Stock Market is often disconnected from the real economy

For years, I have seen many stock market bubbles form and then burst. Stock market experts seem to sing the same old tune. They are looking beyond present conditions toward what they believe will happen in the future. Bubbles usually form when there is too much optimism and tend to burst when the economic reality sets in.

The basic human suffering from Covid-19 gets more and more insane by the day. The reality on the ground is that the spread of Covid 19 is getting worse in the U.S. and other parts of the world, not better.

Why then have money managers continued to push stock prices higher?

1. They believe that whatever is happening today doesn’t matter, but it is where we are going tomorrow that matters.  In this case, tomorrow is 2021.
2. Government stimulus measures seem to have lessened some investor fears. The CARES Act, the $2.2 trillion coronavirus relief package issued one-time stimulus payments to American households. It expanded unemployment benefits and created a forgivable loan program for small businesses.
3. The Federal Reserve has also used aggressive measures to make sure businesses and municipalities can access ready cash.
4. Investor optimism has been buoyed by phased state reopenings that have begun across the country and the expectation of a vaccine.
5. There has been a rebound in consumer spending and some companies are rehiring.
6. A survey of financial advisors suggests they’re taking a rosy view over the long term. A quarter of advisors expect to increase their stock recommendations to clients over the next year.

Here is a dose of reality

It turns out that much of the S&P 500 returns come from just 10 companies: Microsoft, Apple, Amazon, Google, Facebook, Visa, Mastercard, Nvidia, Netflix, and Adobe. As a group they are up 35% since the beginning of the year. As a group, the other 490 are down more than 10%.

Just three stocks make up more than a third of the Nasdaq 100 Index. I bet you can guess which three. Apple, Amazon and Microsoft together are now valued at nearly $5 trillion. That’s larger than the entire economy of Germany and nearly the size of the Japanese economy

In a true bull market, you see most stocks rising, often to new highs. A rising tide should lift nearly all boats. The percentage of NYSE stocks closing above their 200-day moving average is only 37% but it was near 70% in January.

The market has already assumed that current earnings will be bad. Analyst earnings projections tend to overestimate even in good times and analysts tend to have a herd mentality, usually tracking one another. I found a chart by Jim Bianco to illustrate a possible valuation bubble.

 

The problem with stock market bubbles is you can never predict when they will burst. The most notable one was the dot com bubble that formed from 1995 to 2000 and burst in 2001. There are a few stocks today that are valued similar to some of the past dot com stocks.

Tesla is a perfect example, it has a market value of 262 billion based on sales revenue of 25 billion. You can also add Shopify to the bubble list that has a market value at 110 billion with only 1.7 billion in sales revenue.

Some economic reality may set in next week with the release of second quarter GDP on Thursday July 30. (Analysts are expecting a decline of 33%), along with Friday’s release of consumer spending, Chicago’s purchasing managers index (PMI) and consumer sentiment index.

 

 

Wall Street ignoring the economic pain on Main Street

Are you mystified that the S&P 500 is only down 13% from its February high and the NASDAQ is slightly positive year to date? You would think that all the bad economic numbers would dampen investor’s confidence in owning stocks. However, publicly trading companies on Wall Street have a number of advantages over Main Street.

1. When it comes to government bailouts and subsidies, large public companies seem to be first in line. There are always claims that help is needed to save jobs or what they produce is an essential product or service. However, many of these companies used their cash to buy back stock and pay big executive bonuses instead of saving for a rainy day. (Airline industry)
2. The Federal Reserve’s zero interest rate policy helps large public companies to sell bonds at low rates to stay afloat, a huge advantage over small and medium sized privately owned companies.
3. The Federal Reserve has the bond and stock market’s back.  They are adding liquidity to the bond market by buying corporate debt and even buying high yield or junk bonds to keep interest rates low. This allows even the worst run companies to avoid bankruptcy.

