(B)(N) Extreme Economics – Trade Wars

Reset! Say Please.

Drama. The United States says that it’s been hard done-by in the world-at-large and wants to correct that folly, excuse me, that injustice, by trimming imports with higher tariffs and expanding exports with an artificially inflated US dollar. Oh well. Nationalism has a steep price to pay and that’s been well-known since Adam Smith and field-tested many times since, always to find that money does not have a nationality.

About fifty companies are on the notably short-list (UBS Factsheet) for downgraded earnings but there are also thousands of farmers and small producers of agricultural products, primarily pork and soybeans, who are losing their livelihood because the US does not have what the world wants at the world price.

Almost half of these companies depend on semi-conductors manufactured in China and Taiwan and the balance are in materials, industrial products (such as Boeing and 3M), energy, health care and consumer products as both importers and exporters and, of course, some US manufacturers will find it more profitable to buy steel in Canada and Mexico and import only their finished products to the US (CNN, June 26, 2018, Largest US nail manufacturer ‘on the brink of extinction’ because of the steel tariffs).

Moreover, the stock market is currently paying a premium of 40× earnings for these companies; that is, $40 now for $1 of earnings next year and maybe the year after and an aggregate 1.5% dividend yield on 60% of those earnings of about $78 billion last year.

And, on balance, the market has also been waiting for better yields on government bonds and praying for rain since 2014 (TheStreet, June 25, 2018, 50 Stocks That Could Be Shredded If a U.S. Trade War With China Ignites).

But we’re prepared for the market to collapse under the weight of its own money and we’ve tightened-up our stop/loss prices on those equities and others because there are always lots of things to buy at lower prices.

And the US does not seem to know that either; this market is less than 10% of our World Trade Portfolio and has returned an average of 25% per year since 2012 and more than quadrupled the worth of our investment with no risk to our capital and it will do it again this year come high-water or the low tide Made In America; moreover, the world market is much richer than the US and there are many countries and companies not in this survey in both the US and abroad which will benefit from these trade embargoes and their fanciful prices; for more details, please see the Exhibit below (and click on it and again to make it larger as required):

Exhibit 1: (B)(N) Trade Wars – The (B)-Class Portfolio

For more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

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Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”). The Canada Pension Bond®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.