeted approach on security and intellectual property would have been better. Finally, the tariff fight with China is being defined over 5G, which is where critical agreements always needed to be forged.

Market Commentary - Cumberland Advisors - 5G, Huawei, Trade War, Shooting War

Here is an interesting feature article from Reuters about 5G and security and a warning to the US from Australia: https://www.reuters.com/investigates/special-report/huawei-usa-campaign/ . My thanks to Erwan Mahe for bringing this reporting to my attention.

Targeted security and defense protectionism can be understood by Americans and investment market agents. Bludgeoning soybean farmers still makes no sense. Agricultural bankruptcy rates are climbing.

Raising sneakers prices for Americans doesn’t make us safer. Remember, tariffs are a sales tax on the American consumer. Trump knows it. The people around him know it.

So can they admit their error? Not likely. But a possible compromise is to be very heavy-handed on security issues and to rescind protectionist tariffs that punish Americans. Focus 100% on security tariffs. Use quotas. But be prepared for the countermeasures. Remember, the second word of the phrase trade war is war. We are now engaged in it.

Note the implications of the word war. The modern version of warfare plays out in the economic and sanctions realm. That is not an unreasonable alternative to the traditional version. However, history warns us about economic wars turning into shooting wars.

Moreover, we need to stay abreast of where future battlelines are forming, such as the struggle for access to rare earths. (See http://www.nationaldefensemagazine.org/articles/2019/3/21/viewpoint-china-solidifies-dominance-in-rare-earth-processing.) The Chinese are already acting strategically on this front and have decisively outmaneuvered the US.

Trump’s tactics require that military prowess be sharply honed by the USA. And funded fully by Congress. That readiness has now become necessary, whether we like it or not.

We have rebalanced our position in the defense sector and continue it as an overweight selection in our US stock market ETF portfolios.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Trade War’s Hammerlock on Bond Market Puts Lower Yields in Sight

Excerpt from Bloomberg.com article,

Trade War’s Hammerlock on Bond Market Puts Lower Yields in Sight

By Liz McCormick
May 18, 2019

Cumberland-Advisors-David-Kotok-In-The-News

Insight Ahead

Next week, traders will gain fresh insight into the state of America’s housing market and purchases of big-ticket items. Minutes from the Fed’s last gathering will be released Wednesday and there’s a slew of speakers, including Chairman Jerome Powell. There’s little expectation that officials will waver from their pledge of patience with rates.

“The Fed will look at the tariffs as an exogenous shock and that it’s not systemic and therefore won’t change monetary policy,” said David Kotok, chief investment officer at Cumberland Advisors, which manages about $3 billion.

Fed funds futures imply the central bank’s benchmark rate will fall to 2.09% by the end of 2019, signifying more than a quarter-point cut. Officials’ most recent quarterly forecasts projected no change in 2019 and a quarter-point increase in 2020.

Given the Fed’s plans for rates and elevated Treasury issuance, Kotok says yields are too low. He expects the 10-year yield to be at 3% to 3.25% by year-end.

Still, the daily ebb and flow of information about tariffs is seen as pivotal.

“There is more risk of yields going lower given the concerns about trade,” said Justin Lederer, a strategist at Cantor Fitzgerald.

Read the full article by Liz McCormick at the Bloomberg website: www.bloomberg.com

 




Cumberland Advisors Market Commentary – Tariffs – Macroeconomic Versus Microeconomic Effects: In the Long Run We Are All Dead

Robert Brusca of FAO-Economics details some interesting information on US trade and the likely impacts that the current US-China trade war could have on prices.[1]

Market Commentary - Cumberland Advisors - Impact of Tariffs

He has provided us with a deep dive into the mechanics and macro costs of the current tariff “war.” Here are data suggesting that markets may have overreacted to this week’s round of tariff increases and their implications for the US economy.
1) US total non-petroleum imports amount to about 9.5% of US GDP, while US imports from China, though large in dollar amount, account for about 15% of US total imports, or only 1.4% of US GDP.
2) The president has increased tariffs on goods from 10% to 25%, a 15% increase on potentially 1.4% of US GDP, so the first-round impact is less than a 0.2% increase in price pressures and about .4% for the full impact of the 25% tariff.
3) Brusca clearly demonstrates that, despite the administration’s assertions, US importers initially pay the tariffs, not the Chinese exporters, and these prices are then either passed on to US consumers and/or absorbed by the importers in the form of lower profits. Of course, these tariffs increase the relative price of Chinese import products and mean that over time demand will be reduced and customers will substitute goods from other non-Chinese sources or change the mix of goods purchased, thereby lowering the impact of the tariffs in the longer run. Fortunately, ready substitute suppliers exist for most of the goods imported from China. Of course, there are exchange-rate implications as well.
4) Finally, Brusca argues that the overall price impacts in terms of changes in the CPI will be small, since goods have less than a 20% weight in the overall CPI.
5) To be sure, on selective products US producers may engage in parallel pricing behavior; and in some markets, like appliances, the price impacts already have been quite significant.

What about US exports, since China is raising tariffs on its imports from the US in retaliation?