Why I think that Wall Street shouldn’t be so optimistic regarding an economic recovery:

I agree with comments made by Fed Chair Jerome Powell who cautioned of a potential credit crunch as stimulus dollars start to dry up. The result would be the loss of thousands of small and medium sized businesses across the country. Owners of many bars, restaurants, gyms and clothing stores have stated that they are fearful of being able to cover their operating costs while limiting the number of customers allowed into their premises.

So far, 32 publicly traded companies have already filed for bankruptcy protection under chapter 11 which leaves many of their employees, suppliers and shareholders high and dry. The economic pain from Covid 19 could be long lasting as more companies file for bankruptcy protection. The recovery may take some time to gather momentum as some jobs will never come back.

It is hard to comprehend that Wall Street is dismissing the fact that all the jobs that were created over the past ten years have disappeared in just under three months. . The weekly jobless claims will continue to be momentous and don’t included workers who want a full time job but are working part time. It also doesn’t include many Americans who are out of work and don’t qualify for unemployment insurance.

I wonder, is it even possible to get people back to work without safely opening up schools and daycares? France reopened their schools last week and 70 new cases of Covid 19 were found in seven schools forcing them to close them again. A new concern for parents is an outbreak of a inflammatory syndrome in children that is linked to Covid 19. Cases of Inflammatory syndrome  have been diagnosed in 27 states in the United States.

Doctors have warned that many U.S. states have reopened without meeting CDC guidelines. The number of positive cases have spiked already in 14 states over the past few weeks. A rising death toll in the U.S. hasn’t stop many Americans from avoiding large social gatherings, ignoring social distancing guidelines and refusing to wearing a mask. There is a high probability that another spike in cases and deaths will dampen consumer spending.

Lastly baby boomers, (60 to 75 years old) have the most disposable income and also face the highest risk of dying from Covid 19. As a baby boomer, I will be avoiding the all travel and leisure activities.

• Air travel
• Cruising
• Resorts and hotels
• Movie theatres
• Sit down restaurants
• Casinos
• Theme parks
• Sporting events
• Concerts

I will avoid anywhere there is large gathering or requires close personal contact.  I am not going to risk my life to get a haircut or go to my local pub to watch a sporting event. It is just a matter of time when Wall Street profits will be affected by lack of consumer spending.

 

Some investing ideas to endure this recession

The latest economic numbers seem to confirm my view that this recession is going to be worse than the last great recession. The U.S. first-quarter gross domestic product report of -4.8% underscores the economic devastation of the Covid 19 virus.  The contraction in GDP was the largest drop since late 2008. Keep in mind that shelter in place and social distancing was only started in March in North America.

The drop of -7.6% in personal consumption was double the rate during the worst point of the global financial crisis. Other areas of the economy that resemble the last recession is a decline of 8.6% in business fix capital spending. The U.S. unemployment claims hit 30 million in just six weeks and an estimated 9 to 14 million more claims were not made because of online claim application systems were crashing.

The great recession of 2008-09, taught me that interest rates are likely to stay lower for longer. The Federal Reserve didn’t raise interest rates until Dec 2015 keeping zero interest rates for 7 years. The current yield of 10 year U.S. Treasuries has fallen to half a percent, a level not seen during the last recession.

Pension plans and retired seniors require monthly income however current yields on treasuries, gov’t and corporate bonds are not going to be enough to meet their needs. It may take another decade before interest rates get back to a more normal level. I believe that investors will have no choice but to switch from bonds and buy dividend paying stocks.

Unfortunately, many companies are preparing for a long and deep recession by cutting their dividends or temporary eliminating them all together. For example, Royal Dutch Shell cut its dividend for the first time since World War II by 66%, General Motors suspended their dividend and share buybacks.  I have found many companies in a variety of industries that have also cut or suspended their dividends.

Mutual funds and ETFs (exchange traded funds) that specialize in investing in dividend stocks will have to adjust their holdings as more companies could join the dividend cutting or suspension club.

Why has the month of April seen the best stock market returns in decades.

