Is Trump creating trade uncertainty to attract investment into the U.S. ?

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The Trump administration has lifted exemptions for Canada, Mexico and the European Union on its punishing steel and aluminum tariffs. Former Bank of Canada Governor David Dodge says the United States is deliberately creating global trade uncertainty to drive investment to its shores.

“The White House and the people around the president look at the world in a way that, if they can create uncertainty about investment elsewhere in the world, then both Americans and foreigners will come and invest more in the United States,” Dodge told BNN Bloomberg on Monday.

This strategy has partially worked over the past 18 months as unsuccessful NAFTA talks have caused companies to postpone or delay important investment decisions. Current Bank of Canada Governor Stephen Poloz said in an interview with BNN Bloomberg last Friday that the ongoing NAFTA negotiations threaten to drive investment in Canada away for good.

President Trump is headed for a showdown with America’s allies at a Group of Seven summit today in Quebec, with the European Union and Canada threatening retaliatory measures unless he reverses course on new steel and aluminum levies. The EU has threatened to retaliate with duties on everything from American motorcycles to bourbon. Canada and Mexico have also promised to levy their own tariffs on U.S. goods.

The White House appeared unfazed by threats from allies. Top economic adviser Larry Kudlow said Canadian Prime Minister Justin Trudeau was “overreacting” in response to the tariffs, and said the blame for any escalation lies with the U.S.’s trading partners. He said Trump is simply responding to decades of trade abuse.

The president believes that the tariffs being charged against other countries would help to fund the U.S. government and also believes that the U.S. could not lose a trade war in an international climate where the rules were already stacked against American business.

In my humble opinion, Trump’s bullying tactics may have worked in real estate negotiations with contractors and financial institutions. However, it seems to me that world leaders are not going to allow Trump to win concessions without a serious fight.

This trade dispute has triggered one of the biggest crises in the G-7 since the group’s formation by Canada, France, Italy, Germany, the U.K., Japan and the U.S. In a rare rebuke of a member nation, G-7 finance chiefs said the U.S. duties could “undermine open trade and confidence in the global economy.”

Trump’s “America First” policy could turn into “America Alone” as trade tensions escalate with allies.  So far the world stock markets have not reacted to the fact that tariffs will boost the inflation rate. Leading to higher interest rates and slower global growth.

Lets hope that cooler heads prevail and the world avoids another great recession.

 

 

 

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Trump Tariffs are all about politics and not national security

 

Canada and Brazil are likely to bear the brunt of any tariffs on steel imposed by President Donald Trump. According to the department’s International Trade Administration, Canadian and Brazilian steel comprised 16 percent and 13 percent of U.S. steel imports as of September 2017. China is not one of the top 10 importers of steel to the U.S. (take a good look at the above pie chart)

Top foreign sources of aluminum included Canada (56 percent), Russia (8 percent) and the United Arab Emirates (7 percent) between 2013 and 2016, according to the United States Geological Survey.

In my humble opinion, there is little justification on applying a 25% tariff on steel and a 10% on aluminium based on national security. The majority of steel and aluminium that the U.S. imports comes from military allies.

Now, the timing on this tariffs are somewhat suspect with a congressional election in the 18th district of Pennsylvanian next week. In case you didn’t know, Pennsylvania manufactures a lot of steel. This is Trump country, he carried this district by 20% in the 2016 election. The race is so tight that Trump had a rally in Pennsylvania supporting Rick Saccone.

“Do me a favor,” he said to the large crowd gathered in a hangar at the Pittsburgh airport. “Get out on Tuesday, vote for Rick Saccone, and we can leave right now.”

Trump also using tariffs as a bargaining chip in NAFTA negotiations

Canada and Mexico received a temporary exemption from the tariffs. It will depend on whether the changes that are made to NAFTA will satisfy Trump.  The seventh round of talks in Mexico produced very little process. The final round of NAFTA talks are schedule in Washington sometime in April. The Trump tariffs will put extra pressure on Canada and Mexico to give Trump a deal that will help him get republicans elected this November.

President Trump’s decision to impose tariffs on foreign steel and aluminum likely precedes an exit from NAFTA, according to Goldman Sachs.

Stock Markets don’t like tariff wars

Tariffs will artificially boost input costs and increase the cost of imported finished products. The fear is an increase of inflation, leading to raising interest rates which would dampen economic growth. The other fear is that corporations will be unable to pass on an increase in input prices which could lead to job cuts.

I expect more tough talk on trade from President Trump because many American voters think that the wealthy will benefit the most from tax cuts. I believe that stock market volatility will intensify over the next few months.

 

It may be a good time to raise some cash and pick up some bargains.

