Monday Market Movement – Slow Week, Lots of Action!

This was not a complicated premise, folks – no one wins trade wars.

Trade Wars are heating up!

With Trump's tariffs set to take effect on July 6th, our former allies and trading partners are responding with tariffs of their own and, as we expected, that's not getting a good reaction from the stock market.  This was not a complicated premise, folks – no one wins trade wars – only psychopathic egotists and their psychophantic followers think otherwise. Unfortunately, those are the people in power in America

The EU announced $300Bn worth of additional tariffs this weekend in retaliation for tariffs on their automakers in a written statment to the Department of Commerce (in other words, VERY serious) which pointed out what everyone but Trump seems to know – that European auto brands represent 25% of US-based auto production (4.5M cars worth $160Bn or about 30 Harley-Davidsons), providing jobs for over 1M Americans.   

Japanese automakers account for another 1/4 of US production and another 1M US workers and, in fact, the "foreign" manufacturers make more cars and employ more Americans than Ford, GM, Chrysler and Tesla combined.  Are there ANY US auto plants in China? No.  In Japan?  No?  In fact, Ford (F) employs less than 100,000 (out of 2M) production workers in other countries.  Imagine how hypocritical our trade posturning looks to people who are actually aware of the global situation? 

Imagine how embarassing it is when your elected leader goes off on factless tirades launching baseless accusations at supposed allies and engaging in policies that are nothing but detrimental to the Global Economy…  We are used to having Presidents who stayed awake in school or at least learned something about the World along the way to the Presidency – being governed by effectively a selfish, clueless 5 year-old is a new experience for all of us.  Too bad it has real-life repercussions.

Unfortunately, this trade tirade is going to have devastating Global repercussions.  BMW estimates Trump Tariffs will cost it 20% of their profits in 2019 and Mercedes and Volkswagon are projecting 10% losses but moving more plants to the US would not make it better as they would be spittlng certain production lines for no logical reason – making production less efficient.  GM has already warned that they will be hurt by the trade war more than they will be helped and Trump has called the truth unAmerican but more and more companies will soon announce scaled-back earnings as the Trade Wars escalate.

It took the US over 70 years to build the WTO (World Trade Organization) and establish free trade with hundreds of nations.  Trump's policies are a step backwards into chaos and it's not just economic repercussions that he's subjecting the US to but there will also be a long-lasting political backlash that can have devastating consequences.  Mexico, for example, elected a far-left President by a landslide this weekend so Trump has, in less than two years, driven a staunce Capitalist ally of the US back to being a Socialist nation with tepid relations – at best.

Whether Trump is doing all this to please Putin or not, Putin is certainly pleased as its now US against the World and, if this idiocy knocks the World Economy back into recession – there's going to no question as to who is the villain in that drama.  While Trump asks OPEC to increase oil prodcution, he fails to understand that 1/3 of our imported oil comes from Mexico with not even 1/10th coming from OPEC but Trump sucks up to OPEC and treats our neighbor like dirt – what could possibly go wrong?

Speaking of things going wrong – Consumer Credit Card Debt is already passing $1Tn with another $1.4Tn in Student Loans outstanding but it's the Credit Card Debt that's alarming as the average interest rate is 16.8% and that will go well over 18% by next year as the Fed tightens, costing American Consumers $180Bn/year in interest alone!  That's up 10% since Trump took office, meaning most of the gains in Consumer Spending have been borrowed from our futures selves based on a lot of promises of great days ahead – so why worry about the present, right?

The country has added $1Tn worth of debt in the first 6 months of 2018 so I am already tired of all the "winning" – especially if we have to pay that bill down the road but, again, the future is so bright we can all ignore the present, right?  By the end of this year, the ratio of federal debt to the United States' gross domestic product will reach 78%,according to the CBO, the highest ratio since 1950.  The debt is projected to grow to 96% of GDP by 2028 before eventually surpassing the historical high of 106% it reached in 1946.

In 1946, we spiraled into debt in a final push to win WWII.  In 2016 we began spiraling into debt in a final push to win the war on the poor but the battle still rages on and Trump and the Republicans are not going to rest until every single Dollar is safely in the hands of the Top 1%.  Good luck to the rest of you!

We're still watching for the bounce lines we failed to hold last week but it's doubtful we'll take them back with a holiday on Wednesday as well as the rapidly worsening macro environment.  I doubt Trump is going to give up golfing to make any last-minute trade deals so we'll simply have to watch and wait to see how things shake out in a relatively busy week with PMI and ISM later today, Durable Goods and Factory Orders tomorrow, ISM Services and Fed Minutes on Thursday and Non-Farm Payrolls on Friday.

There will be lots going on but very few people around to react to it.

Be careful out there!