• Some money managers are betting that the economy will rebound in third quarter of this year.
• Pension funds are rebalancing their portfolios by reducing their bond holding and buying stocks.
• The earlier than expected reopening of the economy is making investors more confident to buy stocks.
• Preliminary results that the drug Remdesivir reduces the recovery time for patients with the coronavirus and a hopeful development of a vaccine increased investors enthusiasm for stocks.

In my opinion, this looks like a sucker rally. The average recession lasts for about 11 months and the great recession that started in 2008 lasted for 18 months. Plus, medical experts predict that a second wave of this virus will hit in the fall.  Japan and Hong Kong have already seen a small second wave of the virus after reopening parts of their economies. I am in no rush to jump into this uncertain market. 

Looking back at the last recession, there are two sectors that I would avoid: energy (XLE) and financials (XLF), both underperformed the overall S&P 500 illustrated by the chart below which shows the performance of these two sectors from Jan 2008 until May 2020.

Two sectors that outperformed the S&P 500 during the same period were technology (XLK) and healthcare (XLV) illustrated in the chart below. Please note however, Amazon is not considered a tech stock but is included in consumer discretionary (XLY).

Stock pickers may have an edge during this recession. Over the past 10 years, the technology sector has outperformed the overall market thanks to the FAANG stocks. Individual investors who over weighted their portfolios with Facebook, Apple, Amazon, Netflix and Google had higher returns than most index and exchange traded funds.

I use a combination of owning some individual stocks and sector ETFs in my portfolio. Here are some telecommunication and pharmaceuticals stocks that are on my watch list which offer some safety and high dividend yields.

• AT&T (Ticker: T) yields 6.9%,
• Bell Canada (Ticker: BCE) yields 6%
• Orange (Ticker: ORAN) yields 6.5%
• Glaxosmithkline (GSK) yields 6%
• AbbVie (ABBV) yields 5.6%.

Common sense tells me that consumers will not be traveling, going to sporting events, movie theaters, theme parks, restaurants or concerts anytime soon. Many business can’t make a profit with current social distancing guidelines. It means that airlines will have to increase prices, many of your favorite restaurants will disappear and shopping online with curbside pick up will be the norm.

Warren Buffett has said “Never bet against America” and yet he is  holding on to mountains of cash waiting to buy. Sound advice during these turbulent markets. 

 

 

 

Signs that this recession will be more severe than 2008-09

 

The last time we had zero interest rates was during the great recession of 2008-09. If you are a movie buff, that was one scary horror movie. Unfortunately, the sequel maybe even scarier. The plot, so far, is similar in many ways. The world faces a major crisis with high unemployment, massive government spending (bailouts), zero interest rates and central banks printing money.

How do you make a horror movie scarier than the original? The writer has to intensify the plot line and add some terrifying developments not seen in the original movie.

• This crisis affects the whole world with every economy feeling the pain.
• The percentage of people unemployed could be worse than the great depression of the 1930’s (25% or more)
• The government stimulus package was in the billions last time and now in the trillions with more to come.
• Central banks are buying huge amounts of government debt and now are buying low grade corporate debt. (Even some junk bonds)

More terrifying developments

• Although tragic that many consumers lost their homes in the last recession, small business failures will have a more negative effect on the economy. Small businesses are responsible for employing 48% of the U.S. workforce and have generated 65% of net new jobs over the past 17 years. The unemployment rate will be higher for longer.
• Consumer spending accounts for 70% of economy growth. Unemployed consumers will have less money to spend. Plus, images of body bags and continuing daily death counts will inhibit consumers from risking their lives to go out and even spend money.  The last recession had little impact on travel, movie theaters, theme parks, sporting events, restaurants and bars. These businesses will continue to suffer until consumer confidence returns
• The last recession didn’t produce long lines at grocery stores. Disruption of food production was unheard of and has become a real concern as some meat packaging plants have been forced to temporarily shut down. A shortage of fruit and vegetables could be next as migrate workers could face high rates of infection.
• Normally a drop in oil prices has a positive effect on consumer spending but a total collapse does more harm than good. Oil companies have started to suspend capital expenditures, cut dividend payouts and reduced their workforce. Countries which depend on revenues from oil production will face large budget deficits making it harder for them to stimulate their economies.
• Food banks are experiencing a surge from a high number of people who have never needed their help before. Images of long line ups are popping up all over the United States.