 

My 200th post: Investing in the Second Machine Age

As a retired senior, I am having difficulty adjusting to ” the Second Machine Age”. The advances in technology are mind blowing. I would never have guessed that self-driving cars in science fiction movies like “Minority Report”  or “I Robot” could become available in my life time.  How about Elon Musk’s vision of offering a rocket ride of only 30 minutes to get to London from L.A., is that just science fiction or a potential reality?

China, the world’s biggest vehicle market, is considering a ban on the production and sale of fossil fuel vehicles in order to reduce pollution and boost the production of electric vehicles. The move would follow a similar ban by France and Britain but they have included a 2040 timeline. However, China has introduced draft regulation to compel vehicle manufacturers to produce more electric vehicles by 2020 through a complex quota system.

Some possible investments to consider

  1. Millions of dollars are pouring into the Global X lithium & Battery ETF (LIT). It has had a massive gain in value of 58% so far this year. It has also attracted short sellers who are betting on a pullback in price.
  2. For stock pickers, the top ten holdings of LIT include five U.S. listed companies, ticker symbols Tsla, FMC, SQM, ENS and ALB. A word of caution, some of these stocks have very high valuations and can be very volatile.

There is little doubt in my mind that advances in digital automation, robotics and artificial intelligence will change your living standards over the next decade. Just think how companies like Facebook, Amazon, Netflix, Google and Apple have already influence our lives during the past decade.

A 2013 study by Oxford University’s Carl Frey and Michael Osborne estimates that 47 percent of U.S. jobs will potentially be replaced by robots and automated technology in the next 10 to 20 years. Those individuals working in transportation, logistics, office management and production are likely to be the first to lose their jobs to robots, according to the report.

Some possible investments to consider to capitalize on this trend

  1. Robotics and Automation ETF (ROBO) which contains three U.S. listed companies in their top ten holdings. Ticker symbols, AVAV, HOLI and CGNX
  2. Global X Robotics & Artificial Intelligence ETF (BOTZ) which contains three U.S. listed companies in their top ten holdings. Ticker symbols: NVDA, ISRG and TRMB
  3.  Semiconductor ETFs like SOXX or SMH which include companies that provide key components for self-driving vehicles, automation, robotics and artificial intelligence. The top ten holdings of these ETFs are places to look for individual names that could outperform the overall market.

There is also an interesting book that I am thinking about buying.

Synopsis: According to the authors, the book has three sections.

  • Chapters 1 through 6 describe “the fundamental characteristics of the second machine age,” based on many examples of modern use of technology.
  • Chapters 7 through 11 describe economic impacts of technology in terms of two concepts the authors call “bounty” and “spread.” What the authors call “bounty” is their attempt to measure the benefits of new technology in ways reaching beyond such measures as GDP, which they say is inadequate. They use “spread” as a shorthand way to describe the increasing inequality that is also resulting from widespread new technology.
  • Chapters 12 through 15, the authors prescribe some policy interventions that could enhance the benefits and reduce the harm of new technologies.

You can also search you-tube “The second machine age” to listen to the authors speak. 

 

Disclaimer: Do your own research, these investment ideas can be very volatile. 

Is Basic Income the answer to a new AI world?

I am so glad that I am a retired senior. I don’t have to worry about a robot taking my job. Since I have lots of time on my hands to think, I wonder what a new AI world would look like. For example; will my 2 year old granddaughter even need to get a driver’s licence? Will the Uber or cab that she orders even come with a driver?

Now I have always been a big fan of science fiction movies. There is a scene in the movie “Logan” where Wolverine has to dodge driver-less trucks to cross the highway to help some people. Installing AI in 16 wheeler trucks could replace the need for a lot of truckers.

Fast food restaurants have been the training ground for teenagers and young adults.  I used to tell my kids that they better get a good education or you will end up using the phrase “would you like fries with that” while working at MacDonald’s. However, even MacDonald’s are installing new self-serve kiosks. Now you can even order your Starbucks coffee using your phone. Where will young people get work experience?

Everywhere I look, jobs are slowing disappearing, the new AI technology seems to have very few limits.

“For example, Australian company Fastbrick Robotics has developed a robot, the Hadrian X, that can lay 1,000 standard bricks in one hour – a task that would take two human bricklayers the better part of a day or longer to complete.”

Japan has the highest percentage of people over the age of 60 and their population is shrinking. As a nation, there is a shortage of workers and they have embraced the use of robots in the work place. This trend could be coming to North America sooner than you think.