1) US exports in total are about 13% of US GDP, of which goods account for about half, or 7.9%, of GDP. Services are not that important to our trade with China. The Washington Post reports that in the six-month period ending in March 2018, U.S. exports to China have dropped about $18.4 billion, some of which was offset by increases to other areas in the world.[2]
2) Total US exports to China amount to only about 6% of US total exports, or 0.6% of GDP.
3) While these aggregate macro statistics seem small when weighed against the size of the US economy, this does not mean that the tariff situation has not caused problems for key sectors of the US economy, especially agriculture, or to particular parts of the country. For example, for selective producers, like soybean farmers, the damage to their short-run and long-run production and income from the first round of tariffs (not to mention what might happen this time) has been devastating. Particularly hard-hit are farmers in North Dakota and Iowa. In 2017, China bought about $12 billion in soybeans, or approximately 25% of the US crop. In 2018 US exports of agricultural products totaled $9.3 billion, and soybeans were $3.1 billion.[3] By March of this year the figure was down to $1.8 billion.
4) Other segments hit to date have been tech and autos. Particularly hard-hit have been the states of Ohio, Michigan, Minnesota, Illinois, Iowa, Tennessee, Washington, and California. Many of these states have been supporters of the Trump administration. Funds have been allocated to provide a safety net for agriculture, but such subsidies are at best temporary, and they come out of taxpayers’ pockets. Moreover, why is it that farmers are subsidized when other producers who have been and will be adversely impacted are not singled out for support as well? Which ones will get subsidies and which ones will not? This is one game where timing is everything.
5) Finally, recent research from Columbia University on the impacts of the 2018 tariffs reveal several important conclusions. The costs to the US economy of those tariffs through the first 11 months were about $6.9 billion or .03% of GDP.  Furthermore, the costs of those tariffs were entirely born by the US and passed through in the form of higher prices with little estimated impact upon prices received by exporters to the U.S. Interestingly, US domestic producers also raised their prices.[4]

In summary, the current trade war is playing out on two fronts. At the macro level, tariffs and trade have, at best, a small and second-order knock-on effects on the US economy. Those who are predicting dire consequences are selling both our economy and producers short. However, the fact that the macro implications are minor at this date does not mean that the microeconomic impacts, especially in critically politically important parts of the country, are small or can be ignored. People and producers are being hurt, and it is often the smaller farmers and manufacturers who are not only being hurt but being driven out of business. These people won’t be around in many cases when the trade war is resolved, and the economic and political fallout from their losses will be important. Indeed, recent data suggest that family farm bankruptcies are on the rise.[5] There is an old saying in economics: “In the long run, we are all dead.” Let us hope this does not apply to the US agriculture and small-business manufacturing sectors.


[2] See “The First Round of China Tariffs Already Stifled U. S. Exports,” Washington Post, May 16, 2019.
[4] See Amiti, Redding and Weinstein, “The Impact of the 2018 Trade War on U.S. Prices and Welfare,” Discussion Paper DP13564, Centre for Economic Policy Research, March 2, 2019.
[5] See “Corn, Dairy Farms Lead Chapter 12 Bankruptcy Filings, Report Shows, Mike McGinnis, Successful Farming, March 27, 2019. https://www.agriculture.com/news/business/agriculture-leads-bankruptcy-filings-report-shows



Sarasota financial advisor: Don’t panic over trade tariffs!

Sarasota financial advisor: Don’t panic over trade tariffs!

By Ray Collins | May 15, 2019

John Mousseau says it is important not to get caught up in concerns about a trade tariff war with China.

“If you’re sitting there and you read just the headlines, it looks like a cannon ball shot across the bow of the ship. In essence what it is, is just a shot in a longer term negotiation. I think it was long overdue to negotiate with some trading partners. The U.S. — in terms of being a world partner — has given up more than it has gotten in the last few years,” Mousseau said.

Mousseau said neither the U.S. or China wants a full-scale trade war.

Read and see more stories by Ray Collins here:  https://www.mysuncoast.com/authors/raycollins/

 




Why the US-China trade war won’t last

How Trump’s trade war is unraveling the Trump rally

Cumberland Advisors in the News

Excerpts below.

By Matt Egan, CNN Business
Tuesday, May 14th 2019

The United States and China don’t just coexist. Their massive economies are deeply intertwined in ways that make the intensifying trade war unsustainable.

Tariffs are the weapons of choice as both sides attempt to improve their negotiating leverage. Consumers and businesses find themselves caught in the crossfire. The levies will increase costs, muddle supply chains and drive up debilitating uncertainty.

UBS cut its 2019 GDP growth forecast for China from 6.4% to 6.2%. While Beijing will try to soften the blow with stimulus, UBS said growth could slip below 6% in 2019 and 2020 if the trade war deepens.

“The risk is monstrous. It’s very troubling,” said David Kotok, chairman and chief investment officer at Cumberland Advisors.

The interconnectedness of China and the United States has been driven in part by the millions of people in China that have been lifted out of poverty.

“You have an expanding middle class wealth effect,” said Kotok, who also serves as director of the Global Interdependence Center, an organization advocating for the expansion of free trade.

Read the full article here: CNN Business


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites. Sign up for our FREE Cumberland Market Commentaries Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.