 

 

• There was a coordinated world response to the financial crisis which is sorely lacking in dealing with this pandemic. Too many leaders are more concern with keeping their jobs than going their job.

 

 

The spread of misinformation by some world leaders and some media outlets could cause a second wave of this virus. The image below is an example of irresponsible leadership. Some of these people will get sick and some may even die. However, they will also spread the virus to their families, their friends and critical medical personal at hospitals. Being a Canadian, I hope that a change in leadership in the United States will help the North American economies recover sooner rather than later.

How will this horror movie end? My best guess is when a scientist shows up holding a treatment in one hand and a vaccine in the other!

 

Stay tune for some investment ideas during these turbulent times.

 

 

 

Op-Ed: I am less optimistic of a V shape recovery

It is difficult to write a financial blog when the death count from Corvid -19 keeps going up every day. However, the big question is when we will get back to normal? I think you have to look back in history at the Spanish flu of 1918 for some clues.

Policies used to reduce the spread of Corvid -19 are similar to what was done to reduce the spread of the Spanish flu. Unfortunately, isolation, quarantine of infected people, use of disinfectants and limitations of public gatherings were applied unevenly. (Sounds familiar?) Back then, the Spanish flu came in waves and infected 500 million people, about a third of the world’s population. It lasted from Jan 2018 until Dec 1920 and somewhere around 50 million people died.

I fear that world leaders are more worried about keeping their jobs then doing their jobs. Their slow reaction of issuing stay at home orders for non-essential workers will prolong the spread of the Corvid-19. In my humble opinion, a V-shape recovery is overly optimistic.

 

The roll out of government programs to get money into the hands of individuals, small business and bailouts of large corporation will take a long time to be effective.

• Many government websites are crashing from the number of requests for aid.
• Many small businesses will go bankrupt before the relief funds arrive.
• The aid to  businesses are in the form of loans which add extra operating costs, this will hider rehiring employees.
• The United States had 16.5 million unemployment applications over the past three weeks which is just a small sampling of what is to come.
• This is a world recession so leisure and travel will be impacted for a long time. Plus business travel, conventions and hotel stays will be limited.

The best case scenario would be a slow and cautious U shape economic recovery. What is needed is accurate testing of people who would be allowed to go back to work.  Also, a quick development of a vaccine and an effective treatment for people who are infected with the virus.

The worse case scenario would be an L or W shape economic recovery. Rushing to reopen the whole economy could cause a second wave of the Covid-19 outbreak, killing thousands of more people and shutting down businesses all over again.

I am not investing based on stock market experts who tend to be overly optimistic. I am listening to the doctors who specialize on disease control. Their timeline of a vaccine is 12 to 18 months away. Therefore this recession will probably last around 18 to 24 months. The chart below illustrates that happen to the S&P 500 during the last recession of 2008-09:

This chart illustrates the past two years of the S&P:

I am not an expert on charts but I think that there is a good chance that what we are seeing is a bear market rally. There is more bad news coming that hasn’t been priced into stock prices. I would suggest that you play it safe and sell into stock market rallies and hold on to your cash.

Save lives and stay at home. The life you save may be your own!

 

 

 

 

 

Why interest rate cuts won’t save the economy or the stock market

This week, after an emergency call with central bank leaders around the world, the Federal Reserve cut interest rates. A somewhat surprising move coming about two weeks before its next scheduled meeting. It was the first emergency rate cut by the Fed since the financial crisis in 2008 and a strong signal that the central bank is taking the threat of the virus seriously.

The problem is that cutting interest rates, which were already very low, isn’t likely to do much to solve the kinds of economic problems posed by a pandemic.