As a baby boomer, I worry about the future cost of health care. The world population is aging and health care costs are raising. I hope that science fiction turns into reality and my caregiver looks something like this.

   or this 

Why universal basic income may be necessary

A 2013 study by Oxford University’s Carl Frey and Michael Osborne estimates that 47 percent of U.S. jobs will potentially be replaced by robots and automated technology in the next 10 to 20 years. Those individuals working in transportation, logistics, office management and production are likely to be the first to lose their jobs to robots, according to the report.

For many, basic income sounds like a free ride or welfare. Economist believe that masses of people will not just sit at home but will make a contribution by continuing to work. The basic income would allow recipients to explore other options not available to them if they are struggling just to survive,  such as retraining or to find new job opportunities.

In theory, new opportunities would spring up to replace jobs done by machines. However, there are some practical problems, like where will government get the money if less people are working to pay for a basic income program? The North American education system would require a major overhaul to put more job training skills into the curriculum.

Some additional information to consider

The government of Ontario just announced a three year basic income pilot project to help low income earners in three cities. A single person can apply to receive $16,889 a year and couples will receive $24,027. Recipients who are employed will keep what they made from their jobs but their basic income would be reduced by half their earnings. For example, a single person earning $10,000 per year from a part-time job would receive $11,989 in basic income ($16,989 less 50 per cent of their earned income), for a total income of $21,989.

Is basic income just a pipe dream or a future reality?

 

 

 

 

 

Will Trump disappoint Wall Street & America?

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There is no doubt that the Republican Party was totally surprised and unprepared by the November election results. Trump’s management style is going to drive his management team, the media, most of the American people and the world nuts. A new reality show has come to Washington, “The Billionaire Apprentice”, who will be the first to get fired?

I think that there is going to be more than the usual amount of personnel turnover in the first six months. The media will be writing about how Trump can’t keep people and about all the chaos in the White House. The world has never seen an American president with this type of management style. It is going to make most of us uncomfortable.

The stock market has high expectations regarding less regulations, infrastructure spending, a new tax policy and the replacement of Affordable Care Act. Failure to deliver something that at least comes close to meeting those expectations is going to have a significant negative impact on the markets and the economy. Some market watchers believe that a correction will show up in the next 60 days if there are cracks in Trump’s agenda.

Being Canadian, I am not an expert on American politics. In my humble opinion, a civil war maybe brewing between Trump and the Republican Party on the implementation of a new tax policy and infrastructure spending. Repealing and replacing the ACA isn’t going to be easy without some bipartisan cooperation. Some republicans maybe hesitant to support some of Trump’s agenda in fear of losing their seat in upcoming congressional elections in Nov. 2018! Trump’s team could be stuck in the Washington swamp!

If you have any doubts that protectionism is at the top of Trump’s agenda, you clearly need to watch Trump’s inauguration speech. President Trump’s first few days in office was to pull out of the Trans-Pacific Partnership and signed an executive order to renegotiate NAFTA.

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My buy American and hire American playbook

Avoiding:

  • Auto industry (including part suppliers)
  • Canadian lumber producers
  • Health care and biotech
  • Oil & gas (watching U.S. fracking companies)
  • Retail & Restaurants
  • U.S. industrials that depend on infrastructure spending

Investments that could be Trump Free

  • U.S. banks (including some regional banks)
  • Tech stocks (including semi-conductors, cloud plays)
  • Some U.S. domestic stocks
  • Gold & silver stocks
  • Cash (in case of a correction)

What do you think? Has President Trump over promised and will he under deliver?

 

Is Globalization or is Technology destroying more jobs?

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Could last Friday’s weak U.S. job numbers help make this man president of the United States?

Many Americans believe that China and Mexico are responsible for their job losses. There is no doubt that some industries like apparel & electronics require cheap labor costs and companies have moved production overseas. I also believe that the majority of illegal immigrants (Mexicans) are working at low paying jobs that Americans don’t want. (Even Canadian farmers hire temporary workers from Mexico during planting & harvest season).

Economists around the world believe that globalization has more benefits than detriments. Long term, higher wages in poor countries should theoretically increase spending and help spur global economic growth. Wages in China are going up causing a slowdown in their manufacturing boom. In fact, some illegal immigrants are moving back to Mexico because of higher wages.

Advances in technology has created a large number of new jobs but many of those jobs are unfilled. The major problem is employers find it difficult to find workers with the appropriate skill levels. The education system is really behind the curve in preparing young people to enter the job market. No real surprise that the participation rate is falling as the unemployed are giving up looking for work.

The automotive industry has been well-known for its intensive use of robotic arms for assembly, welding and painting of cars. Many other industries have adopted robotic arms into their manufacturing process. Advances in automation has eliminated an estimated 30% of all manufacturing jobs. Developments in 3D printing could allow consumers to make a variety of products beyond just toys, jewelry and novelty items.

