The Federal Reserve Board raised rates this week just as expected. The Fed Funds rate was raised 0.25%. The Fed Funds rate is the rate banks charge to loan money to member banks. Fed Chairman Jerome Powell announce this week that “the main take away is that the economy is doing very well” and “ most people who want to find jobs are finding them, and inflation and interest rates are low”.
This is a very strong signal that the bull market will continue. This is the first time in over ten years that there are more jobs available than people looking for jobs. Wages haven’t started increasing yet but that will not be far behind. Wage inflation always lags.
So why did the market sell off today if we are still in a bull market? China has threatened tariffs in retaliation to tariffs charged against Chinese imports to the US. Let me give you some examples of some Chinese and Canadian tariffs against the United States before any Trump tariffs were ever talked about. China in the 1990’s allowed Motorola to come into China and establish a wireless mobil phone network only to steal all of Motorola’s technology and kick them out of China. Then put a 150% tax on all hardware imported into China from the US. Canada has had a 270% import tax on all US dairy products for over 20 years and all Canadian dairy products imported to the US are subsidized by the Canadian government. Oil companies and oil service companies have struggled for years with this. There is no way US dairy farmers can compete fairly with this.
These are just small examples of the “Unfair” trade practices going on today that have put tens of thousands of US workers out of jobs. Let’s not even begin to talk about Lumber and plumbing supplies coming out of Canada and the thousands of other technologies, patents and copywrite thefts out of China.
I am still not concerned about a trade war with China. We have already lost that trade war. It is now only a matter of winning back lost ground. Think of all of the Coach purses that have been purchased here in the US and then sent to China and Canada and sold on the black market. This has got to stop and I for one am glad to see a US president with enough of you know what, to finally negotiate hard and put an end to other countries taking advantage of the US and costing us jobs only to help foreign economies. I am not worried because I believe there may be a little pain in the short term but it will only prove to help US corporations in the long run. One perfect example is Harley Davidson Motorcycles. In the 1970’s Honda flooded our market with very cheaply built motorcycles, many of them two cycle engines where oil had to be mixed with the gasoline to run. The Japanese government subsidized Honda as well to export to the US. This practice put Indian Motorcycles completely out of business and crippled Harley Davidson. It wasn’t until we imposed equal and fair tariffs did it save Harley Davidson from collapsing completely as well. This also forced Honda to compete by making better motorcycles and now the consumer had much better choices.
Tariffs can be a very effective tool in negotiating trade. I believe President Trump is a master negotiator and will bring fair trade back to the United States of America. There will be some pain in the short term but in the long run it will work out in our favor.
Your Boring Money Manager,
Mowery Capital Management
We manage risks first
Then we buy quality
And only then do we seek to provide a reasonable return
At the time of this writing:
Dow Jones 24,966.40
S&P 500 2,773.49
Two Year Treasury Yield 2.38%
Ten Year Treasury Yield 2.89%
Thirty Year Treasury Yield 3.08%
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Sources: The Capital Group. Zacks, Seeking Alpha, CNBC, CNBC guest and contributors, Jim Cramer, Wall Street Journal, Investor’s Business Daily, and Financial Times. Special thanks to Wikipedia and MarketWatch for historical facts. If I have inadvertently missed any other sources please accept my apologies. No assurance can be made that profits will be achieved or that substantial losses will not be incurred in connection with any investment. All investments involve varying degrees of risk including loss of capital. This information should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any individual investment or strategy. PAST PERFORMANCE IS NO GUARR ANTEE OR INDICATION OF FUTURE RESULTS