Think of it like this: if more people get sick, more people can’t work. Businesses become less productive and ailing workers without paid sick leave don’t earn money. (They might also go to work sick.) Meanwhile, others who are either sick or afraid of catching the virus stop going out and spending money.

Restaurants, movie theaters, hotels and airlines have already experienced less revenue. More workers will lose their jobs temporary, so fewer people will have money to spend. Its classic cause of an economic downturn since the U.S. economy depends on consumers’ spending money.

Crucially, all the people out of work will still need money for food and housing costs. The new record-low mortgage rates aren’t going to solve that immediate problem, especially not for renters. Nearly 4 in 10 adults would have trouble handling a $400 emergency expense, according to a recent study from the Federal Reserve.

An economic downturn is coming, the problem is no one knows how severe it will be and how long will it last. China’s economy took a big hit and government took some draconian measures that can’t be done here in North America.

Some precautionary financial steps

1. Top up your emergency fund
2. Living pay check to paycheck: then get a line of credit or increase the limits on your credit cards
3. Start looking for day care services in case of school closures
4. Don’t put any new money into the stock market until the coronavirus is contained. (Too early to buy the dips, however make an investment shopping list)
5. Get ready to refinance your debt, but keep in mind that there could be more rate cuts.

Why you shouldn’t panic over a decline in stock market prices

The chart below illustrate what happen to stock market values during the financial crisis. (Jan 2008 until Mar 2011) The left side of the graph shows the market hit bottom in Mar of 2009 and recovered most of it losses by Mar of 2011. I not suggesting that this current market downturn will get that bad.

Keep in mind that the stock market has gone straight up since the market hit bottom back in march of 2009 with a few little blips. The chart below illustrates that the current downturn could be just another blip. This virus will only have a temporary effect on the economy and consumer spending will recover. People will travel again, visit theme parks, eat out and business will be profitable again.

Back in September, I wrote a post to reduce some of your risk and move some money into dividend paying stocks. I hope that you followed my advice.  Dividend income should help to offset some of the fall in value of your portfolio.

 

 

 

Is your emergency fund ready for the next recession?

Around this time last year, a U.S. government shutdown forced many  government workers to go into debt to pay bills and some even had to go to food banks to make ends meet. They eventually got back pay but it is a good example of why you need an emergency fund. According to a recent survey from Charles Schwab, 59% of Americans say that they are living paycheck to paycheck, despite the fact that the U.S. economy has experienced the longest expansion period in its history.

I have no idea when the good times will end. However, financial experts recommend having an emergency fund in case you lose your job. The financial rule of thumb is to cover 3 months of living expenses if you qualify for unemployment insurance and 6 months if you are self-employed. I am a bit surprised that they also recommend  the need to have funds available for unexpected car or appliance repairs. People who own homes or cars should include such repairs in their annual budgets.

I would recommend making two budgets, one for when you have a job and an emergency budget for when you lose your job. Divide your budget into needs, wants and savings. Needs are expenses you can’t avoid, like mortgage, rent, car loans, food etc. Wants are things you could do without if necessary, like clothes and entertainment. Saving for retirement, college or extra debt payments should also be excluded from your emergency budget.

Once you calculate your absolute bare bones budget, you can start to put money aside every month into an emergency saving account. With tax season just around the corner, you could jump start your savings but including any expected tax refund.

Tips for people living paycheck to paycheck or for those that can’t save fast enough

• Apply for a secured line of credit if you own your own home
• Don’t own a home, then apply for an unsecured line of credit
• Use a line of credit to pay off your credit card balances and put the interest savings into an emergency savings account.
• Worse case scenario: ask your credit card company to increase your credit limit.

Going into debt is not a great option but it is better than losing your home or having to sell your car.

 

Do you know the fable of the ant and the grasshopper? In essence, the ant spends all summer gathering food for the winter while the grasshopper sings and fiddles the summer away. When winter comes the Grasshopper has no food and found itself dying of hunger, while it saw the ants distributing corn and grain from the stores they had collected during the summer.