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Technology has destroyed a number jobs in many sectors. It is obvious that on-line shopping has really hurt brick & mortar retailers. Retailers have cut full-time staff and reduce costs by hiring more part-time seasonal personal. A large number of book, music and video stores have simply disappeared. Netflix and other low-cost streaming services has really hurt jobs in media, cable and the music industry. Facebook and Google have captured the majority of advertising  dollars which has reduced revenue and job opportunities in radio, television and print media.

Have you ever wondered why there are so many fake reality shows on cable? Production costs are so much cheaper than producing quality programing. Networks have less ad revenue to paid wages for real actors, writers and directors.  

Thanks to ATMs, internet banking, direct deposit and mobile banking apps, bank branches don’t have as many tellers or people waiting in line. The rise of Robo-Advisors will further reduce bank staff over time. I wouldn’t be shocked to find a decline in the number of bank branches in the near future.

Smartphones have reduced the need for buying cameras, voice recorders, camera film, photo albums, alarm clocks, GPS’s, video cameras, calculators, flashlights, landline phones, watches, calendars, note pads, newspapers, books and even credit cards. I wonder how many jobs have been lost because of the popularity of smartphones.

The oil and gas industry used to drill five wells in order to get one producing well. Today’s drilling technology enables 100% success rate in finding oil and gas. Plus fracking technology has allowed oil companies to maximize oil and gas extraction.

Will future improvements in artificial intelligence enable robots to replace human workers?

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What do you think, Globalization or Technology to blame for job losses.

 

Are the best days for Apple over?

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Investors managed to make it through a volatile April modestly ahead of the game, though individual returns were held back by one principal culprit: Apple. The tech giant was “the biggest wealth destroyer” for market participants during the month.

Apple’s decline hits especially hard because it is the most-owned stock by mutual funds. Some 363 mutual funds owned the stock as of the end of 2015 with Microsoft the second most-popular and Alphabet third, according to Credit Suisse.

Many index funds include Apple in their holdings. For example, Apple is off 12 percent year to date as of Friday’s close and has subtracted about 92 points from the Dow Jones Industrial Average in the second quarter alone, a period during which the blue chip index is just above positive.

So where is the real hope in Apple’s earnings call? This quarter’s earnings provide no silver lining and one instead must look past this quarter’s earnings (and probably next quarter’s results) to continue to be positive about Apple’s prospects.

Why it isn’t time to give up on Apple stock:

  • New lower-priced phones. While Apple iPhone sales declined for the first time, results do not reflect the new lower-priced iPhone that will likely capture market share from competitors.
  • A healthy product mix. Apple services, including cloud services, music offerings, and Apple Pay, are a recognition that services and ongoing revenue are an important part of a healthy product mix.
  • Apple is still massively profitable, pays a dividend, has huge cash reserves and built-in consumers for future upgrades. It has a low price to earnings multiple compared the rest of the market.

Why the best days for growth are over:

  • Wall Street believes that Apple really needs to kick off its innovation engine. The discussions around the iPhone 7 indicates that it is an evolutionary product rather than revolutionary. Market sentiment is negative on Tim Cook as an innovator compared to Steve Jobs.
  • Analysts were particularly concerned about declining sales in China where sales have fallen 26% over the year. They also believe that iPhone pricing is uncompetitive to penetrate the huge cell phone market in India.
  • Within developed markets, the upgrade cycle has been extended. Consumers don’t feel the need to buy a new phone every year. Plus U.S. carriers are required to separate the cost of the iPhone from their data plans. Many U.S. consumers are deciding to save about $40 per month rather than upgrade once their two-year contract with their carrier has expired
  • Analysts estimate that Apple has sold 12 million watches last year, generating about 6 billion in revenue. Despite the big numbers, users aren’t particularly impressed with the slower processing and response times. The frequent battery charging requirements didn’t make it the most favorite wearable.

My two cents worth on Apple:

Apple reminds me the early days of Microsoft. The windows operating system was growing Microsoft’s revenue and profits for many years. However, the market for windows became saturated and the growth in upgrading cycles slowed down. It turned Microsoft from a growth company into value stock generating a huge about cash. The chart below illustrates a ten-year period where Microsoft’s stock price was struck in a trading range between $25 to $30. Microsoft’s growth cycle didn’t resume until the company got into offering cloud computing.

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Now, my wife is very happy with her iPhone 6 and we seem to manage to share our iPad. Don’t laugh but I am still a dinosaur using a flip phone for the few times that my wife and I are not together.  In my defense, I am retired, not on Facebook and only use my phone for emergencies. The iPhone 7 will have to be revolutionary for me to upgrade.

What do you think, are the best days for Apple over?