A recession will come, so be the ant and not the grasshopper!

Is it time to switch from Bonds to dividend paying stocks?

What are the risks facing us in the next year or two? The inversion of the yield curve which has happen on three separate occasions has me worried. It signals more stock market volatility, it is a sign that the bond market fears subpar economic growth and that a trade war could cause a global recession.

Historically an inverted yield curve has been a reliable, though not perfect, predictor of a recession. Each of the last five recessions was preceded by the two and 10 year Treasury yields inverting. (the two year yield is higher than the 10 year yield)

So, is the Bond Market Insane?

We now have $17 trillion worth of negative interest rate bonds, mostly in the sovereign bond space. That is about 25% of the entire bond market and 43% of bonds outside the US. In simple terms, you buy a $100 bond but pay $105 for it and you are guarantee to get $100 back when the bond matures. Who in their right mind would buy an investment that if held to maturity would lose money?

There has never been such an animal in the classification of bonds. Until a few years ago, traders and investors around the world would have considered negative rate bonds as imaginary as a children’s fairytale.

Mark Grant wrote this about negative interest rates in Europe:

While the European Union is not creating “Pixie Dust Money,” at the ECB, and then buying their own nations’ sovereign, and corporate debt, to purposefully hurt the financial markets, or the United States, that is exactly the “collateral damage,” that they are causing. The nations of the EU cannot afford to pay for their budgets, or their social programs, so the ECB has moved down their borrowing costs to less than zero, in most cases.

Check out their 5-year sovereign debt yields:

Why I am reducing my bond holdings and switching to dividend paying stocks.

1. Since I am retired, the recommended withdraw rate from my retirement account is 4%.  Interest from bonds are not meeting my needs.
2. Dividend paying stocks will lose some value during the next recession but less than the overall stock market. Plus, I will get paid to wait for the stock market to recover.
3. In Canada, the dividend tax credit increases my after tax return by 25% over bonds.
4. The next recession could be extra long because Central banks have already lowered interest rates. They will have less tools to stimulate the economy when a recession hits.
5. The yield of both Canadian & U.S. 10 year bonds are below inflation which reduces the value of money over time.

 

Telecommunication companies like AT&T (Ticker: T) and Bell Canada (Ticker: BCE) have dividend yields of 5.7% and 5.08% which are much higher than bond yields. Some Canadian banks also have dividend yields in the 5% area and they continue to raise them. (ticker symbols:  BNS & CM).

These are not recommendations but examples to illustrate that they are a wide variety of dividend paying stocks with higher yields than bonds. They are not recession proof but do provide a steady income stream. Keep in mind that even cash isn’t safe because inflation will over time reduce its purchasing power.

 

 

 

 

 

 

 

 

Opinion: The Fed cutting interest rates could be a big mistake

Stock market watchers are expecting a rate cut this week because they believe that the U.S. economy is experiencing a slowdown. Second quarter GDP growth was 2.1% which is lower than the 3.1% growth rate during the first quarter. However, consumer spending rose 4.3% despite the fact that tax refunds were smaller than previous years. The GOP tax cuts did increase the weekly take home pay for consumers which accounts for some of the strong spending.

Growth deceleration in the second quarter was due mostly to tariffs and a fear of a global slowdown.  China’s economic growth has slumped to its lowest level in nearly three decades due to the prolonged trade war with the United States. However, the biggest drag on the U.S. economy has been a slump in business investment which was down 5.5 percent.

It is hard for corporations to spend money with Trump’s tariff threats on most of its trading partners. The new NAFTA or USMCA hasn’t even been approved by Congress; then add the uncertainty of a smooth Brexit (Britain leaving the European Union) and you a recipe for a slowdown in business spending.  In reality the Trump administration is partly to blame for the slump in world economic growth.

In order for the Trump administration to win the trade war they need interest rate cuts in order to lower the value of the U.S. dollar so that their tariffs are more effective. China can easily lower the value of their currency compared to the U.S. because the Federal Reserve is an independent agency.

Why I believe that lowering U.S. interest rates is a bad idea!

1. Trump has relentlessly used social media to criticize the Fed. To remain independent, the Fed has to resist political pressure.
2. Unemployment is at the lowest level in decades; the economy doesn’t need more stimulus.
3. Lowering interest rates will enable Trump to pursue a more aggressive use of tariffs which in turn will further slow world economic growth.
4. Cheap money will allow corporations to buy back more of their shares adding debt to their balance sheet.
5. Low interest rates will encourage more wasteful government spending, adding to the already large national debt.
6. Pension plans will get less interest on fixed income investments making it more difficult to meet their monthly commitments.
7. Consumers will get less interest on their savings accounts.

Conclusion: Cutting interest rates could make matters worse. It could prolong the trade war with China and enable the Trump administration to actually follow through with threats of imposing more tariffs on their other trading partners.

 

 

 

 

 

 

 

Reality Check on Trump’s tax cuts and trade deals

Let me start with Larry Kudlow, the Director of the National Economic Council, who said back in April of 2018 that he believes the U.S. tax cuts could generate GDP growth of 5 percent annually for a short time. The U.S. economy did manage a 4.2% GDP growth in the second quarter of 2018 but the annual rate was only 3.1 percent. Sorry, forever Trumpers but Obama had 2.9% GDP growth in 2015 without the tax cuts.

GDP growth projections even fooled the Federal Reserve which signaled three rate hikes for 2019 but the slow down in world economic growth has forced the Fed to put any more rate hikes on hold. Market watchers believe there is a strong possibility that the Fed may have to cut rates if U.S. growth continues to slow down.

April fools : Tax cuts will for pay themselves

• The budget deficit grew 77 percent in the first four months of fiscal 2019 compared with the same period in 2018, the U.S. Treasury reported earlier this month. The total deficit was $310 billion up from $176 billion over the same four-month period a year earlier. The cause of the massive increase, according to Treasury officials: tax revenues fell dramatically and government spending increased significantly. Even worse news is that the budget deficit is projected to exceed $1 trillion in 2020.
• The national debt, which has exceeded $21 trillion, will soar to more than $33 trillion in 2028, according to the non-partisan Congressional Budget Office (CBO). By then, debt held by the public will almost match the size of the nation’s economy, reaching 96 percent of gross domestic product, a higher level than any point since just after World War II and well past the level that economists say could court a crisis.

Trump campaigned on a promise to shrink the country’s trade deficit, arguing loudly during campaign stops before and after taking office that bad trade deals have allowed other countries to take advantage of the United States. Trump imposed tariffs as a way to reduce the trade deficit with America’s trading partners.

April Fools: Imposing tariffs will reduce the U.S. trade deficit

The U.S. trade deficit hit a 10-year high in 2018, growing by $69 billion, according to figures released March 6 by the Census Bureau. Trump’s constant verbal blasts and a number of arm-twisting PR stunts focused on efforts to revive American manufacturing and reduce dependence on imported goods such as steel and other materials failed to produce any meaningful results.

Trump promised to scuttle all those bad trade deals and replace them with pacts that would re-energize our country’s manufacturing sector. Very little has happened on any of those items during the past two years.

Yes, Trump pulled the United States out of the Trans-Pacific Partnership and renegotiated the North American Free Trade Agreement, both of which he called some of the “worst” deals”, and he’s currently pursuing separate deals with China and the European Union.

It’s important to note, however, that Trump has signed just one new trade deal, with South Korea. The NAFTA replacement, known as the US-Mexico-Canada Agreement, still needs to be approved by Congress and lawmakers on both sides of the aisle have raised concerns. Canada and Mexico will not ratify the new agreement unless the U.S. remove the tariffs on steel and aluminium

So far, engaging in trade wars with just about any country America does business with has not delivered promised results of more jobs for U.S. workers. Companies are not relocating manufacturing plants back to America.